Limited Partnership Fund, LPF






Limited Partnership Fund, LPF
                                                                                                                         
Limited Partnership Fund LPF

On 31 August 2020, the Hong Kong Limited Partnership Funds Ordinance (Cap. 637) (“LPFO”) came into effect as a modern and effective legal system to facilitate the establishment of onshore funds in Hong Kong in the form of limited partnerships, i.e. Limited Partnership Fund ( Limited Partnership Fund, referred to as "LPF"). Judging from the current market reaction, it is good news for Chinese investors. When market participants explore investment opportunities in the Guangdong-Hong Kong-Macao Greater Bay Area , they often link LPFO and cross-border Wealth Management Connect as complementary policies.

Cayman Exempted Limited Partnership ("ELP") has always been the best choice for Chinese investors to set up offshore private equity funds. However, after the establishment of the LPF system in Hong Kong, it provides investors with a more diverse and rich selection of offshore fund sites. This development will consolidate Hong Kong's leading position in Asia's asset management and private equity investment.

"What is a limited partnership fund?"
The applicable scenarios of limited partnership fund companies are very wide. In addition to being the carrier of venture capital and private equity investment funds, they can also be applied to M&A funds, real estate funds, credit funds, investing in cryptocurrencies and virtual asset funds, etc.

"Characteristics of Limited Partnership Funds"
The LPF basic structure should include a GP, at least one LP, an investment manager, an anti-money laundering officer and an independent auditor.
  • General Partner ("GP")
The LPF must have a GP who is responsible for the ultimate management and control of the fund, and assumes unlimited legal responsibility for the fund's debts and obligations. A GP can be a natural person, a private company, a limited partnership or a limited partnership fund. GPs can choose to act as investment managers themselves and are responsible for day-to-day fund management. Otherwise, the GP must designate another person or firm for the investment manager role.
  • Limited Partner  ("LP")
Funds must have at least one LP at the time of registration. LPs do not have day-to-day management rights or control over fund assets, but have the right to participate in fund income and profit distribution. As the name implies, the LP's commitment to the fund's debts and obligations is limited to the agreed capital investment. However, if the LP participates in activities deemed to be managing the fund, both the LP and the GP have the opportunity to jointly and individually assume debts and obligations arising from the LP's participation in the management activities.
  • Investment manager
Responsible for performing the day-to-day investment management functions of the Fund. Individuals (Hong Kong residents/companies/registered non-Hong Kong companies) appointed by the GP can serve as the position. If the GP itself meets the requirements, the GP can also serve as the position.
Note: Although the LPFO does not clearly stipulate the licensing requirements for investment managers, according to the Hong Kong Securities and Futures Ordinance (Cap. 571) and the Circular to Private Equity Firms Seeking Licensing, if an investment manager is Those who conduct asset management activities such as fundraising, financing, sales and investment management regulated by the SFC in Hong Kong still need to apply for an asset management license from the SFC.
  • Anti-money laundering officer
The responsible person must be appointed by the GP to carry out anti-money laundering measures regarding customer due diligence and record keeping. The person in charge is ultimately responsible for complying with the anti-money laundering obligations set forth therein.
The responsible person can only be: (1) an institution authorized by the Hong Kong Monetary Authority, (2) a company licensed by the SFC, (3) an accounting professional, or (4) a legal professional.
  • independent auditor
LPF's financial statements must be audited annually by an independent auditor. The auditor should be a practicing unit defined by the Hong Kong "Professional Accountants Ordinance" and must be independent from the GP and investment manager.

