The Variable Capital Company: A corporate structure for funds in Singapore - Allen & Overy
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GREAT FUND INSIGHTS
The Variable Capital Company:
A corporate structure for
funds in Singapore
September 2020
Executive summary
The Variable Capital Company (VCC) is a corporate Units in authorised schemes may be offered to
entity structure under which several collective the public, while units in restricted schemes may
investment schemes (whether open-end or only be offered to institutional and accredited
closed-end) may be gathered under the umbrella investors. The Monetary Authority of Singapore
of a single corporate entity and yet remain (MAS) has also launched a VCC Grant Scheme.
ring-fenced from each other. Under the scheme, the MAS will co-fund up to
It is similar to the open-ended investment 70% of eligible expenses paid to Singapore-
company structure in the UK and protected based service providers. The grant is capped
cell company or segregated portfolio company at SGD150,000 for each application, with a
structures in jurisdictions like Guernsey or the maximum of three VCCs per fund manager.
Cayman Islands. The scheme will run from 16 January 2020 to
15 January 2023.
The corporate entity structure gives funds an
alternative to unit trusts, limited partnerships, In this publication, we explain the key features
limited liability partnerships and companies. of the VCC, the legal framework relating to the
incorporation and establishment of a VCC,
The VCC is regulated under its own legislation, and set out a comparison of the VCC structure
the Variable Capital Companies Act 2018, against other fund structures in Singapore.
which came into force on 14 January 2020.
Funds and sub-funds of VCCs may be
authorised schemes or restricted schemes.
Great Fund Insights: The Variable Capital Company: A corporate structure for funds in Singapore allenovery.com1. Overview of the VCC structure
– The VCC is a corporate entity in which shareholders –A
VCC is not restricted to paying dividends only out of
may hold shares. profits as is the case with companies.
– However, unlike a company which is used to carry on a – If permitted, members may also redeem or sell their shares
business, the only purpose for which a VCC may be used back to the VCC in order to exit their investment.
is as one or more collective investment schemes (CIS)
– There
are no capital maintenance requirements and
in the form of a body corporate.
hence whitewash approvals will not be required.
– Each share in a VCC is analogous to a unit of a CIS,
– The
redemptions will typically need to be carried out as a
and the members in a VCC therefore correspond to
proportionate amount of the VCC’s net asset value.
unitholders of a CIS.
– Shares in a VCC entitle members to receive profits from
the VCC’s property in accordance with the rights set out
in the VCC’s constitution.
A key advantage of the VCC is the use of the umbrella structure.
This allows the sub-funds to share a board of directors and have common service providers, such as
the same fund manager, custodian, auditor and administrative agent. Certain administrative functions,
for instance the holding of general meetings and preparation of prospectuses, can also be consolidated.
Where a VCC is set up as an umbrella fund with several sub-funds, members may hold shares that are
referenced to a particular sub-fund held by the VCC.
“The introduction of this corporate
structure, known as the variable
capital company or “VCC”,
will be a game-changer for
Singapore’s fund management
industry… The VCC regime
will strengthen [Singapore’s]
position as the Asian hub for fund
domiciliation and management.”
Parliamentary speech by Ms Indranee Rajah,
Second Minister for Finance, on the second reading of
the Variable Capital Companies Bill on 1 October 2018
Great Fund Insights: The Variable Capital Company: A corporate structure for funds in Singapore allenovery.com2. Incorporating and establishing a VCC
A VCC may be incorporated with only The VCC must have a manager to The manager must be one of
one member. This is to allow VCCs to manage its property or to operate the following:
be used in fund structures with only a the collective investment scheme or – A holder of a capital markets services
single member but many underlying schemes that comprise the VCC. licence for fund management;
investors (eg, a master-feeder-fund
– A Registered Fund Management
structure or a fund with a single
Company; or
nominee account).
– Certain financial institutions
exempted from holding a capital
markets services licence under the
Securities and Futures Act (SFA).
