Global. Comparison of Offshore Hedge Fund Domiciles British Virgin Islands, Cayman Islands and Jersey

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1 Global Comparison of Offshore Hedge Fund Domiciles British Virgin Islands, Cayman Islands and Jersey

2 Global Page 1 The decision as to where to establish an offshore hedge fund can only be made based on the specific requirements of the client. It is not possible to make an assertion that one jurisdiction is always more appropriate than another. This note does not therefore attempt to guide the reader to any one jurisdiction over another. Instead it highlights some of the features which Cayman, BVI and Jersey have in common and where they are different. It also describes certain of the legal and regulatory requirements in each jurisdiction and examines some of the factors to consider when deciding which jurisdiction to use. This note focuses principally on open-ended corporate structures that are widely offered to investors. Principal legislation BVI Business Companies Act, 2004 (as amended). Securities and Investment Business Act, 2010 (as amended). Partnership Act, 1996 (as amended). Companies Law (2009 revision) ("Companies Law"). Mutual Funds Law (2009 revision) ("Mutual Funds Law"). Companies (Jersey) Law Collective Investment Funds (Jersey) Law 1988 ("CIF Law"). Collective Investment Funds (Unregulated Funds) (Jersey) Order Financial Services (Jersey) Law Application of principles of English common law and equity Yes, subject to modification by BVI statute. Yes, subject to modification by Cayman Islands statute. Not directly, but many of these principles are reflected by Jersey statute and in Jersey customary law and where the statutory provisions are silent or the issue is absent in customary law the courts look to English and other Commonwealth cases for guidance. Status of the jurisdiction and court system The BVI is a British Overseas Territory which is self-governing and part of the Commonwealth. The head of state is HM the Queen of England and the UK is responsible for the appointment of the BVI's governor, external The Cayman Islands is a British Overseas Territory which is self-governing and part of the Commonwealth. The head of state is HM the Queen of England and the UK is responsible for the appointment of the Cayman Jersey is a UK Crown Dependency which is self-governing and part of the Commonwealth. The head of state is HM the Queen of England and the UK is responsible for the appointment of Jersey's governor, and the senior

3 Global Page 2 affairs, internal security and the administration of the courts. The BVI is part of the Eastern Caribbean Court system which was founded in The Privy Council in London is the final court of appeal. Islands' governor, national security and the administration of the courts. The Cayman Islands has its own independent court system. The Privy Council in London is the final court of appeal. members of the judiciary such as the Bailiff and deputy Bailiff. Jersey has its own independent court system. The Privy Council in London is the final court of appeal. Regulatory Authority BVI Financial Services Commission ("FSC") Cayman Islands Monetary Authority ("CIMA") Jersey Financial Services Commission ("JFSC") Government regulatory approvals Yes all open-ended vehicles falling within the definition of a "mutual fund" or "fund" under the Securities and Investment Business Act, 2010 are regulated by the FSC. Closed-end vehicles fall outside the definition of "mutual fund" or "fund" and are not regulated. Yes in general all open-ended vehicles falling within the definition of a mutual fund are regulated by CIMA. Closed-end vehicles fall outside the definition of "mutual fund" and are not regulated. Yes all funds falling with the definition of a "collective investment fund" are regulated by the JFSC. Regulatory exemptions None available for vehicles falling inside the definition of "mutual fund" or "fund". (a) funds with a minimum investment of US$100,000 (or currency equivalent) or are listed on a stock exchange approved by CIMA and have paid the prescribed fee and registered certain required documentation with CIMA are exempt from holding a mutual funds licence (see Registered Mutual Fund Unregulated Eligible Investor Funds established under the Collective Investment Funds (Unregulated Funds) (Jersey) Order 2008 are not regulated by the JFSC.

