The Limited Partnership Fund Bill

The Limited Partnership Fund Bill

The Limited Partnership Fund Bill 600 750 Christopher Hooley
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The rules relating to limited partnership funds (“LPF”) are to change in Hong Kong. The introduction of these changes is an attempt to ensure Hong Kong’s competitiveness as an asset management centre.

The hope is that Hong Kong will become a more attractive place for setting up LPFs through increased flexibility and becoming an alternative location for general partners (“GPs”) to domicile their funds. Many view the current guiding rules toward private equity in Hong Kong, the Limited Partnership Ordinance, Cap. 37 (“LPO”), as struggling to properly facilitate complex privately negotiated arrangements present in private equity funds.

The LPO does not cover issues such as capital contribution, distribution of profits, contractual flexibility and winding-up mechanism. Often, capital is raised and managed from Hong Kong, but the funds are established in offshore jurisdictions such as the Cayman Islands.

The Hong Kong Government acknowledged industry concerns that the current system was no longer suitable and needed to be updated to suit modern investment funds and offer alternative avenues to establishing funds in Hong Kong.

The proposed Limited Partnership Fund Bill (“LPFB”) passed the third reading at the Legislative Council on 9 July 2020. The Limited Partnership Fund Ordinance (“LPFO”) will come into operation on 31 August 2020.

General rules

Under the new rules, the LPF will need to be constituted by a limited partnership agreement, comply with naming requirements and have a registered office in Hong Kong. There is no minimum capital requirement and withdrawals/distributions of capital contributions are permitted, subject to the solvency of the LPF. Furthermore, partners in the fund have freedom of contract in respect of the operation of the fund.

A more flexible approach toward GPs

Like the LPO rules, for an LPF to eligible it is required to have one GP and one limited partner (“LP”). The new rules are set to widen the pool of potential GPs of Hong Kong LPFs. GPs no longer must be Hong Kong based and can be a non-Hong Kong limited partnership. This provides more flexibility to the LPFs that can be set up in Hong Kong, but arguably does not go far enough.

GP liability

There is a growing trend towards allowing LPFs being treated as separate legal entities within themselves, for example in jurisdictions such as Delaware and Scotland. The new rules regarding LPFs in Hong Kong do no such thing. Treating LPFs as their own legal entity limits the liability of GPs and makes setting LPFs up, in jurisdictions that provide for this, a much more attractive prospect.

Other GP responsibilities

Under the new regime the liability of GPs would be unlimited. Since GPs no longer have to be based in Hong Kong, the regime provides for measures in order to ensure that liability can be held over GPs who are based abroad.

These include the responsibility of hiring an authorised representative. The authorised representative will need to be based in Hong Kong and will be liable on behalf of the GP if they cannot be contacted.

The GP will also have to appoint an authorised institution or licensed corporation accounting professional (who may be the GP) as the responsible person to carry out anti-money laundering (“AML”) and counter-financing of terrorism measures. The responsible person criterion is an additional add on to current legislation, this is to cater towards the more flexible approach toward GPs and safeguard against money laundering and terrorist financing.

Further to this, GPs will need to appoint an independent auditor and an investment manager (who may be the GP) to carry out the day to day investment functions of the LPF. Commonly, in LPFs the GP does not need to appoint an investment manager as the limited partnership legislation does not cover these in-house concerns and it is generally deemed as a matter that should be left to the LPF itself. However, the new regime does allow for more flexibility by allowing the GP to be the investment manager for the LPF.

Other responsibilities include ensuring proper custody arrangements for the assets of the LPF, filing annual returns and notifying the Registrar of Companies of certain changes to the LPF. The requirement to file with the Registrar of Companies has been seen by some as an administrative burden that should not be included, simply fulfilling the eligibility criteria should be enough.

LP liability

The eligibility requirements regarding the LPs remain the same as under the LPO, they will not be responsible for the day-to-day management of the fund. The liability of LPs only extends to the amount of capital they have invested into the LPF. However, if the LP is deemed as managing the LPF in any way, then they may find themselves further liable.

The GP or investment manager has duties with regards to the keeping of LPF records. Records need to be kept of audited financial statement of the LPF, a register of partners, records of customers of the fund in relation to AML checks, records of transactions carried out and controllers of each of the partners in the fund.

Other key features

The identity of the GP, the authorised representative or the investment manager will be made available for public inspection. As well as this the particulars of the LPF, current and former GP(s), authorised representative(s), and investment manager(s) of the LPF. The information of the LP(s) will not be available.

Current funds registered under the LPO will not be deemed ineligible by the new system, provided that they meet the eligibility requirements.


Overall, the LPFs will be eligible to Hong Kong tax exemptions under the Unified Fund Exemption regime (“UFE”) in relation to profits from specified transactions.

A further benefit of establishing LPFs in Hong Kong is that this should help funds meet substance requirements that overseas jurisdictions typically require in order to grant tax treaty benefits, such as on dividends and capital gains.

It is important to note that this will only be the case if the jurisdiction from which the GP operates classify an LPF as subject to HK tax residency. If an LPF is set up in Hong Kong with the intention of obtaining tax exemptions, it will only receive these exemptions depending on the jurisdiction it is operating from.


Jurisdictions such as Singapore have long had tax regimes which allow foreign funds to fully operate onshore. Hong Kong is now following suit, although it will not necessarily provide as much flexibility as other jurisdictions.

The impact of the LPFO remains to be seen but the new regime will provide much more flexibility than the LPO provides and setting up onshore LPFs in Hong Kong from abroad will become a viable option. This should increase Hong Kong’s attractiveness as a major asset management centre and attract investment from other jurisdictions. The new changes will likely be of particular interest to Chinese asset managers as a means to raise offshore capital.

However, there are many restrictions still in place that GPs will need to be aware of before committing to a fund in Hong Kong. If tax benefits are the main pull factor to setting up a fund in Hong Kong, GPs will need to acutely assess if the fund will be eligible for such benefits and how the fund will need to be structured to effectively run it from overseas.


Our team at Hugill & Ip has extensive experience in dealing with Corporate & Commercial issues – so if you need further advice on these subjects and other topics discussed, get in touch with us to find out how we can help.

This article is for information purposes only. Its contents do not constitute legal advice and readers should not regard this article as a substitute for detailed advice in individual instances.

Christopher Hooley

Chris advises on a wide range of corporate commercial, corporate finance, mergers and acquisition, information technology matters, from strategising on tech driven start ups to drafting documentation required for complex cross border transactions.

All articles by : Christopher Hooley
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