Except for VCCs consisting of The constitution of a VCC will be In addition, the rights of the shareholders
authorised scheme(s) (as to which deemed to contain certain provisions (for example, to participate in or
please see section 2(ii)), the VCC from which it cannot derogate. receive profits) must be set out in the
may have only one director. The These include the following: constitution. To ensure confidentiality,
director must be ordinarily resident in – The value of the paid-up capital of the constitution will not be publicly
Singapore and be either a director of the VCC is deemed to be at all times available although a copy must be filed
the manager of the VCC or a qualified equal to its net asset value. with the Accounting and Corporate
representative of the manager. If a Regulatory Authority (ACRA).
– The shares of the VCC must be
VCC has more than one director then
issued, redeemed and repurchased
each of these requirements may be
at an amount representing its
met by separate persons. A director
proportionate share of the VCC’s
of a VCC must also be fit and proper
net asset value (subject to any
with reference to, among others, their
adjustments for fees and charges
previous conduct and compliance
provided for in the constitution),
history as a director of another VCC,
except for certain closed-end funds
financial institution or overseas institution.
listed on a securities exchange.
Directors may alter the constitution for The register of members of a VCC is not As with any other company, a VCC
the purpose of forming a sub-fund open to public inspection, unlike that of must prepare financial statements.
without members’ approval if this right a company. The register must, however, Except for VCCs consisting of
is provided for in the constitution. be open to inspection by the following authorised scheme(s) (as to
Accordingly, the usual requirement to persons or upon an order of court: which please see section 2(ii)),
obtain members’ approval to amend – The manager of the VCC; financial statements may be prepared
a company’s constitution will not apply in accordance with U.S. GAAP,
– The custodian of the VCC’s
to such an alteration. in addition to a Singapore Accounting
sub-funds, but only in respect of
Standards Council standard or the
the members of its sub-fund; and
IFRS. Financial statements must
– The government. be provided to members annually
A member of a VCC may not inspect and members of a sub-fund will
the register of members except insofar therefore have access to the financial
as to request for information on itself. information of another sub-fund in
the same VCC.
Great Fund Insights: The Variable Capital Company: A corporate structure for funds in Singapore allenovery.com(i) Ring-fencing of sub-funds
As mentioned in section 1, a VCC can be established as an umbrella structure with several sub-funds.
Key things to note:
Each sub-fund must The VCC must keep A fund manager There is a risk that The provisions on
be registered with segregated the may not wind-up the laws of other judicial management
the ACRA. assets and liabilities a sub-fund at its jurisdictions may not do not apply to the
of each sub-fund own discretion but recognise the ring VCC or its sub-funds.
and the assets a VCC may do so fencing of sub-funds.
of one sub-fund using the procedures VCCs should take
may not be used applicable for the this into account
to discharge the winding up of and structure their
liabilities of companies as investments accordingly.
another sub-fund. applied to the sub- For VCCs consisting of
fund. A sub-fund authorised scheme(s),
will therefore be specific disclosure
wound up singly and requirements and
separately from the safeguards to deal
other sub-funds as with this risk have
if it were a separate been mandated
legal entity. This will (please see
ensure that the more below).
ring-fencing of each
sub-fund’s assets
and liabilities applies.
(ii) VCCs consisting of Authorised Scheme(s)
Authorised schemes are schemes that have been authorised ust have at least three directors instead of one, and at
m
by the MAS and whose units may be offered to retail investors. least one of the three must be an independent director.
A fund or sub-fund of a VCC that is an authorised scheme
ust prepare its financial statements in accordance
m
may be constituted as a closed-end fund if, among other
with Recommended Accounting Practice 7
things, it is listed on the Singapore Exchange.
“Reporting Framework for Unit Trusts”.
As they may be offered to retail investors, when implemented,
must appoint a custodian that is an approved trustee.
