Both BVI Incubator Fund and Approved Fund vehicles provide a low-cost opportunity for new managers to build a name for themselves in the market. They can keep costs low while attracting capital that becomes viable over the long term.
What is a BVI Incubator Fund?
Incubator funds are aimed at start-up managers who want funds that are quick to set up, cost-effective, and with a low administrative and regulatory burden. BVI incubator funds don’t require mandatory functionaries such as administrators, investment managers, or auditors. This means they are suitable for investors that can’t benefit from seed investor capital and that want to build a track record for themselves.
A BVI incubator fund can exist for a total of two years with the option to extend for one additional year. After three years, the fund must be converted to a Private, Approved, or Professional Fund. To make this transition, an audit is presented to the BVI authorities, detailing compliance levels, financial standing, and other matters. The alternative is to wind up operations and cease to exist as an entity.
“A BVI incubator fund was the obvious choice. I wanted to start small and prove my track record but without having to jump through hoops and lots of red tape. The BVI set-up process was fast and cost-effective and I was up and running in just over two days!”
There is no requirement to have an audit of the BVI incubator fund, as long as the entity meets and obliges by certain conditions. These include having a maximum of 20 investors each with a minimum investment of $20,000 and a market cap of $20 million for the total value of the fund.
BVI Incubator Funds must have a minimum of two directors at all times. One must be a person, the second can be a person or a corporate structure. To be approved as a Director, they should submit personal details including a resume, to the Commission.
What’s a BVI Approved Fund?
A BVI Approved Fund is a way for fund managers to collaborate with a smaller number of investors while keeping costs effective. Enjoying a minimal regulatory burden, it has lower start-up costs than some other kinds of funds.
The maximum number of investors is 20. There is no requirement for a minimum number of investors. Assets are capped at $100 million. There is no term limit and the fund can continue indefinitely.
This category of fund was introduced in 2015 along with Incubator Funds, under the Securities and Investment Business Regulations. They can either be created as such or be converted from a BVI Incubator Fund which can only operate for a maximum of three years.
Approved funds are ideal for funds between families and friends, or small-time strategies. The fund must have an administrator but it is not necessary to have a manager or custodian or to conduct or submit audits.
If the fund exceeds the permitted number of investors or surpasses the maximum investment value, authorities can ask it is converted into a private or professional fund. They can also request that the fund be liquidated or stop all activities.
There is no legal requirement to appoint an auditor or carry out any form of audit on a BVI Approved Fund.
To set up an Approved Fund in the BVI, you must have an authorized representative who is resident and certified. They are also responsible for submitting all documents and fees, on behalf of the fund.
Without a doubt, The British Virgin Islands (BVI) is the preferred jurisdiction for new fund managers and start-up funds. The Incubator and Approved Fund products continue to grow in popularity, as they allow new fund managers to start building a track record and launch funds under much less stringent conditions.
- Favorable fiscal regime
- Stable business environment
- English speaking and follows British Common Law
- Stable political and social climate
- Experienced workforce
- Strong infrastructure
Almost half of all global offshore companies are based in the BVI.
British Virgin Islands
The British Virgin Islands is a British Overseas Territory comprising 50 islands in the middle of the Caribbean, with a population of around 36,000 English-speaking citizens, it has become a hub for financial and corporate services.
The BVI is a stable and flourishing economy that enjoys long-term political surety. Its legal system is based on British common law and it also benefits from sophisticated and innovative legislative frameworks. The local currency is the dollar, there are no exchange controls, and the commercial and professional infrastructure is sound.
Other reasons to do business in the BVI include zero rate corporation tax, no wealth tax, capital gains, or estate tax for offshore entities.
The financial services sector accounts for over half of the territories’ GDP, in particular offshore companies and the provision of ancillary corporate services. In fact, some 45% of the world’s offshore companies are based here. Businesses that incorporate in the BVI enjoy a range of benefits that include confidentiality, flexibility, and favorable fiscal incentives.