4 Global Page 3 below); and (b) funds with fewer than 15 investors, the majority in number of whom have the right to appoint and remove the directors are exempt from holding a mutual funds licence (see Exempt Mutual Fund below). Types of Fund Professional Fund a fund that is made available only to Professional Investors. Private Fund a fund that offers shares on a private basis only or the constitutional documents of which limit the number of investors to 50. Public Fund generally if a fund does not wish to be recognised as a Private or Professional Fund it may apply to be registered as a Public Fund provided it meets the criteria set out in the Securities and Investment Business Act, Licenced Mutual Fund a fund holding a Mutual Funds Licence under Section 4(1) of the Mutual Funds Law. Administered Mutual Fund a fund the principal office of which is provided by a licensed mutual fund administrator in the Cayman Islands. Registered Mutual Fund registered under Section 4(3) of the Mutual Funds Law. Exempt Mutual Fund exempt from licensing or registration under Section 4 (4) of the Mutual Funds Law. Unclassified Fund regulated under the CIF Law. Strict requirements as to experience and domicile of manager and other service providers. Certain service providers MUST be based in Jersey. Must fall within certain investment criteria and abide by certain investment restrictions. Expert Fund regulated under the CIF Law. Strict requirements as to experience and domicile of manager and other service providers. Certain service providers MUST be based in Jersey. Fast track approval process. No investment restrictions. Unregulated Eligible Investor Fund not regulated. No requirement for local service providers. No investment restrictions.

5 Global Page 4 Type of Vehicle Companies: BVI Business Company, Segregated Portfolio Company Unit Trust Limited Partnership Companies: Exempted Company, Segregated Portfolio Company Unit Trust Limited Partnership Companies: Limited Company, Protected Cell Company, Incorporated Cell Company Unit Trust Limited Partnership Minimum Investment Public Fund None Licenced Mutual Fund None Unclassified Fund None Professional Fund investors must initially invest US$100,000 each (or currency equivalent) Private Fund None Administered Mutual Fund None Registered Mutual Fund US$100,000 (or currency equivalent) Exempt Mutual Fund None Expert Fund US$100,000 (or currency equivalent) or investors are otherwise "Expert Investors". Unregulated Eligible Investor Fund US$1,000,000 (or currency equivalent) or investors are otherwise "Eligible Investors". Requirement for local service providers Registered Office and Registered Agent must be in the British Virgin Islands. All Funds must appoint an Authorised Representative in accordance with the Securities and Investment Business Act, No requirement for local service providers, directors or local audit sign-off Registered Office must be in the Cayman Islands. No requirement for local service providers or directors (subject to proviso under Licenced Mutual Fund above). Local audit sign-off required. Registered Office must be in Jersey Unclassified Fund must have Jersey based administrator or manager, Jersey based custodian, two Jersey based directors acceptable to the JFSC and an auditor (need not be in Jersey) Expert Fund - must have Jersey based administrator or manager, two Jersey based directors acceptable to the JFSC and an auditor (need not be in Jersey) Unregulated Eligible Investor Fund

6 Global Page 5 no local service provider required, no local audit sign-off Requirements for Directors No residential qualifications necessary. A Private or Professional Fund must at all times have at least 2 directors, at least one of whom is an individual. A Public Fund must at all times have 2 directors. Only an individual can be appointed as a director of a Public Fund. No residential qualifications necessary. Corporate directors acceptable. CIMA require a minimum of 2 directors for registered funds. Unclassified Fund must have two Jersey based directors acceptable to the JFSC Expert Fund - must have two Jersey based directors acceptable to the JFSC Unregulated Eligible Investor Fund no requirement for Jersey based directors Requirement for regulated Manager/Investment Manager None although BVI FSC will need to be satisfied that investment manager has requisite experience. Investment managers operating in, or from within, the BVI must be licensed by the FSC. None Unclassified Fund must have manager domiciled in Jersey (unless Jersey domiciled administrator is appointed), must have requisite experience and manager must have two Jersey based directors. Any investment manager must be suitably qualified and any delegation of management functions must have regard to the requirement that management must be carried out in Jersey Expert Fund investment manager must be regulated in home jurisdiction (or otherwise approved by the JFSC) and be