VCCs consisting of authorised scheme(s) will be subject to the
following enhanced requirements:
Mitigation of cross-cell contagion risks when investing in assets located in another jurisdiction
As regards the ring fencing of sub-funds, the MAS has noted assets and liabilities across sub-funds, directly or indirectly,
that it will require the directors and the fund manager of a eg through refusing to give effect to foreign choice of law
VCC consisting of authorised scheme(s) to take reasonable clauses in contracts for reasons other than public policy.
measures to mitigate cross-cell contagion risks when
The fund manager may also wish to consider whether it
investing in assets located in another jurisdiction.
would be appropriate to subject agreements governing the
The measures which would be considered reasonable will VCC’s overseas assets to laws of jurisdictions which uphold
depend on the facts and circumstances in each case. segregation of assets and liabilities across sub-funds, or to
For instance, the fund manager may seek legal advice on the contract for terms which limit creditors to claim against
risk of a foreign court refusing to uphold the segregation of relevant sub-fund(s).
Great Fund Insights: The Variable Capital Company: A corporate structure for funds in Singapore allenovery.com(iii) Tax matters A VCC is treated as a company and a single entity for tax purposes. This means that only one set of income tax returns is required to be filed with the Inland Revenue Authority of Singapore (IRAS). Tax exemptions Double taxation treaties Stamp duty Goods and Services The tax exemptions for VCCs are also expected to Transactions carried out Tax (GST) specified income from have access to Singapore’s between sub-funds of a Similarly, the supply of goods designated investments of a network of over 80 double single VCC are liable to and services from one company incorporated and taxation treaties. VCCs can stamp duty (if applicable) sub-fund to another sub-fund resident in Singapore arising apply for a certificate of as if the sub-funds were is treated as a supply of from funds managed by a residence from IRAS. separate legal entities. goods and services between fund manager in Singapore IRAS will detail the name of A transfer from one sub-fund two separate entities and (section 13R of the Income the VCC and all sub-funds to another of shares in a GST applies accordingly. Tax Act) and for specified receiving income from the private limited company or Sub-funds must therefore income from designated source jurisdiction in such of immovable property will assess their GST registration investments arising from certificate. Whether the VCC therefore be subject to stamp liability on a separate basis, funds managed by a fund is ultimately able to benefit duty. Transfers between the based on the value of taxable manager in Singapore from the tax treaties would umbrella VCC and its supplies they made. (section 13X of the Income depend on the specific tax sub-funds are treated The existing GST remission Tax Act) are extended to VCCs. treaty, and tax advice will the same way. for funds will be extended The 10% concessionary tax need to be sought. to incentivised VCCs. rate under the Financial Sector Incentive – Fund Management scheme has been extended to approved fund managers managing incentivised VCCs. (iv) Foreign CIS converting to Singapore VCCs The legislation provides for corporate entities domiciled in provisions for their conversion to a VCC have not been other jurisdictions which comprise one or more CIS to included. Such Singapore-domiciled funds will need to rely redomicile in Singapore as a VCC by applying to the ACRA on standard acquisition agreements to transfer their assets to transfer their registration. For Singapore-domiciled funds, to a VCC if they wish to convert to the structure. Great Fund Insights: The Variable Capital Company: A corporate structure for funds in Singapore allenovery.com
3. C
omparison of the VCC structure
against the existing fund structures
Private Company
Limited Partnership Limited Liability Variable Capital
Limited by Shares
(LP) Partnership (LLP) Company (VCC)
(Company)
Held by – Partners, comprising – Partners – Shareholders – Shareholders
general partners and – Minimum: Two –M
inimum: One – Minimum: One
limited partners
– No maximum –M
aximum: 50 – No maximum
– Minimum:
One general
partner and one
limited partner
– No maximum
Type of The partners collectively – A partner in an LLP has – Shares
in the Company – Shares in the VCC
interests that own the property of the LP – contractual rights to share – In
