OFFSHORE Series | A Comprehensive Guide to the Registration and Operation of Hong Kong Limited Partnership Funds (LPFs)

Recently, the news of Zhang Yiming, former CEO and controlling shareholder of ByteDance, establishing a limited partnership fund (LPF) in Hong Kong has attracted considerable attention. According to reports, the limited partnership fund is a privately held company named Cool River Venture HK Limited, with Galaxy LLC as the sole shareholder holding full ownership, and Zhang Yiming serving as a director.

So, what exactly is a Hong Kong limited partnership fund? What are its characteristics and advantages? How do you go about registering a limited partnership fund in Hong Kong? And what are the important considerations during the registration process of a limited partnership fund in Hong Kong?

In response to these questions, this article will provide answers one by one.

Overview of Hong Kong Limited Partnership Fund (LPF)

On August 31, 2020, Hong Kong implemented the Limited Partnership Fund Ordinance (Chapter 637) (referred to as the "Ordinance"), marking the official introduction of a new registration regime for limited partnership funds in Hong Kong.

Before the enactment of the Ordinance, public funds and hedge funds established in Hong Kong primarily relied on the provisions of the Securities and Futures Ordinance (Chapter 571) and adopted unit trusts or open-ended fund forms. Private equity and venture capital funds, on the other hand, mainly relied on the Limited Partnership Ordinance (Chapter 37) and took the form of limited partnership entities.As an international financial center, Hong Kong has a thriving private fund industry, but the Limited Partnership Ordinance enacted in 1912 is clearly inadequate to meet the needs of modern investment funds. In order to attract global private equity and venture capital investors, Hong Kong introduced a brand new limited partnership fund regime under this Ordinance.

Since the introduction of the limited partnership fund regime, it has received widespread attention and acclaim in the investment community. As of the end of March 2023, the total assets under management of private funds in Hong Kong exceeded $212.1 billion, with 613 limited partnership funds established in Hong Kong. It can be expected that more domestic investors like Zhang Yiming will establish LPFs in Hong Kong for private equity or venture capital purposes.

Registering a Limited Partnership Fund and Considerations

What are the requirements for registering a limited partnership fund?

The fund must have a limited partnership agreement, and the arrangement of the partnership agreement must not violate any laws.

The fund must have at least one general partner and at least one limited partner.

The general partner of the fund must meet the following conditions:

a. a natural person (including Hong Kong residents and non-Hong Kong residents) who is at least 18 years old

b. a private company limited by shares established under the Companies Ordinance (Hong Kong).

c. a registered non-Hong Kong company.

d. a limited liability partnership registered under the Limited Partnership Ordinance (Hong Kong).

e. a limited partnership fund.

f. a non-Hong Kong limited liability partnership with legal personality.

g. a non-Hong Kong limited liability partnership without legal personality.

The limited partner of the fund must meet the following conditions:

a. any natural person (including Hong Kong residents and non-Hong Kong residents).

b. a body corporate.

c. a partnership.

d. any other entity that is not a body corporate.

The registered address must be in Hong Kong.

How should a limited partnership fund be named?

The naming rules for a limited partnership fund are as follows:

The name can be entirely in English and must end with "Limited Partnership Fund" or "LPF."

The name can be entirely in Chinese and must end with "有限合伙基金" (Limited Partnership Fund).

The name can be a combination of Chinese and English, but it must meet the requirements mentioned above.

It is important to note that if the proposed name of the limited partnership fund contains terms such as "Central People's Government," "Special Administrative Region Government," "any department or organization of the Central People's Government or the Special Administrative Region Government," prior approval from the Companies Registry is required.

What are the main legal responsibilities of a limited partnership?

Similar to a limited liability partnership, a limited partnership fund in Hong Kong does not possess separate legal personality. The general partner is ultimately responsible for managing and controlling the fund and assumes unlimited liability for the fund's debts and obligations. Limited partners, on the other hand, have limited liability and are generally liable only up to the amount of their capital contributions to the partnership. However, if a limited partner participates in the management of the partnership, they will be liable for all debts and obligations incurred during their involvement.

How does a limited partnership fund operate?

Appointment of an investment manager by the general partner

The general partner must appoint an investment manager, who can be an individual or a company that meets the following requirements:

a. a Hong Kong resident who is at least 18 years old.

b. a Hong Kong registered company.

c. a non-Hong Kong company incorporated outside Hong Kong but registered in Hong Kong.

Appointment of an "authorized representative" by the general partner

If the general partner of the fund falls into either of the following categories, they must appoint an "authorized representative" for fund management:

a. The general partner is also a limited partnership fund.

b. The general partner is a non-Hong Kong limited partnership without legal personality.

The "authorized representative" must meet the following conditions:

a. a Hong Kong resident who is at least 18 years old.

b. a Hong Kong registered company.

c. a non-Hong Kong company incorporated outside Hong Kong but registered in Hong Kong.

Appointment of an auditor by the general partner

The general partner of a limited partnership fund must appoint an independent third-party auditor to audit the fund's financial statements. The audit firm must be a recognized auditing corporation under the Professional Accountants Ordinance (Chapter 50).

Ensuring proper custody of underlying assets

The general partner of a limited partnership fund must ensure that the fund's assets, as specified in the limited partnership agreement, have appropriate custody arrangements. 

Registered office

A limited partnership fund must have a registered office in Hong Kong for receiving communications and notices.

Annual declaration by the general partner

The general partner of a limited partnership fund must submit an annual declaration to the Companies Registry within 42 days after the end of each calendar year.

What is the registration process for a limited partnership fund?

The registration application for a limited partnership fund must be submitted by the general partner to the Companies Registry in Hong Kong. It is advisable to engage a Hong Kong law firm or solicitor to assist with the application process. Hong Kong law firms are defined under the Legal Practitioners Ordinance (Chapter 159), Section 2(1).

Characteristics and Advantages of a Limited Partnership Fund

Compared to a limited liability partnership, a limited partnership fund in Hong Kong offers greater flexibility in the formation of agreements. The Limited Partnership Fund Ordinance allows partners to freely negotiate provisions regarding partner admission and withdrawal, transfer of limited partner interests, internal decision-making processes, profit distribution, dissolution procedures, and more.

Although the Limited Partnership Fund Ordinance does not specify licensing requirements for limited partnership funds, regulations from the Securities and Futures Ordinance and the Securities and Futures Commission in Hong Kong apply. If the investment manager or general partner of a limited partnership fund engages in regulated activities in Hong Kong, they must apply for the corresponding licenses from the Securities and Futures Commission.

When choosing a jurisdiction for establishing a fund, tax policies are an important consideration. Hong Kong has established a comprehensive set of tax incentives through multiple legislative amendments. Limited partnership funds can also enjoy relevant tax benefits. In particular, the accompanying benefits tax regime introduced by Hong Kong is particularly favorable for general partners and fund managers.

In summary, the limited partnership fund regime in Hong Kong provides investors with a wide range of options and strengthens Hong Kong's position as an international hub for asset and wealth management. It attracts more private investment funds, including private equity and venture capital funds, to register and operate in Hong Kong. 

The development of the limited partnership fund regime in Hong Kong will help channel capital into various industries, promoting the overall development of startups and innovative technology sectors, including those in the Greater Bay Area. This creates multiple benefits for both investors and businesses.

We recommend that when setting up a limited partnership fund in Hong Kong, you engage professional organizations to provide comprehensive planning and assistance in fund establishment, licensing requirements, compliance, and taxation. We, at [Company Name], can offer services such as evaluating and advising on fund manager licensing requirements, fund compliance assistance, and fund auditing. Please contact us for more information.

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