A Glimpse Into the New Limited Partnership Fund Ordinance | Article – HSBC VisionGo
Hong Kong as a Viable Jurisdiction for Private Equity Funds
Hong Kong’s existing legislation for limited partnerships, the Limited Partnership Ordinance (“LPO”), has not been materially updated since its inception in 1912. It comes as no surprise that industry participants often regard the existing regime as outdated and insufficient to accommodate the operational needs of modern asset managers.
As an initiative to strengthen the competitiveness of Hong Kong in asset and wealth management and to make Hong Kong a more attractive jurisdiction for private equity funds, the Hong Kong government introduced the Limited Partnership Fund Bill in March 2020. The new Limited Partnership Fund Ordinance (“LPFO”) came into operation on 31 August 2020.
Key Features of the LPF Regime
The new limited partnership fund (“LPF”) regime enables funds to be registered in the form of limited partnerships in Hong Kong. It operates separately from the existing LPO and be administered by the Companies Registry (“CR”).
An application for the LPF registration must be submitted on behalf of the proposed general partner (“GP”) by a Hong Kong law firm or a solicitor.
A fund may be registered as an LPF provided that it:-
- meets the definition of a fund in the LPFO;
- has one GP;
- has at least one limited partner;
- is constituted by a limited partnership agreement;
- complies with the naming requirements; and
- has a registered office in Hong Kong.
II. General Partner
The GP of an LPF has unlimited liability for all the debts and obligations of the fund, as well as ultimate responsibility for the management and control of the fund.
The GP must either be:-
- a natural person who is at least 18 years old;
- a private company limited by shares incorporated under the Companies Ordinance;
- a registered non-Hong Kong company;
- a limited partnership registered under the LPO;
- an LPF;
- a non-Hong Kong limited partnership with a legal personality; or
- a non-Hong Kong limited partnership without a legal personality.
The GP has a duty to:-
- appoint a person (who may be the GP or another person) as an investment manager to carry out the day-to-day investment management functions of the fund;
- appoint an auditor to carry out audits of the financial statements of the fund;
- appoint a person as the authorised representative to be responsible for the management and control of the fund (if the GP is either another LPF or a non-Hong Kong limited partnership without legal personality);
- appoint a responsible person to carry out anti-money laundering and counter-financing of terrorism measures;
- ensure proper custody of assets;
- file an annual return with the CR; and
- notify the CR of certain changes in the LPF.
III. Limited Partner
The limited partner must either be:-
- a natural person;
- a corporation;
- a partnership of any kind;
- an unincorporated body; or
- any other entity.
A limited partner is not liable for the debts and obligations of the fund beyond the amount of the partner’s agreed contribution. However, if a limited partner takes part in the management of the fund, the limited partner and the GP are jointly and severally liable for all the debts and obligations of the fund incurred while the limited partner so takes part in the management. Having said that, the LPFO also provides for a non-exhaustive list of safe harbour activities which are not to be regarded as taking part in the management of the LPF.
IV. Publicly Available Records and Confidentiality
The CR establishes and maintains an index of the names of every LPF (LPF Index) and a register of LPFs containing the information submitted (LPF Register). The LPF Index and the LPF Register will be open for public inspection.
However, the identities of limited partners will not be available for public inspection.
V. Tax Implications
LPFs enjoy profit tax exemptions provided that they meet certain conditions set out in section 20AM of the Inland Revenue Ordinance. Transfers of interests in the LPF are also not subject to stamp duty in Hong Kong.
VI. Dissolution of the Fund
The new LPF regime offers a simple dissolution mechanism for funds. Under the LPFO, an LPF may be dissolved in accordance with the limited partnership agreement of the fund without a court order.
A court ordered dissolution is also available on application by a partner or a creditor of the LPF if:-
- the court is of the opinion that a partner in the fund has done any act or made any omission calculated to affect prejudicially the carrying on of the business of the fund;
- a partner in the fund wilfully or persistently commits a breach of the limited partnership agreement of the fund;
- the business of the fund can only be carried on at a loss; or
- the court is of the opinion that it is just and equitable to dissolve the fund.
The new LPF regime offers a pragmatic alternative for the domiciliation of funds. However, the impact of the legislation is yet to be seen. We will provide more information of the LPF regime as it develops.
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