Comparison of Bermuda, Cayman Islands and British Virgin Islands Funds
Foreword This memorandum has been prepared for the assistance of those who are considering the formation of a fund in an offshore jurisdiction such as Bermuda, the British Virgin Islands ( BVI ) or the Cayman Islands ( Cayman ). This memorandum deals in broad terms with the requirements of each jurisdiction for the establishment and operation of a fund. It is not intended to be exhaustive, but merely to provide brief details and information, which, we hope, will be of use to our clients. We have separate memoranda dealing with each jurisdiction, which can be provided upon request. We recommend that our clients seek legal advice in relation to each jurisdiction on their specific proposals before taking steps to implement them. Before proceeding with the incorporation of a fund in any of the jurisdictions, persons are advised to consult their tax, legal and other professional advisors in their respective jurisdiction. This memorandum has been prepared on the basis of the law and practice as of the date referred to below. Conyers Dill & Pearman October 2013 Page 2 of 11
1. INTRODUCTION As the establishment of investment funds, mutual funds and hedge funds in offshore jurisdictions continues to grow, it is becoming increasingly important to understand the advantages offered by each jurisdiction. Conyers Dill & Pearman has offices in each of Bermuda, the BVI and Cayman and is able to advise on the establishment of a fund in each of these three jurisdictions. The purpose of this comparison is to help our clients identify which jurisdiction best suits their legal and commercial requirements. 2. FUND VEHICLES A fund may be a company, segregated accounts company, unit trust scheme or limited partnership. A fund may be a company, segregated portfolio company, unit trust or partnership. A fund may be a business company, segregated portfolio company, unit trust, partnership or other body. 3. FUND CATEGORIES: UNREGULATED 1. Unregulated Funds E.g. private funds/excluded funds including master funds with less than 20 investors and which do not promote themselves to the public generally. (No requirement that investors be able to remove fund operator(s) (i.e. directors, general partner or trustee as applicable)) E.g. closed ended funds such as private equity funds which are not subject to the provisions of the IFA (defined below) Application fee: zero 4. FUND CATEGORIES: REGISTERED Investment Funds Act 2006 (the IFA ) 1. Unregulated Funds E.g. closed ended funds such as private equity funds and certain overseas funds E.g. private funds set up for a max. of 15 investors and the majority of investors (whether voting or non voting) can appoint or remove fund operator(s) (i.e. directors, general partner or trustee as applicable) (exemption from licensing and registration not available for Master Funds (see below)) Application fee: zero Mutual Funds Law (2012 Revision) (the Law ) 1. Unregulated Funds E.g. closed ended funds such as private equity funds Application fee: zero Securities and Investment Business Act 2010 ( SIBA ) 1. Class A Exempt Funds Open to qualified participants (e.g. sophisticated investors) and investment managers with certain qualifications (see below). No regulatory approval required; filing only. Application Fee: $1,500 Annual Fee: $1,500 1. Registered Funds Set up for min. investment of US$100,000 or interests listed on a recognised stock exchange. Application Fee: CI$3,500/US$4,270 Annual Fee: CI$3,500/US$4,270 1. Private Funds Set up for max. of 50 investors or interests offered on private basis only. Application Fee for Recognition: $1,000 (on or before June 30 in any year; $500 thereafter) Annual Renewal Fee: $1,000 Page 3 of 11
2. Class B Exempt Funds Only open to qualified participants. Application Fee: $1,000 Annual Fee: $1,000 5. FUND CATEGORIES: REGULATED Investment Funds Act 2006 (the IFA ) Mutual Funds Law (2012 Revision) (the Law ) Securities and Investment Business Act 2010 ( SIBA ) 1. Institutional Funds Only open to qualified participants or set up for min. investment of $100,000. Application Fee: $830 Annual Fee: $940 2. Standard Funds Generally retail funds All other funds not otherwise classified or exempted/excluded. Application Fee: $830 Annual Fee: $1,490 3. Administered Funds Set up for min. investment of $50,000 or interests listed on a BMA recognised stock exchange. IFA licensed administrator. Application Fee: $830 Annual Fee: $940 Specified Jurisdiction Funds (Japan) Recognised to be marketed to the Japanese public. Application Fee: zero 1. Administered Funds Licensed Cayman administrator appointed