British Virgin Islands Funds

• Law Firm: Conyers
• Subject Matter: Accounting and Audit, Finance and Banking, Corporate/Commercial Law, Accounting Standards, Financial Services, Fund Management/ REITs, Corporate and Company Law, Directors and Officers
• Author: Conyers
• Published date: 02 March 2023

1. INTRODUCTION

The principal legislation pertaining to funds in the British Virgin Islands ("BVI") is the Securities and Investment Business Act ("SIBA") and regulations thereunder (the "Regulations"). This Act sets out the requirements for the recognition and registration of funds incorporated or formed under the laws of the BVI or otherwise carrying on business from within the BVI.

Funds in the BVI may be incorporated as business companies or formed as partnerships or unit trusts. The business company, being a corporate vehicle, is the most common structure used to form a fund in the BVI. Fund companies can be incorporated as segregated portfolio companies. For ease of reference, we have in this publication assumed that the fund is structured as a business company, except where otherwise noted.

2. TYPES OF FUNDS¹

2.1. Funds Generally

SIBA defines a fund as a business company, partnership, unit trust or any other body which "(a) collects and pools investor funds for the purpose of collective investment, and (b) issues fund interests that entitle the holder to receive on demand or within a specified period after demand an amount computed by reference to the value of a proportionate interest in the whole or in a part of the net assets of the company or other body, partnership or unit trust, as the case may be".

The definition of fund includes hedge funds and other vehicles which otherwise satisfy the definition of a fund as set out above. It will not generally catch close-ended funds, such as private equity funds.

A fund which is incorporated or formed under the laws of the BVI or otherwise carrying on business from within the BVI must be registered or recognised under SIBA as:

1. a professional fund;
2. a private fund; or
3. a public fund.

In respect of a fund which is incorporated and already operating in another jurisdiction, it is also possible for the fund to apply to become a recognised foreign fund in the

2.2. Professional Funds

A professional fund is a fund whose shares are made available only to professional investors and the initial investment of each investor in the fund (other than certain "exempted investors") is not less than US$100,000 or its equivalent in another currency. "Exempted investors" is narrowly defined and includes employees of the manager or promoter of the fund and fund functionaries.

A professional investor is defined as a person (i) whose ordinary business involves, whether for that person's own account or the account of others, the acquisition or disposal of property of the same kind as the property, or a substantial part of the property, of the fund; or (ii) who has signed a declaration that he, whether individually or jointly with his spouse, has net worth in excess of US$1,000,000 (or its equivalent in another currency) and that he consents to being treated as a professional investor.

2.3. Private Funds

A private fund is a fund whose constitutional documents specify either that it will have no more than 50 investors or that the making of an invitation to subscribe for or purchase shares issued by the fund is to be made on a private basis only. An invitation made on a "private basis" includes an invitation which is made (a) to specified persons and is not calculated to result in shares becoming available to other persons or to a large number of persons; or (b) by reason of a private or business connection between the person making the invitation and the investor.

2.4. Public Funds

A public fund is a fund which is not recognised as a professional fund or a private fund.

2.5. Recognised Foreign Funds

A fund which is incorporated and already operating in another jurisdiction may apply to become a recognised foreign fund in the BVI. The only reason a foreign fund would apply for recognition as a foreign fund is if it intends to offer its shares to investors in the BVI or otherwise intends to carry out its business in or from within the BVI.

Recognition will only be granted if the foreign fund is already subject to an authorisation and supervisory regime in the jurisdiction in which it is constituted which, in the opinion of the Financial Services Commission (British Virgin Islands) (the "FSC"), provides to investors in the BVI protection at least equivalent to the protection provided for investors of public funds and adequate arrangements exist for co-operation between the authorities of that jurisdiction and the BVI.

This publication does not deal further with recognised foreign funds.

2.6. Private Investment Funds

A private investment fund is defined to include a company, partnership or unit trust which collects and pools investor funds for the purposes of collective investment and diversification of portfolio risk, and which issues fund interests that entitle the holder to receive an amount computed by reference to the value of a proportionate interest in the net assets of the fund. Most closed-ended and private equity funds will be considered private investment funds under the new regime.

In order to be recognised by the FSC, a private investment fund's constitutional documents will need to specify that (i) it will have no more than 50 investors, (ii) an invitation to subscribe for or purchase shares or fund interests issued by the fund is to be made on a private basis only or (iii) shares or fund interests are made available only to professional investors and the initial investment of each investor in the fund (other than certain 'exempted investors') is not less than US$100,000 or its equivalent in another currency.

An invitation made on a 'private basis' includes an invitation which is made (a) to specified persons and is not calculated to result in shares or fund interests becoming available to other...