The Securities and Futures (Amendment) Ordinance 2016 (“the Amendment Ordinance”) initiates a new form of company called “Open-ended Fund Company” (“OFC”) in Hong Kong. The Amendment Ordinance has begun operation on 30 July 2018.
An open-ended fund company (OFC) is an open-ended collective investment strategy structured in the feature of a company with limited liability and variable share capital. An OFC gives flexibility for investors (specifically shareholders of the OFC) to trade their incomes in the fund through the creation, redemption, and cancellation of shares. This flexibility isn’t possible for traditional companies incorporated under the Hong Kong Companies Ordinance (Cap. 622).
Categories of Hong Kong Open-ended fund companies
OFCs can be categorized into public OFCs which are offered to the public, and private OFCs which are privately offered. An OFC can be a single fund or an umbrella fund with sub-funds. Each sub-fund enjoys segregated liability whereby properties of each sub-fund are only accessible to that specific sub-fund.
The application for the foundation of an OFC in Hong Kong is submitted to the SFC (Securities and Futures Commission) for authorization. Once the SFC has authorized the application, the SFC will send the documents to the Companies Registry for incorporation. Although the documents are sent to the Companies Registry, the OFC is incorporated under Part IVA of the Securities and Futures Ordinance (Cap. 571).
The SFC has implied that they aspire to process an application for the establishment of a private OFC within one month from the date that they take up the application and based on research, this is valid. Note that the SFC has signified that they aim to process an application for a public OFC in one to three months from the date that they take up the application.
Re-domiciliation of overseas corporate funds to Hong Kong
The Securities and Futures (Amendment) Ordinance 2021 (the “SF Amendment Ordinance”) modified the Securities and Futures Ordinance (Cap. 571) (the “SFO”) to induct a mechanism for overseas incorporated corporate funds to be re-domiciled in order to become an open-ended fund company (the “OFC”) under the SFO.
The SFC may register the overseas corporate fund as an OFC given that it satisfies the prescribed necessities for an OFC, including those pertaining to the name of the OFC, the registered office, the directors, the investment manager, and the caretaker. After registration with the SFC, the fund may apply to the Registrar of Companies for the issuance of a certificate of re-domiciliation. Upon re-domiciliation, the fund becomes and remains a body corporate as a re-domiciled OFC. The result of the re-domiciliation is not to create a new legal entity or to affect the identity or continuity of the fund registered in its place of incorporation. Additionally, it will not affect any current contracts, property, rights, benefits, obligations, or liabilities of, or any current legal proceedings initiated by or against, the re-domiciled fund.
Deregistration from the place of incorporation
Within 60 days after the re-domiciliation, the re-domiciled OFC must take all logical steps to procure the de-registration in its place of incorporation or its place of establishment, failing which the re-domiciled OFC’s registration with the SFC may be canceled or the Registrar of Companies may strike the name of the re-domiciled OFC off OFC Register unless authorization for extension is granted.
Business registration
Along with submitting the Application to the SFC, the non-Hong Kong corporate fund should likewise apply for a business registration certificate and pay a prescribed fee.
The OFC re-domiciliation grant scheme
The Hong Kong Financial Secretary of the Hong Kong Government declared in the 2021/2022 budget speech, stating the Hong Kong Government will provide donations to cover 70% of the expenses paid to Hong Kong professional service providers for Hong Kong OFCs set up in or re-domiciled to Hong Kong in the next three years, subject to a cap of HK$1 million per OFC (the Hong Kong OFC Grant Scheme).
Under the Hong Kong OFC Grant Scheme, each manager can establish up to three OFCs, and managers need to apply to the SFC within three months after the date of incorporation of the OFC. The SFC will process grant scheme applications on a first-come-first-served basis.
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