7 Global Page 6 OECD domiciled or domiciled in a country with an memorandum of understanding with Jersey Unregulated Eligible Investor Fund no requirements Government fees Annual fee to the Registrar of Corporate Affairs of $350 for companies authorised to issue 50,000 shares or fewer or $1,100 for companies authorised to issue more than 50,000 shares. An application for recognition fee of $700 and an annual fee payable to the FSC of $1,000 for Private Funds and Professional Funds. An application for registration fee of $1,000 and an annual fee payable to the FSC of $1,500 for Public Funds. Annual fee to the Registrar of Companies ("ROC") of US$732 Annual Fee payable to CIMA of US$3,659 (if fund is regulated by CIMA) Fee due to Registrar of Companies on incorporation of 200 (plus 200 fast-track fee if required) Annual Return Fee due to Registrar of Companies of 150 Registration fee due to Jersey Financial Services Commission of 1000 (applicable only to Unclassified Funds and Expert Funds)

8 Global Page 7 Timing Same day incorporations possible. Start to finish indicative timing: 6-8 weeks for Public Funds Same day incorporations possible. Start to finish indicative timing: 4-12 weeks for Licenced Mutual Funds Same day incorporations possible. Start to finish indicative timing: 4-12 weeks for Unclassified Funds and Expert Funds. 2-4 weeks for Professional or Private Funds 2-4 weeks for Administered Funds Mutual Funds, Registered Mutual Funds and Exempt Mutual Funds 2-4 weeks for Unregulated Eligible Investor Funds. Segregated Portfolio/Cells possible Yes BVI Business Companies Act, 2004 permits the creation of Segregated Portfolio Companies Yes Companies Law permits the creation of Segregated Portfolio Companies Yes Companies (Jersey) Law 1991 (as amended) permits creation of Incorporated Cell Companies and Protected Cell Companies Capital Structure No minimum capitalisation No minimum capitalisation No minimum capitalisation Multiple classes permitted Multiple currencies allowed Unlimited capitalisation permitted Multiple classes permitted Multiple currencies allowed Unlimited capitalisation permitted Minimum capitalisation of 25,000 for Jersey manager if fund is an Unclassified Fund or Expert Fund Multiple share classes permitted Multiple currencies allowed Unlimited capitalisation permitted Financial Statements Audited financial statements have to be filed with the FSC within 6 months after the financial year end by Professional and Private Funds. Audited annual statements Audited annual statements Public Funds must file with the

9 Global Page 8 FSC their audited financial statements approved by an Approved Auditor and by the directors of the fund, within 6 months after the financial year end. Prospectus Required for Public Funds. Some formal content requirements for Public Funds. Private and Professional Funds may choose not to issue an offering document. In such cases the Private or Professional Fund would have to provide an explanation to the FSC as to why no offering document is to be issued and how the relevant information concerning the fund will be provided to investors. Required and fundamental changes must be filed. Few formal content requirements For Unclassified and Expert Funds Initial prospectus and fundamental changes must be filed Basic formal requirements for prospectuses are set in law Risk and risk management procedures must be disclosed. No requirements for Unregulated Eligible Investor Fund although investors must sign specific acknowledgments and warnings. The offering documents of Private and Professional Funds must contain the "investment warning" as prescribed by the Securities and Investment Business Act, Amendments to the Prospectus and offering documents must be filed with the FSC. Recognised Stock Exchange None Cayman Islands Stock Exchange Channel Islands Stock Exchange

10 Global Page 9 Stamp duty None None unless original documents are executed in or brought into the Cayman Islands in which case maximum is US$500 None. Filing requirements and confidentiality Funds must file the mutual funds annual returns and audited financial statement. All amendments to the offering and constitutional documents must be filed with the FSC. Register of Members and Register of Directors must be maintained with the original, or a copy thereof, kept at the registered office, but are not open to public inspections. Register of limited partnership interests must be maintained at the registered office of the limited partnership, but is not open to public inspections. Requirement to maintain a register of charges, or a copy thereof, at the registered office or at the office of the registered agent, and to file details of charges with the Registrar of Corporate Affairs in order to ensure priority. All mutual funds are required to file annually audited financial statements accompanied by an annual return (which is filed electronically, usually by the auditor). Register of members and register of directors (of an exempted company) and register of partnership interests (of an exempted limited partnership) must be maintained but are not open to public inspection. The general partner of an exempted limited partnership is required to maintain a register of limited partnership interests (which is not open to inspection by the public without the general partner's consent) and a register of mortgages of limited partnership interest (which is open to public inspection. Limited Company must file annual returns. Register of Members open to public inspection. Register of Directors only open for "public companies". No requirement to keep register of mortgages and charges.

