Executive Summary

1. Gibraltar law permits the pooling of monies in a Private Fund without a financial services licence. The key to lawfully doing so is to:
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   • make offers to invest only to an identifiable category of persons; and
   • make less than 50 offers to invest;
   • have less than 50 investors
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2. A Private Fund would ordinarily be set up as a limited company with two classes of shares:
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   • Ordinary shares with all voting rights - Normally held by the Promotor or Investment Manager.
   • Redeemable preference shares which carry economic rights but no voting power - These are the shares investors would subscribe to.
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3. It is a flexible structure as investors can come in and out periodically by subscribing to redeemable preference shares or redeeming the same; thereby increasing or decreasing the size of their investments.
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4. There is no tax on the profits of a Private Fund and no capital gains tax. Also, there is no tax on dividends paid out and no tax when shares are redeemed.
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5. There will normally be two sources of income for the investors: (a) capital gains when they redeem their preference shares and (b) dividends. Investors may need to pay tax upon receipt of the capital gains or dividends in accordance with the laws of their country of residence.
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6. An investment prospectus would need to be drawn up in the form of a Private Placement Memorandum.
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7. A Fund Administrator is not required by law but one should be appointed to do the ongoing fund accounting and to periodically calculate the Net Asset Value. The frequency will depend upon how often subscriptions and redemptions are permitted and the nature of the Fund’s investments. Investors would redeem and subscribe to redeemable preference shares at the NAV as at the dates when this is calculated.
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8. Bank and broker accounts can be held in any part of the world. It is possible to open bank accounts in Gibraltar which would normally be operated jointly by the directors and the Fund Administrator.
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9. We have banking contacts in Gibraltar and elsewhere for the Private Fund’s accounts.
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10. A separate Investment Manager may be appointed to manage all investments of a Private Fund.
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11. A Private Fund can be set up in a matter of weeks.

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Private Funds are permitted under section 294(4)(b) of the Financial Services Act 2019 at Schedule 24, Part 2, Sections 3 and 4 thereto. This refers to private funds as“private schemes”. In essence, these are collective investment schemes that are not listed on a stock exchange and are limited to no more than 50 participants.
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The main advantages of Private Funds are that they:

• are fast to set up;
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• do not need to apply for authorisation to the Gibraltar Financial Services Commission (“GFSC”) to commence its investment activities;
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• do not require a Fund Administrator (although in most cases this is desirable);
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• do not require a custodian/depositary; and
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• do not require an audit (although in most cases this is also desirable).

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This allows Private Funds to be set up relatively cost-effectively and quickly.

Private Funds do not pay any corporation tax as investment income is not taxable in Gibraltar. Also, there is no tax on interest or dividends and no capital gains tax.

The requirements for a collective investment scheme to be classed as a Gibraltar Private Fund can be summarised as follows:

• They cannot be listed and are limited to no more than 50 participants;
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• The offer to invest must only be communicated to an identifiable category of persons (and to less than 50 in number), for example, to family and friends, to employees of a particular company or to the client of an investment manager; and
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• After the offer is first communicated to a participant, it must remain as a Private Fund for at least 12 months after that date.
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A Private Fund can beset up relatively quickly; usually within a few weeks. Crucially, there is no need to wait for authorisation from the GFSC before a Private Fund can be launched.

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Basic Structure

A Gibraltar Private Fund is normally set up as a limited company.

Shares

A PrivateFund will usually contain two classes of shares: (a) ordinary shares which will belong to the promoter of aPrivate Fund and (b) preference shares which investors can subscribe to and, in this way, invest in a Private Fund.

The ordinary shares will normally have all of the voting rights and, as such, the promoter/investment manager can control a Private Fund. It also entitles the holder of these shares to charge management and performance fees. They would not, however, normally carry an entitlement to dividends or profits.

The preference shares can be redeemable shares which will entitle the investor to redeem his shares at the Net Asset Value (“NAV”) and, in such case, a Private Fund would be an open-ended scheme. Alternatively, the shares need not be redeemable and investors could then only withdraw their investments by selling their shares to other investors. This would be a closed ended fund.

Having said that, a Private Fund can be structured in any way which the client requires. For example, it is not a requirement to calculate the NAV periodically. There must be a mechanism for valuing the shares but, if appropriate, a Private Fund can be structured in such a way so that it is as simple as possible to manage.

Directors & Ensuring Management & Control is in Gibraltar

There is no need to have Gibraltar-licensed Directors.

However, it may be advisable to have a majority of Gibraltar-resident directors in order to provide enough substance here. In such a case, all board meetings should beheld in Gibraltar and all strategic decisions taken here. Major contracts should also be signed in Gibraltar.

In essence, management and control of a Private Fund should be in Gibraltar as this will ensure that Gibraltar regulatory and tax laws are applicable.

Day to day operations can, though, be conducted outside Gibraltar. For example, it is legitimate for the investment management to be carried out by and Investment Manager from outside Gibraltar. From a Gibraltar law perspective, this will not affect its status as a Private Fund to which Gibraltar law is fully applicable.

It is possible to have directors from another jurisdiction. In those circumstances, however, a Private Fund may become subject to the regulatory and tax laws of the country or countries where the directors manage and control its business.

Fund Administrator

There is no need to have a Fund Administrator, however, it is normally advisable to have one. We have strong relationships with fund administrators in Gibraltar and will be happy to make introductions.  

They will have all of the duties you would expect including opening the bank accounts, compiling due diligence on investors in accordance with our anti-money laundering laws, processing subscriptions and redemptions, keeping management accounts and calculating the NAV.

Auditor

It is nota requirement to have a Gibraltar auditor. However, it is advisable to have one. We have the big four accountancy in Gibraltar as well as some of the mid-size ones.

Bankers

A PrivateFund will need banking facilities. In Gibraltar, these services can be provided by a range of banks we can make an introduction to.

Private Placement Memorandum (“PPM”)

The PPM is the detailed offering document/prospectus of a Private Fund which we will draw this up. This will be the offer document to be communicated to the identifiable category of investors. 

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