Benefits of Incubator and Approved Funds in the BVI
There are a number of key benefits to incorporating a fund in the BVI. They include:
- High level of corporate governance combined with a flexible corporate statute
- A ‘lighter-touch’ regulatory regime that is more welcoming to venture capital managers and private equity managers
- Suitable for smaller fund managers and those looking to build a track record
- A robust and efficient commercial court
- Competitive incorporation and running fees
- No need for a custodian
- No need for an offering document, only investor warnings, and investment strategy information
- Legislation in line with EU legislation
“BVI is the best place for budding investment managers to set up. The light-touch regulatory environment and the cost-effective fees mean little financial burden. Furthermore, you can be up and running in a couple of days. We always recommend BVI to these kinds of clients.”Ron Mendelson, Director Fast Offshore
How long does the Application Process take?
The entire process takes approximately two days from start to finish. If documents are submitted in order, a certificate evidencing the status of the fund will be issued and the activities of the fund can commence.
Establishing Incubator and Approved Funds
As per the BVI Business Companies Act, funds are first incorporated as a company. This creates a structure that is very flexible due to the fact there are no requirements for share capital or authorized capital. Depending on the Memorandum and Articles of Association of the company, shares are issued without par value. It ‘s also possible to incorporate a segregated portfolio company that segregates assets and liabilities between portfolios established within the company.
Those establishing a fund can also choose to incorporate as an international limited partnership. This does not distinguish a separate legal personality from the partners, meaning they are liable for all debts and obligations.
Once the vehicle is incorporated and the application has been approved, the fund becomes operational.
Main requirements of both Incubator and Approved funds
- Having two directors, one of which is an individual who has filed their resume with the authorities, and one that can be a company or individual
- Submitting semi-annual returns to the authorities to confirm compliance with requirements
- Restricting the fund to a maximum of 20 investors, and applicable maximum net investments
Documents required to start the fund include:
- Constitutional documents of the fund
- A description of the investment strategy
- A written warning to investors
- An offering document if required
- Proof of payment of applicable fees
- Application form
- Professional reference for each beneficial owner, shareholder or director
- CV for each director
- Police Certificate for each beneficial owner, shareholder or director
- Form A for each director
When it comes to matters of compliance, the BVI incubator and approved funds have the following obligations:
- Filing an annual return with the BVI Financial Services Commission before 31 January
- Paying an annual license fee to the Government before 31 March
- Filing a financial statement before 30 June
- Filing a semi-annual return before 31 July
- Appointing an authorized representative and keeping the authorities updated with their details
- Having two directors and certain other officials
- Updating the authorities of any changes to the terms of the fund’s offering
- Comply with FATCA and CRS Reporting
Other Types of Funds
There are other kinds of funds available in BVI for investors or fund managers who are looking for something a little different. These funds have differing requirements and stricter regulatory obligations.
BVI Professional Funds
A professional fund is a mutual fund that is only available to professional investors. The initial investment or each investor should not be less than $100,000.
BVI Private Funds
A private fund is a mutual fund where the constitutional documents state that there will be less than 50 investors. Also, investors join by invitation only.
BVI Public Funds
Public funds are neither private nor professional, rather they target general investors. They are subject to a very high degree of regulation and scrutiny from the authorities.
Get in Touch!
Fast Offshore has been working in corporate services for over 22 years. During that time, we have developed an extensive practice in BVI. We have worked with countless clients on incorporating and establishing varying kinds of funds, including incubator and approved funds. As well as taking care of the fund establishment process, we can also assist with other corporate service matters.
Corporate structuring, financial licensing, investments, tax, second passport, company incorporation, and bank accounts- we take care of all of our clients’ business needs. With an eye for detail and an emphasis on efficiency and professionalism, let us help you establish your fund, or any other entity, in the BVI or beyond. To find out more about BVI, or other jurisdictions, contact us today to find out more!