11 Global Page 10 Taxation No taxes in the nature of income tax, corporation tax, capital gains tax nor inheritance tax are payable in the British Virgin Islands. Funds and non-bvi investors are exempt by legislation from all tax. No taxes in the nature of income tax, corporation tax, capital gains tax nor inheritance tax are payable in the Cayman Islands. An Exempted Limited Partnership is entitled to apply for an undertaking from the Governor of the Cayman Islands that it will be exempt from local tax (if any should be introduced) for up to 50 years. No taxes in the nature of income tax, corporation tax, capital gains tax nor inheritance tax are payable by Limited Companies in Jersey (unless the company is a utilities company or a financial services company with a place of business in Jersey) Non-resident members' liability to Jersey income tax is limited to Jersey-source income but excluding, by longstanding concession, bank deposit interest. Jersey source income includes profits from a trade carried on in the island. However, the law excludes the non-resident partner from tax on profits derived from international activities, being business activities carried on outside the island. Restrictions on names Restrictions on use of certain words in name. Name must not be identical to or substantially similar to another name already in existence. The name of a limited company shall end with: "Limited", "Corporation", "Incorporated", "Societe Anonyme", "Sociedad Anonima" Restrictions on use of certain words in name. Name must not be identical to or substantially similar to another name already in existence. Segregated Portfolio Companies must include in its name the words "Segregated Portfolio Company" or the letters "SPC" and each segregated portfolio must be A name must not be misleading or undesirable (as decided by the JFSC) Name of a limited company shall end with "Limited", "Ltd", "avec responsibilité limitée" or "a.r.l.". Public company may end with the word "public limited company", "PLC" or "plc" Incorporated Cell Companies

12 Global Page 11 or the abbreviations" Ltd", "Corp", "Inc" or "S.A". Segregated Portfolio Companies must end with "Segregated Portfolio Company" or "SPC" Only recognised Private and Professional Funds and registered Public Funds can have the word "fund" in their name. separately identified or designated with the words "Segregated Portfolio". Exempted Limited Partnerships must include in their names the words "Limited Partnership" as the letters "L.P." or "LP shall end with "Incorporated Cell Company" or "ICC" and Incorporated Cells shall end with "Incorporated Cell" or "IC" Protected Cell Companies shall end with "Protected Cell Company" or "PCC" and Protected Cells shall end with "Protected Cell" or "PC" Ability to migrate company by way of continuation to another jurisdiction Yes Yes Yes Ability to merge multiple companies to continue as a single company Yes Yes Yes for mergers of multiple Jersey companies. Merger of foreign company with Jersey company not yet permitted but amendments to the Companies (Jersey) Law 1991 have been lodged to change this. Updated: February 2011

13 Global For further information please refer to your usual contact or: Cayman Islands Roderick Palmer, Partner T: E: Ingrid Pierce, Partner T: E: British Virgin Islands Tim Clipstone, Partner T: E: Hong Kong Denise Wong, Partner T: E: Singapore Ashley Gunning, Partner T: E: London Deborah Poole, Partner T: +44 (0) E: Jersey Jonathan Heaney, Partner T: +44 (0) E: Dubai Tim Buckley, Partner T: E: tim.buckley@walkersglobal.com Dublin Paul Farrell, Partner T: +353 (0) E: paul.farrell@walkersglobal.com The information contained in this report is necessarily brief and general in nature and does not constitute legal or taxation advice. Appropriate legal or other professional advice should be sought for any specific matter.