to provide principal office. Application Fee: CI$3,500/US$4,270 Annual Fee: CI$3,500/US$4,270 2. Licensed Funds Licensed as a regulated fund by CIMA. Application Fee: CI$3,500/US$4,270 Annual Fee: CI$3,500/US$4,270 Master Funds Has one or more regulated feeder funds (i.e. mutual funds that conduct more than 51% of their investing through another mutual fund). Application Fee: CI$2,500/US$3,050 Annual Fee: CI$2,500/US$3,050 1. Professional Funds Only open to professional investors and set up for min. investment of $100,000 (unless an exempted investor i.e. the manager, promoter and their employees, the administrator or underwriter). Application Fee for Recognition: $1,000 (on or before June 30 in any year; $500 thereafter) Annual Renewal Fee: $1,000 2. Public Fund (business company or unit trust) May offer interests to the public in accordance with SIBA. Application Fee for Registration: $1,500 (on or before June 30 in any year; $750 thereafter) Annual Renewal Fee: $1,500 Recognised Foreign Funds Overseas funds already regulated and supervised by an FSC approved jurisdiction may be recognised in the BVI. Application Fee for Recognition: $1,000 (on or before June 30 in any year; $500 thereafter) Annual Renewal Fee: $1,000 6. ESTABLISHMENT PROCEDURE (EXEMPTED/INTERNATIONAL COMPANIES) Request for permission to incorporate made to BMA. Incorporation can generally be completed within 24 48 hours after collection of due diligence Filing for incorporation made to Registrar of Companies. Incorporation can generally be completed within 24 48 hours after collection of due diligence Filing for incorporation made to Registrar of Corporate Affairs. Incorporation can generally be completed within 24 48 hours after the memorandum and Page 4 of 11
documentation. Bye laws, prospectus and agreements must be finalised before launch. Registered Funds: (1) Class A Exempt Funds: Filing with BMA of confirmation of eligibility certificate and offering memorandum. No further approvals or requirements. (2) Class B Exempt Funds: BMA approval of exemption must be obtained before launch (approx. 5 10 days). Regulated Funds: BMA approval of authorisation and appointment of service providers must be obtained before launch (approx. 5 days) 7. ORGANISATION COSTS* Incorporation Cost: $2,524 (including tax assurance, filing fee and first year annual gov fee) Annual Gov Fee: $1,995 documentation. Articles of association, prospectus and agreements must be finalised before launch. Registered and Regulated Funds: CIMA must confirm approval of statutory particulars submitted before launch (approx. 5 days). Incorporation Cost: US$$2,653 (including tax undertaking, filing fee and first year annual gov fee) Annual Gov Fee: US$854 for companies with authorised capital of up to US$50,000 articles are in final form. Prospectus and various agreements must be finalised and government approvals received before launch. Registered/Public Funds: must apply to be recognised/registered by the FSC before launch (approx. 14 days). Professional Funds: may carry on business up to 21 days prior to being recognised. Incorporation Cost: $350 (including filing fee and first year annual gov fee) Annual Gov Fee: $350 for companies authorised to issue up to 50,000 shares or with authorised share capital of up to $50,000 Partnership Cost: $2,715 (including tax assurance, filing fee and first year annual gov fee) Annual Gov Fee: $2,235 Registering Unit Trust: zero Annual Fee: zero Segregated Accounts Company Registration Fee: $250 Fee per Segregated Account: $280 (up to a maximum of $1,120 i.e. 4 accounts; thereafter zero per account) Partnership Cost: US$3,150 (including tax undertaking, filing fee and first year annual gov fee) Annual Gov Fee: US$1,464 Unit Trust Registration and Annual Gov Fee: US$610 Segregated Portfolio Company Fee: US$2,440 Registration fee: US$610 Fee per Portfolio: US$366 (up to maximum of US$1,830) Mutual Fund SPCs pay an additional US$305 per portfolio (up to a maximum of 25 portfolios) Partnership Cost: $500 (including filing fee and first year annual gov fee) Annual Gov Fee: $500 Unit Trust Establishment Fee: $200 Annual Fee: zero Segregated Portfolio Company Application Fee: $1,000 Application Fee per Portfolio: $250 Annual Fee: $1,000 Annual Fee per Portfolio: $100 (subject to 50% discount for the initial year if approval on or after July 1 st ); provided the total annual fee payable by an SPC will not exceed $10,000 in any year) Page 5 of 11
