This summary provides brief details of the various forms of investment fund vehicle available in the British Virgin Islands. Since the coming into force of the Mutual Funds Act, 1996, (as amended) on 2 January, 1998, funds are now categorized as private funds, professional funds or public funds. It must be borne in mind, however, that the Act applies only to open-ended and not to closed-end funds and that it only regulates administrators and managers of such open-ended funds.
INVESTMENT FUNDS IN THE BRITISH VIRGIN ISLANDS
Clients considering setting up investment funds in the British Virgin Islands may choose from the following range of possible vehicles:
- an International Business Company
- a unit trust
- a limited partnership
The vast majority of British Virgin Islands investment funds are set up as International Business Companies under the International Business Companies Act Cap 291. These are compared with unit trusts in paragraph titled "International Business Companies and Unit Trusts Compared" below, whilst limited partnerships are dealt with in more detail in paragraph titled "Limited Partnerships".
INTERNATIONAL BUSINESS COMPANIES AND UNIT TRUSTS COMPARED
The following is a brief comparison of the main differences between a fund set up as an International Business Company and a fund set up as a unit trust organised under British Virgin Islands law:
i) Whereas an International Business Company is a separate legal entity from the investing shareholders, a unit trust is not. Some of the more important results of this distinction are;
- the shareholders of an International Business Company benefit from limited liability
- the shareholders of an International Business Company have no direct legal or beneficial interests in any of the assets of the company which are instead legally and beneficially owned by the company itself
- the holders of units in a unit trust scheme are the beneficial owners of the trust assets
ii) The capital of an International Business Company may be divided into various classes of shares with preferred or deferred voting, dividend or other participating rights and the company may also create and issue loan capital. Although it is theoretically possible for a unit trust to issue units with unequal rights, this is rare in practice.
iii) As a result of the fact that an International Business Company has the legal status of a separate entity, it enjoys the advantage of perpetual succession. If the shareholders desire to bring the company's existence to an end, they must adopt the statutory winding up procedure set out in the International Business Company Act. This entails;
- filing Articles of Dissolution
- appointing a liquidator; and
- receiving a Certificate of Dissolution from the Registrar of Companies.
In contrast, a unit trust scheme may be brought to an end at any time if all the holders of the units collectively entitled to the entire beneficial interest under the trust, direct the trustee(s) to distribute the assets to them pro rata in satisfaction of their rights under the scheme; and
iv) Subject to certain exceptions, the shares in an International Business Company may only be redeemed if the directors first determine that immediately after the redemption the company will continue to satisfy certain prescribed solvency and liquidity requirements.
In contrast, the manager of a unit trust scheme (which is open ended) will normally be obliged to repurchase the units of holders who request such redemptions, without the need to make any such solvency or liquidity determinations.
LIMITED PARTNERSHIPS
British Virgin Islands limited partnerships are established pursuant to the Partnership Act, 1996 which came into force on 1 January, 1997. A limited partnership is formed in the British Virgin Islands by a general partner and at least one limited partner executing Articles of Partnership and by submitting to the Registrar of Limited Partnerships, a Memorandum of Partnership. The Articles of Partnership do not have to be filed with the Registrar of Limited Partnerships and are really the internal governing document of the partnership dealing with issues such as partnership contributions and withdrawals and the day-to-day running of the partnership.
RECOGNITION OR REGISTRATION UNDER MUTUAL FUNDS ACT
If an International Business Company, a unit trust or a limited partnership fall to be classified as a mutual fund for the purposes of the Mutual Funds Act, (i.e. if they are an open-ended fund structure) then:
- if the vehicle is a private or professional fund for the purposes of the Mutual Funds Act, it will be required to be recognised pursuant to the Act; or
- if the vehicle is a public fund for the purposes of that Act, it will be required to be registered pursuant to the Act.
If you would like further information on the British Virgin Islands Mutual Funds Act or details of how Harney Westwood & Riegels can help you with your mutual fund enquiries, please contact Kieron J O'Rourke.
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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