"Tax Concessions "
Funds established under LPFOs have unique tax advantages.
For example, an exemption from profits tax is granted as long as it meets the definition of a "fund" in Section 20AM of the Inland Revenue Ordinance and meets the specified conditions under the Unified Fund Exemption System.
Funds registered under the LPFO will not be subject to any share capital registration fee and/or stamp duty on the distribution of profits and contributions to, transfer or withdrawal of partnership interests into or out of the fund.
In addition, the Inland Revenue (Amendment) (Tax Concessions with Carried Interest) Bill 2021 (the "Bill") was passed by the Legislative Council on 28 April 2021. The Bill seeks to amend the Inland Revenue Ordinance (Cap 112) to implement a 0% profits tax rate on qualifying carried interest in qualifying private equity funds, while 100% qualifying carried interest for salaries tax will not be accounted for Income from employment for the purpose of calculating salaries tax. The preferential tax treatment will be retroactive and will apply to eligible carried benefits received or accrued by the eligible recipient on or after April 1, 2020.

"Policy to Encourage Funds to Re-register and Return to Hong Kong"
On July 2, 2021, the Hong Kong government gazetted and announced a new fund re-registration mechanism to facilitate the re-registration of offshore funds to Hong Kong and register as LPFs.
Under this mechanism, the fund after the re-registration is still the same legal entity, and the re-registration to Hong Kong will not damage or affect the identity or continuity of the fund when it was established or registered before. And the contracts signed and resolutions passed before the re-registration to Hong Kong will not be affected, nor will the rights, functions, responsibilities, obligations and properties of the fund be affected. The fund company does not need to cancel the original fund, nor does it require investors to transfer their interests from the original fund to the fund operating in Hong Kong. After the re-registration, these funds will be deregistered in the original place of registration, and at the same time have the same rights and obligations as other newly established LPFs in Hong Kong.
This new re-registration mechanism has been approved by the Legislative Council and will take effect from 1 November 2021.

Limited Partnership Fund LPF

On 31 August 2020, the Hong Kong Limited Partnership Funds Ordinance (Cap. 637) (“LPFO”) came into effect as a modern and effective legal system to facilitate the establishment of onshore funds in Hong Kong in the form of limited partnerships, i.e. Limited Partnership Fund ( Limited Partnership Fund, referred to as "LPF"). Judging from the current market reaction, it is good news for Chinese investors. When market participants explore investment opportunities in the Guangdong-Hong Kong-Macao Greater Bay Area , they often link LPFO and cross-border Wealth Management Connect as complementary policies.

Cayman Exempted Limited Partnership ("ELP") has always been the best choice for Chinese investors to set up offshore private equity funds. However, after the establishment of the LPF system in Hong Kong, it provides investors with a more diverse and rich selection of offshore fund sites. This development will consolidate Hong Kong's leading position in Asia's asset management and private equity investment.

"What is a limited partnership fund?"
The applicable scenarios of limited partnership fund companies are very wide. In addition to being the carrier of venture capital and private equity investment funds, they can also be applied to M&A funds, real estate funds, credit funds, investing in cryptocurrencies and virtual asset funds, etc.

"Characteristics of Limited Partnership Funds"
The LPF basic structure should include a GP, at least one LP, an investment manager, an anti-money laundering officer and an independent auditor.
  • General Partner ("GP")
The LPF must have a GP who is responsible for the ultimate management and control of the fund, and assumes unlimited legal responsibility for the fund's debts and obligations. A GP can be a natural person, a private company, a limited partnership or a limited partnership fund. GPs can choose to act as investment managers themselves and are responsible for day-to-day fund management. Otherwise, the GP must designate another person or firm for the investment manager role.
  • Limited Partner  ("LP")
Funds must have at least one LP at the time of registration. LPs do not have day-to-day management rights or control over fund assets, but have the right to participate in fund income and profit distribution. As the name implies, the LP's commitment to the fund's debts and obligations is limited to the agreed capital investment. However, if the LP participates in activities deemed to be managing the fund, both the LP and the GP have the opportunity to jointly and individually assume debts and obligations arising from the LP's participation in the management activities.
  • Investment manager
Responsible for performing the day-to-day investment management functions of the Fund. Individuals (Hong Kong residents/companies/registered non-Hong Kong companies) appointed by the GP can serve as the position. If the GP itself meets the requirements, the GP can also serve as the position.
Note: Although the LPFO does not clearly stipulate the licensing requirements for investment managers, according to the Hong Kong Securities and Futures Ordinance (Cap. 571) and the Circular to Private Equity Firms Seeking Licensing, if an investment manager is Those who conduct asset management activities such as fundraising, financing, sales and investment management regulated by the SFC in Hong Kong still need to apply for an asset management license from the SFC.
  • Anti-money laundering officer
The responsible person must be appointed by the GP to carry out anti-money laundering measures regarding customer due diligence and record keeping. The person in charge is ultimately responsible for complying with the anti-money laundering obligations set forth therein.
The responsible person can only be: (1) an institution authorized by the Hong Kong Monetary Authority, (2) a company licensed by the SFC, (3) an accounting professional, or (4) a legal professional.
  • independent auditor
LPF's financial statements must be audited annually by an independent auditor. The auditor should be a practicing unit defined by the Hong Kong "Professional Accountants Ordinance" and must be independent from the GP and investment manager.