*The costs listed do not include legal or service fees charged by service providers which vary depending on the specific facts of the matter. Please contact any of our offices for a fee estimate for your particular matter. 8. EXEMPTED/INTERNATIONAL UNIT TRUSTS: Legal Nature, Establishment Procedure & Local Requirements Not a separate legal entity. Not a separate legal entity. Not a separate legal entity. Only trustee can enter into Only trustee can enter into Only trustee can enter into contracts, sue and be sued. contracts, sue and be sued. contracts, sue and, unless Each investor does not have an Each investor does not have an section 97 Trustee Act is applied entitlement to the specific investments comprised in the trust fund, but just the right to redeem his share in its assets, known as a unit, for cash at a price based on the value of the investments. entitlement to the specific investments comprised in the trust fund, but just the right to redeem his share in its assets, known as a unit, for cash at a price based on the value of the investments. to the trust, be sued. If section 97 is so applied, trustee has no personal liability to counterparty on transaction properly entered into in disclosed or known fiduciary capacity and counterparty effectively afforded right to proceed against fund directly. Each investor does not have an entitlement to the specific investments comprised in the trust fund, but just the right to redeem his share in its assets, known as a unit, for cash at a price based on the value of the investments. If open ended, apply to BMA for classification/to be a Class B Exempt Fund under the IFA (approx. 5 days). If satisfies requirements for a Class A Exempt Fund, make filing with BMA under IFA to complete registration. The unit trust must have a Bermuda nexus, e.g. a Bermuda functionary, trustee or resident representative. If relevant, apply to CIMA for regulation as a mutual fund under the Law (approx. 5 days). The trustee of a Cayman unit trust will typically be a trust company under the Banks and Trust Companies Law (as amended). A unit trust may also itself be registered in Cayman with the Registrar of Trusts as an exempted trust pursuant to Section 74 of the Trusts Law. Note that in the case of an Apply to the FSC for registration as a mutual fund under SIBA (approx. 14 days). A unit trust registered as a Public Fund, must have a BVI company as a trustee. Page 6 of 11
exempted trust, the beneficiaries should not include a person resident or likely to be resident or domiciled in Cayman. 9. EXEMPTED/INTERNATIONAL LIMITED PARTNERSHIPS: Legal Nature, Establishment Procedure & Local Requirements Separate legal personality available. Can carry on business, sue and be sued in partnership name. General partner applies to BMA for permission to form; particulars of the partnership required (approx. 24 48 hours). Once permission granted, the general partner files certificates of limited and exempted partnership to register the partnership. Registrar of Companies issues certificate of registration (approx. 24 48 hours). No local connection required for general partner(s). Must appoint resident representative and have Bermuda registered office. Must maintain records of account and a register of partnership interests, which are open to inspection by limited partners only. The certificates of exempted and limited partnership are available for public inspection. No separate legal personality available. Can carry on business, sue and be sued in partnership name. General partner submits to Registrar of Exempted Limited Partnerships a statement setting out particulars of the partnership and a declaration that the partnership will not undertake business with the Cayman public save as permitted. Registrar issues certificate of registration (approx.4 5 days; 24 hours for an additional fee of CI$400/US$500). Must have at least 1 general partner with a local connection to Cayman. Must have Cayman registered office. Must file annual statement of prescribed partnership particulars and declaration that the partnership will not undertake business with the Cayman public save as permitted. Subject to partnership agreement, limited partners are entitled to full information regarding the state of the business and financial condition of the partnership. The register of partnership interests is available for public inspection with the consent of the general partner. For a fee, the public can obtain a copy of the certificate of registration or any No separate legal personality available. Can carry on business, sue and be sued in partnership name. Partners submit executed articles of partnership to local registered agent. Local registered agent submits to FSC for registration a memorandum of limited partnership which includes particulars of the partnership and a statement that the partnership will not carry on business with persons resident in the BVI or own an interest in real property in the BVI (other than an office lease). FSC issues certificate of limited partnership (approx. 14 days). No local connection required for general partner(s). Must appoint registered agent in the BVI and have a BVI registered office. Must maintain records and underlying documents, including accounts, and a register of partnership interests which are open to inspection by limited partners. The register of limited partnerships and the memorandum of limited partnership are available for public inspection. Page 7 of 11
