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An open-ended fund company (“OFC”) is an open-ended collective investment scheme established under the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) (“SFO”). It is a separate legal entity structured in corporate form with limited liability and variable share capital which serves as an investment fund vehicle. The OFC regime was introduced in July 2018 and was subsequently enhanced under the revised Code on Open-ended Fund Companies (“Revised OFC Code”) which took effect on 11 September 2020. Under the Revised OFC Code, all previous restrictions on the investment scope of private OFCs have been removed and intermediaries licensed or registered to carry out Type 1 regulated activities (dealing in securities) by the Securities and Futures Commission (“SFC”) and met the criteria specified under the Revised OFC Code are allowed to act as custodians for private OFCs. You may refer to our newsletter of September 2020 for details.

In this article, we will summarise the key features of the OFC regime and set out the major differences between the OFC regime and the commonly used Cayman corporate fund structure.

Key features of an OFC

	Key features of an OFC
Purpose of an OFC	An OFC is an investment fund vehicle that manages investments for the benefit of its shareholders, who are entitled to the income and profits generated by the investments made by the OFC. An OFC is not established for the purposes of trades and businesses undertaken by conventional companies.
Legal personality	An OFC is a legal person.
Fund structure	An OFC can be a single fund or an umbrella fund with various sub-funds. Each of the sub-funds enjoys segregated liability so that properties of each sub-fund are only available to the particular sub-fund. Parties outside of the sub-fund are not able to take hold of the assets even under insolvency.
Investment scope	Private OFCs: all asset classes subject to the restrictions in the OFC’s offering documents. Public OFCs: must be authorised by the SFC and are obliged to comply with the requirements under the Code on Unit Trusts and Mutual Fund (“UT Code”).
Parties	Directors	An OFC must have at least two individual directors; at least one of them is an independent director who is not a director or employee of the OFC’s custodian. A body corporate cannot be appointed as a director. A director residing outside Hong Kong must appoint a process agent to receive any process or notice. A director owes fiduciary duties and the duty to exercise reasonable care, skill and diligence to the OFC.
	Investment Manager (“IM”)	The OFC board must delegate the investment management function to an IM. An IM must be registered or licensed for carrying out Type 9 (asset management) regulated activity. An IM carries out day-to-day investment management activities of the OFC.
	Auditor	An OFC must appoint an auditor to carry out annual audits of financial statement for each financial year. The auditor must be independent of the IM, the custodian and the directors of the OFC.
	Custodian	The OFC should appoint a custodian for safe-keeping of the OFC’s assets. For public OFCs, the eligibility requirement for a custodian is the same as that listed in the UT Code. For private OFCs, apart from the custodians qualified under the UT Code, intermediaries who are licensed or registered to carry out Type 1 (dealing in securities) regulated activity are also eligible to act as their custodians, subject to further requirements including but not limited to: its SFC licence is not subject to the condition that it shall not hold client assets; it maintains a paid-up share capital of not less than HKD10 million and liquid capital of not less than HKD 3 million; the private OFC is, and remains at all times, a client of such licensed corporation or registered institution in respect of its business in Type 1 regulated activity (dealing in securities); it has at least one responsible officer or executive officer responsible for overall management and supervision of its custodian function; and it is independent of the IM. Custodians can delegate their custody responsibilities to sub-custodian(s). The custodian of a private OFC should have proper oversight over the sub-custodian(s), who must be suitably qualified and competent in safekeeping any of the OFC’s scheme property.
Registration of an OFC	Application submission	One-stop approach: applicants submit the required documents along with the fees for incorporation and business registration to the SFC.
	Business registration	Once the SFC approves the application, the Hong Kong Companies Registry (“CR”) will register the documents and issue a Certificate of Incorporation of the OFC and a Business Registration Certificate.
	SFC registration or authorisation	Registration with the SFC is a prerequisite for the incorporation of an OFC.
	Corporate filings	Hong Kong Companies Registry.
	Name of the OFC	An OFC’s name must end with “OFC” or “Open-ended Fund Company”. If it has a Chinese name, it must end with “開放式基金型公司”.
Operation of an OFC	Registered office	An OFC’s registered office must be in Hong Kong.
	SFC licence	To carry out regulated activities in Hong Kong, an IM must be properly licensed by the SFC. Should you need advice on obtaining a SFC licence, please feel free to contact us.
	Post completion approval from the SFC	Obtain approval in the event of: changing the name of an OFC or its sub-fund; appointing key operators, including directors, IM and custodian; establishment of sub-funds; and termination of the OFC or its sub-fund.
	Post registration filing to the SFC	Annual report; Interim report (if any); Offering documents; and Alteration of instrument of incorporation.
	Report certain changes to the CR	Change of address of registered office; Change of location of registers and records; Cessation of directors; Resignation of directors; Change of particulars of a director or a process agent of a director; Removal or resignation of auditor; and Alteration of instrument of incorporation.
Winding up	Apply for voluntary winding up with the SFC. An OFC may also be liquidated as an unregistered company under the Companies (Winding Up and Miscellaneous Provision) Ordinance (Cap. 32 of the Laws of Hong Kong); a creditor may present a winding up petition to the Court in Hong Kong.
Stamp duty	Transfer of shares of an OFC would be subject to stamp duty. However, re-domiciliation from an offshore fund to the Hong Kong OFC structure does not attract stamp duty because there is no change in the legal personality of the corporate fund.
Profit tax	An OFC is eligible for profits tax exemption under the Unified Fund Exemption (“UFE”) regime provided that the requirements under the Inland Revenue Ordinance (Cap. 112 of the Laws of Hong Kong) (“IRO”) are fulfilled. Under section 20AN(2)(c) of the IRO, an OFC is exempted from payment of profits tax if the profits are earned from transactions in assets of a class that is not specified in Schedule 16C to the IRO (“non-Schedule 16C class”). However, profits tax exemption is inapplicable where the OFC carries on a direct trading or direct business undertaking in Hong Kong in assets of a non-Schedule 16C class or holds assets of a non-Schedule 16C class that are used to generate income.