Establishment Process of Private OFC

The key steps of setting up a private OFC usually includes determining the structure, preparation of constitutional and offering documents, appointment of key service providers, drafting service agreements, submitting application to SFC, handle SFC inquiries and post-incorporation filings.

The Process

A. Determine the Structure

Generally, the client might need to confirm the following:

OFC name
Single fund or umbrella OFC with sub-funds
Investment strategy (general)
Share class structure
Investment manager
Custodian
Directors
Auditor
Registered office provider

We are able to provide you with custodian and auditors at a fixed fee.

Key regulatory requirement to note with client is:

The investment manager must hold an SFC Type 9 license (or be registered for Type 9 regulated activity); and
At least 90% of the gross asset value of the OFC must consist of Type 9 assets (securities, futures, cash and related investments), subject to a 10% de minimus basket for other assets.

B. Prepare Constitutional and Offering Documents / Private Placement Memorandum

The following documents must be prepared:

Instrument of Incorporation (IOI): this is the principal constitutional document of the OFC.
Offering Document/Private Placement Memorandum (PPM): the offering documents must be filed with the SFC following incorporation and updated versions later on must also be filed.

The IOI typically contains: name and registered office, investment objectives and permitted investments, share capital provisions, issue and redemption mechanics, directors' powers, meeting and voting rights, and establishment of sub-funds (if applicable).

The offering document must include: investment objective and strategy; eligible investors; subscription and redemption procedures; valuation policies; dealing arrangements; fees and expenses; risk factors; conflicts of interest; custody arrangement; leverage and borrowing provisions (if applicable).

C. Appoint Key Service Providers

Key service providers usually include:

Directors
- Minimum two individual directors
- At least one independent director
- SFC approval required
Investment Manager
- Hong Kong Type 9 licensed manager
- Responsible for portfolio management and valuation

3. Custodian: must satisfy SFC eligibility requirements, typically:

licensed bank;
trust company; or
other SFC-approved custodian.

4. Auditor: Hong Kong auditor appointed to audit annual accounts.

5. Registered Office: Hong Kong registered office required.

D. Draft Service Agreements

Typical Service Agreements to put in place with an OFC are:

Mandatory agreements:

Investment Management Agreement (IMA): required by the OFC regime, and must delegate investment management functions to the Type 9 manager.
Custody Agreement: agreement between OFC and custodian.

Common supplemental documents

Administration agreement
Registrar / Transfer Agency Agreement
Distribution Agreement (if distributors engaged)
Prime Brokerage Agreement (if applicable)
Banking Agreements

E. Submit SFC Incorporation Application

A single application is submitted to the SFC including:

OFC application forms
Instrument of Incorporation
Directors' consents
Custodian consent
Auditor consent
Investment manager consent
Business registration information
Prescribes fees

SFC reviews the application and liaises with the Companies Registry.

Upon approval:

the OFC is registered;
the Companies Registry issues a Certificate of Incorporation; and
the Business Registration Certificate is issued.

F. SFC Inquiries and Post-Incorporation Filings

Following registration, filings include:

Regulatory

File the final offering document with SFC
File any material amendments to the offering document

Operational

Open bank and custody accounts
Finalise subscription forms
Establish NAV and valuation procedures
Implement AML/KYC procedures
Arrange FATCA/CRS onboarding procedures (usually through administrator or tax advisers)

Closing deliverables include:

Corporate documents

Certificate of Incorporation
Business Registration Certificate
Instrument of Incorporation
Board Resolutions
Register of directors
Register of shareholders

Fund documents

Offering document/PPM
Subscription agreement
AML/KYC forms
Investor representations letter (if required)

Service Provider Documents

Investment Management Agreement
Custody Agreement
Administration Agreement (if applicable)
Registrar/Transfer Agency Agreement (if applicable)

Regulatory Documents

SFC registration application
SFC approval letter
statutory filings