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 It comes as no surprise that industry participants often regard the existing regime as outdated and insufficient to accommodate the operational needs of modern asset managers.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”) will come into operation on 31 August 2020.
The new limited partnership fund (“LPF”) regime enables funds to be registered in the form of limited partnerships in Hong Kong. It will operate 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:-
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:-
The GP has a duty to:-
III. Limited Partner
The LP must either be:-
An LP is not liable for the debts and obligations of the fund beyond the amount of the partner’s agreed contribution. However, if an LP takes part in the management of the fund, the LP and the GP are jointly and severally liable for all the debts and obligations of the fund incurred while the LP 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 will establish and maintain 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 LPs will not be available for public inspection.
V. Tax Implications
LPFs will 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 will also not be 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 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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