general, a share in a – A share in the VCC gives
a partner/ they will be entitled to: in the profits of the LLP Company gives the right the shareholder such
–A distribution of the profits pursuant to the terms of to vote at shareholder rights as may be specified
shareholder
of the LP in accordance the LLP agreement meetings, to receive in the constitution of the
would hold
with the terms of the – By default, he also has a dividends (if declared) VCC. This would include
partnership agreement; right to receive an amount from the profits of the the right to participate
and equal to his capital Company, and to receive in or receive payments
–A
distribution of the contribution to the LLP a distribution from the from the property of the
partnership property in upon leaving the LLP proceeds of the liquidation VCC (or a sub-fund of an
accordance with the of the assets of the umbrella VCC)
terms of the partnership Company on a winding up
agreement upon
dissolution of
the partnership
Minimum – None – None –M
inimum: One share – Minimum: One share
capital – Shares
have no par value – Shares have no par value
requirements and the value of the – the actual value of the
share is the agreed price paid-up capital of the
of issue VCC is at all times equal
– In
practice, the lowest to the net asset value of
minimum amount paid the VCC
up is usually SGD1.00
Great Fund Insights: The Variable Capital Company: A corporate structure for funds in Singapore allenovery.comPrivate Company
Limited Partnership Limited Liability Variable Capital
Limited by Shares
(LP) Partnership (LLP) Company (VCC)
(Company)
Legal status –N
o separate legal – An LLP is a separate –A
Company is a separate – A VCC is a separate
personality legal entity legal entity legal entity
–C
annot hold property in – It can hold property in its – It can hold property in its – It can hold property in its
its own name own name own name own name
– Its rights and obligations – Its rights and obligations – Its rights and obligations
are separate from those are separate from those of are separate from those of
of its partners its shareholders its shareholders and directors
and directors – A sub-fund of an umbrella
VCC is not a legal person
separate from the VCC;
nevertheless, the VCC
may sue or be sued in
respect of a sub-fund as if
each sub-fund were a legal
person and the property
of a sub-fund is treated in
law as if the sub-fund were
a separate legal person
Continuity The LP continues to exist Perpetual succession until Perpetual succession until – A VCC enjoys perpetual
in law unless dissolved by the wound up in accordance wound up in accordance succession until wound
agreement of the general with the LLP Act with the Companies Act up in accordance with
partners or in accordance the VCC Act
with the terms of the – Where a VCC is an
partnership agreement umbrella VCC, each sub-
–T
he LP is also dissolved, fund continues to exist
among other things, upon unless it or the umbrella
the death or bankruptcy of VCC is wound up
any general partner – A sub-fund in a VCC may
be wound up without
affecting the continuing
existence of the VCC or the
other sub-funds in the VCC
Liability of –G
eneral partner: Liable – An obligation of the LLP –A
n obligation of the – The liability of a shareholder
partners/ for all the debts and is solely the obligation of Company is solely the to contribute to the
shareholders obligations of the LP the LLP obligation of the company liabilities of the VCC or a
incurred while a – A partner is not liable for – The liability of a shareholder sub-fund of the VCC is
general partner the obligation unless it to contribute is limited to limited to the amount,
–L
imited partner: Liable for involves a tort of his own the amount, if any, unpaid if any, unpaid on his shares
the debts and obligations wrongful act or omission. on his shares – An obligation of the VCC
of the LP incurred while In that case, the partner is – The liabilities of the company is solely the obligation of
a limited partner but only liable to the same extent are to be met out of the the VCC, and an obligation
up to the amount of his as the LLP property of the Company of a sub-fund is solely the
agreed contribution – The other partners of the obligation of the sub-fund
LLP are not liable for the – The liabilities of the VCC
wrongful act or omission are to be met out of the
of the partner in default property of the VCC
– The liabilities of the LLP – The liabilities of a sub-fund
are to be met out of the are to be met out of the
property of the LLP property of the sub-fund
and not the property of the
VCC or another sub-fund