The partnership agreement can set out transfer/withdrawal restrictions (if any). 10. PROSPECTUSES Unless accepted by a competent regulatory authority or appointed stock exchanged, or subject to a Direction to disapply filing requirement, copy must be filed with Registrar of Companies. Filing Fee: $82 Must contain particulars set out in the Companies Act 1981 and the IFA (unless unregulated/ exempted). Master Funds: not required to adopt or file an offering document. 11. FUNCTIONARIES Except for Unregulated Funds, must appoint: Investment manager Administrator Custodian or Prime Broker (NB: Except for Standard Funds, none of the above need be resident in Bermuda if there is some other Bermuda nexus e.g. a Bermuda director, secretary or resident representative) Class A Exempt Funds: investment manager must be regulated by an acceptable regulator or manage at least $100 million. Standard Funds: if administrator does not carry on administration business in Bermuda, custodian registered statement filed in respect of the partnership. The partnership agreement can set out transfer/withdrawal restrictions (if any). Registered and Regulated Funds must file a copy with CIMA together with statutory particulars. Administrative fee for filing for registration of a fund or master fund CI$300/US$366 Master Funds: not required to adopt or file an offering document; must disclose information through Form MF4. Will typically appoint: Investment manager Custodian/Prime Broker Registered and Regulated Funds: depending on the type of fund, may be obliged to appoint a licensed mutual fund administrator which must comply with certain obligations and duties pursuant to the Law. So called sophisticated investor funds Subject to the articles of partnership, a limited partnership interest is assignable. An assignee may become a substitute limited partner with the consent of all partners other than the assignor or, in accordance with the articles of partnership, with the consent of the assignor or one or more other partners. Public Funds: must apply and register a copy with the FSC. Application Fee: $250 Registration Fee: $500 (or $250 for an amendment) Professional/Private Funds: required to submit a copy which must contain a prescribed form of investment warning, or if permitted by the FSC, can avoid submitting but must provide each investor with a separate document containing the investment warning. Must appoint (unless exempted): Investment manager Administrator Custodian (NB: for Registered/Professional Funds, custodian must be independent from the manager/administrator unless there are sufficient systems to ensure functional independence) Registered/Professional Funds: FSC can exempt from requirement to have a manager, custodian or auditor. Public Funds: FSC can exempt from requirement to have a custodian. Certain terms, limitations, Page 8 of 11
must be licensed by the BMA. need not appoint a Cayman based administrator. 12. REPORTING REQUIREMENTS Annual submission of statement Advise CIMA of changes of confirming compliance with the directors and service providers. IFA, fund rules and fund Registered and Regulated Funds: prospectus rules to BMA, as file an amended offering applicable. document or statutory particulars Regulated Funds: BMA approval if there is a material change with needed to any proposal to replace CIMA. a director or a service provider Filing Fee: CI$300/US$366 and for any material changes to Amendments or Supplements to prospectus/offering document. Prospectus: CI$100/US$122 Material Changes Application: $250 Registered and Regulated Funds: Class A Exempt Funds: annual file annual report with CIMA. compliance statement to BMA that fund continues to qualify for exemption and outlining any material changes to prospectus/offering document. Class B Exempt Funds: annual compliance statement to BMA. Also require BMA approval for any proposal to replace a director or a service provider. Standard Funds: monthly reports on share activity to BMA. Institutional/Administered Funds: