The Hong Kong government gazetted the Limited Partnership Fund (LPF) Bill on 20 March. The Bill, which is expected to come into operation on 31 August 2020, provides for a new standalone statutory framework for the constitution of limited partnership funds (LPFs) in Hong Kong.
The aim is to attract investment funds – including private equity and venture capital funds – to set up and operate in Hong Kong. This will strengthen Hong Kong’s position as an international asset and wealth management centre and drive demand for the related professional services in Hong Kong.
A limited partnership is a common constitution form for private funds. The general partner has unlimited liability in respect of the debts and liabilities of the fund, while the limited partners are essentially investors with limited liability.
“The new limited partnership fund regime will be an opt-in registration scheme administered by the Companies Registry. It will cater for the operational needs of investment funds with elements of investor protection built in,” said a government spokesperson.
“In recent years, private equity funds have been playing a pivotal role in channelling capital into corporates, especially start-ups in the innovation and technology field. Hong Kong, as the second largest private equity market in Asia, is well-placed to expand its private equity business.”
Hong Kong’s existing legislation for limited partnerships, the Limited Partnership Ordinance (Cap. 37) (LPO), has not been significantly updated since its introduction in 1912. The Financial Services Development Council and the Financial Services & the Treasury Bureau (FSTB) identified a number of issues with the LPO, including a lack of flexibility in capital contributions and distribution of profits, the absence of a straightforward dissolution mechanism and insufficient provision for matters such as confidentiality and investor protection.
The LPFO will operate separately from the LPO and be administered by the Registrar of Companies. To be registered as an LPF, a fund must be constituted by a limited partnership agreement and have at least one general partner (GP) and at least one limited partner. An LPF does not have separate legal personality.
The GP may be a natural person over 18 years old, a private Hong Kong company, a registered non-Hong Kong company, a limited partnership under the LPO, another LPF or a non-Hong Kong limited partnership with or without legal personality. The limited partner may be a natural person, a corporation, a partnership of any kind, an unincorporated body or any other entity.
An LPF must have a registered office in Hong Kong and an application for registration must be submitted by a Hong Kong law firm. The Registrar must establish and maintain an index of the names of every LPF, as well as a register that will record up-to-date information about each LPF that is first provided to the Registrar by the GP during the registration process and subsequently updated where necessary.
This will include details such as the name of the LPF, address of its registered office and principal place of business, investment scope and the name and contact details of its general partner, investment manager and/or authorised representative. The LPF Index and LPF Register must be made available for public inspection at all reasonable times.
The LPFO expressly provides for freedom of contract in respect of fund operation. This means that fund sponsors and investors are generally free to determine the terms applicable to operational matters such as admission and withdrawal of partners, management structure and governance, rights and obligations of partners, financial arrangements between partners and dissolution procedures.