"Tax Concessions "
Funds established under LPFOs have unique tax advantages.
For example, an exemption from profits tax is granted as long as it meets the definition of a "fund" in Section 20AM of the Inland Revenue Ordinance and meets the specified conditions under the Unified Fund Exemption System.
Funds registered under the LPFO will not be subject to any share capital registration fee and/or stamp duty on the distribution of profits and contributions to, transfer or withdrawal of partnership interests into or out of the fund.
In addition, the Inland Revenue (Amendment) (Tax Concessions with Carried Interest) Bill 2021 (the "Bill") was passed by the Legislative Council on 28 April 2021. The Bill seeks to amend the Inland Revenue Ordinance (Cap 112) to implement a 0% profits tax rate on qualifying carried interest in qualifying private equity funds, while 100% qualifying carried interest for salaries tax will not be accounted for Income from employment for the purpose of calculating salaries tax. The preferential tax treatment will be retroactive and will apply to eligible carried benefits received or accrued by the eligible recipient on or after April 1, 2020.

"Policy to Encourage Funds to Re-register and Return to Hong Kong"
On July 2, 2021, the Hong Kong government gazetted and announced a new fund re-registration mechanism to facilitate the re-registration of offshore funds to Hong Kong and register as LPFs.
Under this mechanism, the fund after the re-registration is still the same legal entity, and the re-registration to Hong Kong will not damage or affect the identity or continuity of the fund when it was established or registered before. And the contracts signed and resolutions passed before the re-registration to Hong Kong will not be affected, nor will the rights, functions, responsibilities, obligations and properties of the fund be affected. The fund company does not need to cancel the original fund, nor does it require investors to transfer their interests from the original fund to the fund operating in Hong Kong. After the re-registration, these funds will be deregistered in the original place of registration, and at the same time have the same rights and obligations as other newly established LPFs in Hong Kong.
This new re-registration mechanism has been approved by the Legislative Council and will take effect from 1 November 2021.


How can Sino-Rich Securities help you?







       


How can Sino-Rich Securities help you

       
How can Sino-Rich Securities help you?

  • Encourage and support investment managers to identify business development opportunities and provide “one-stop” exclusive services for mainland and overseas investors to set up funds in Hong Kong;
  • Assist in contacting professional service agencies and select suitable partners more efficiently;
  • Provide public relations and marketing opportunities...

  • If you want to know more about LPF, or are looking for a fund manager to serve your LPF, or are interested in becoming an investment manager, please contact our Head of Asset Management:
Cheung Ka Ho, Tel +852 3107 0858,
Email  kaho.cheung@sinorichhk.com .
How can Sino-Rich Securities help you?

  • Encourage and support investment managers to identify business development opportunities and provide “one-stop” exclusive services for mainland and overseas investors to set up funds in Hong Kong;
  • Assist in contacting professional service agencies and select suitable partners more efficiently;
  •  Provide public relations and marketing opportunities...

    If you want to know more about LPF, or are looking for a fund manager to serve your LPF, or are interested in becoming an investment manager, please contact our Head of Asset Management:
Cheung Ka Ho, Tel +852 3107 0858,
Email  kaho.cheung@sinorichhk.com .