Great Fund Insights: The Variable Capital Company: A corporate structure for funds in Singapore allenovery.comPrivate Company
Limited Partnership Limited Liability Variable Capital
Limited by Shares
(LP) Partnership (LLP) Company (VCC)
(Company)
Management –B
y the general partners. In accordance with the LLP –B
oard of directors – The management of the
Any general partner may, agreement. For instance, –M
inimum of one director VCC is by its board
generally speaking, partners are free to agree who may or may not also of directors
bind the LP on, inter alia: be the shareholder – A VCC must have at
– A limited partner does – Voting thresholds and/ or least one director. If the
not have the power to requirements for deciding VCC comprises at least
bind the LP and should on certain matters or one authorised scheme
not take part in the issues relating to the LLP (ie the scheme has
management of the LP – Persons who may be been authorised by the
– A limited partner that takes introduced as partners of MAS and units in the
part in the management of the LLP, and whether this scheme may be offered
the LP will be liable for the requires any consent from to the public), the VCC
debts and obligations of the partners must have at least three
the LP as though he were directors, including one
a general partner independent director
– A VCC must also have
a manager to manage
its property or operate
the CIS or schemes that
comprise the VCC
– The manager must,
in general, hold a capital
markets services licence
for fund management
Taxes –A
n LP is tax transparent: – An LLP is tax transparent: –C
ompanies pay income – A VCC will be treated as a
the partners pay income the partners pay income tax at the corporate tax company and a single
tax on the profits made by tax on the profits made by rate, which is currently 17% entity for tax filing purposes.
the LP according to their the LLP according to their –S
ingapore has a single tier This means that only one
share at the applicable share at the applicable tax regime, and dividends set of income tax returns
tax rates tax rates paid out to shareholders is required to be filed
– For companies, this is – For companies, this is are not taxable with the Inland Revenue
currently 17%; individual currently 17%; individual Authority of Singapore
tax rates are progressive tax rates are progressive – The chargeable income
and range from 2% to 22% and range from 2% to 22% or exempt income of an
umbrella VCC is the total
of that each of its sub
funds, as if each sub-fund
were a VCC
– VCCs pay income tax at
the corporate tax rate,
which is currently 17%
– Singapore has a single tier
tax regime, and dividends
paid out to shareholders
are not taxable
Great Fund Insights: The Variable Capital Company: A corporate structure for funds in Singapore allenovery.comPrivate Company
Limited Partnership Limited Liability Variable Capital
Limited by Shares
(LP) Partnership (LLP) Company (VCC)
(Company)
Closing the An LP may be dissolved An LLP may be wound up A company may be – A VCC may be wound up
Business by the agreement of the voluntarily by the partners or wound up voluntarily by voluntarily by its shareholders
general partners or in by order of the High Court its shareholders – A VCC may also be
accordance with the terms of – The Court may wind up an – A Company may also be wound up by an order of
the partnership agreement LLP under the following wound up by an order of the High Court
circumstances, the High Court – The Court may wind
among others: –T
he Court may wind up up a VCC under the
– It carries on business with a company under the following circumstances,
less than two partners for following circumstances, among others:
more than two years; or among others: – It is unable to pay its
– It is unable to pay its debts – It is unable to pay its debts; or
debts; or – It does not commence
– It does not commence business within a year
business within a year from its incorporation
from its incorporation or has suspended its
or has suspended its business for an entire year
business for an – A sub-fund in an umbrella
entire year VCC may be wound
up voluntarily by the
shareholders of the VCC
that hold shares issued in
respect of that sub-fund
– A sub-fund may also be
wound by an order of the
High Court
– The Court may wind up
a sub-fund of a VCC
under the following
circumstances,
among others:
– The umbrella VCC is
unable to pay the debts
of the sub-fund; or
– The umbrella VCC does
not commence business
of the sub-fund within a
year from its formation
or has suspended its
business for an entire year
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