quarterly reports on share activity to BMA. 13. REPORTING REQUIREMENTS: FINANCIAL Distribution of financial report to investors including copies of audited financial statements. Registered Funds only: Filing of annual audited accounts with BMA required. Generally accepted accounting principals and generally accepted auditing standards of any Registered and Regulated Funds (including regulated Master Funds): annual audited accounts filed with CIMA (unless exemption is granted). Accounts must have local Cayman auditor sign off. restrictions, or conditions that may be placed on a certificate of recognition/registration will not arise in principle when appointed functionaries are incorporated in BVI, a recognised jurisdiction under SIBA, or an acceptable jurisdiction to the FSC. Notification to FSC of a new or amended offering document, change in business address or amendments to constitutional documents. Public Funds: FSC approval needed for any material changes to prospectus or structure (including change of directors, functionary or auditor). Registered/Professional Funds: notification to FSC of any change in directors, authorised representative, functionary or auditor. (NB: no notification required if a functionary resigns, is terminated or otherwise ceases to act and a replacement is appointed within 7 days) Registered/Professional Funds: copy of audited financial statements provided to FSC. International Financing Reporting Standards promulgated by the International Account Standards Board, UK GAAP, US GAAP, Canadian GAAP or internationally recognised and equivalent Page 9 of 11
jurisdiction apply. No requirement to have local auditor sign off of accounts. 14. LOCAL REQUIREMENTS: COMPANIES Must maintain a Bermuda Must maintain a Cayman registered office. registered office. Must appoint a registrar to No local director required. maintain a register of participants in Bermuda (although overseas sub register or branch is permissible). No local director required (if secretary/resident representative in Bermuda). 15. MANAGEMENT: COMPANIES Must have at least 1 director and a secretary; 1 must be ordinarily resident in Bermuda. If neither are resident, must appoint a resident representative. Secretary, director or resident representative can be an individual or company. Registered and Regulated Funds: auditor must be acceptable to BMA but is not required to be based in Bermuda. Unregulated Funds: auditor not required. There is no requirement to hold board meetings or, if waived by a shareholder resolution, an annual general meeting. Any such meetings need not be held in Bermuda. Must have at least 2 individual directors. Corporate directors are permitted in certain circumstances. Registered and Regulated Funds: auditor must be a CIMA approved firm based in Cayman. Unregulated Funds: auditor not required. There is no requirement to hold board meetings or an annual general meeting. Any such meetings need not be held in Cayman. generally accepted account standards apply. Must maintain a BVI registered office and registered agent. Must appoint an authorised representative being a BVI entity or individual certified by the FSC for such purpose to act as a liaison between the FSC and the licensee and maintain records. No local director required. Registered/Professional Funds: must have at least 2 directors; 1 must be an individual. Public Funds: must have at least 2 directors; cannot have corporate directors. Registered/Professional Funds: auditor must satisfy requirements of SIBA and the BVI Regulatory Code. FSC can exempt requirement to have an auditor. Public Funds: auditor must be specifically approved by the FSC. There is no requirement to hold board meetings or an annual general meeting. Any such meetings need not be held in the BVI. Page 10 of 11
This publication is not a substitute for legal advice nor is it a legal opinion. It deals in broad terms only and is intended merely to provide a brief overview and give general information. About Conyers Dill & Pearman Founded in 1928, Conyers Dill & Pearman is an international law firm advising on the laws of Bermuda, the British Virgin Islands, the Cayman Islands and Mauritius. With a global network that includes 140 lawyers spanning eight offices worldwide, Conyers provides responsive, sophisticated, solution driven legal advice to clients seeking specialised expertise on corporate and commercial, litigation, restructuring and insolvency, and trust and private client matters. Conyers is affiliated with the Codan group of companies, which provide a range of trust, corporate, secretarial, accounting and management services. www.conyersdill.com Page 11 of 11