Mutual Funds Act of 1996

Prior to the Mutual Funds Act of 1996, the BVI had no legislation regulating the creation or existence of mutual funds.  Realising the increasing need for such legislation, the authorities adopted a simple, flexible Act designed to maintain the islands' established reputation for integrity and responsibility.  A principal purpose of the Act is to protect the interests of investors.  The Act also provides fund promoters and operators with a suitable location to manage their funds wherever they may be incorporated or to establish new funds under the convenient legal structure of an IBC or unit trust. 

There are in excess of 2,000 mutual funds incorporated in the British Virgin Islands having an asset value of around US$55 billion.   The Act has established credibility for the fund industry and promoted confidence in BVI funds by creating an efficient, flexible and innovative regulatory framework for both fund vehicles and their operators.  

Classification of Mutual Funds

Under the Act, funds are designated as being "public funds", "professional funds" or "private funds" (where they have no more than 50 investors). 

"Professional funds" are those that require a minimum investment of US$100,000 and where the shares are offered only to persons who ordinarily buy and sell property of the kind held by the fund and who have a net worth of more than US$1,000,000.  

Profession and private funds are not required to furnish prospectuses or to be audited.  "Public funds" are those of most interest to us, and are primarily the subject matter of the Act. 

Establishment of Mutual Funds

Typically a fund is established as an IBC (International Business Company), incorporated under the laws of the British Virgin Islands.  The IBC is established with 2 share classes, "A Shares" and "B Shares", where the "A Shares" have voting rights and are issued to the sponsors of the fund allowing them to control the IBC.  "B Shares" are sold to the investors in the fund, increasing in value as the investments held by the fund increase. The authorised share capital of the IBC should be sufficient to cover the foreseeable issuance of shares to investors.  

The Prospectus

Normally funds distribute prospectuses to potential investors, setting forth relevant details of the fund, including provisions outlining the subscription and redemption of shares, the investment strategy of the fund and the administration of the fund. 

Investment Manager 

Where a fund is expected to have public shareholders, it is recommended that a second IBC be incorporated to act as investment manager or adviser for the fund.  This relationship is established as a means of providing a mechanism for the payment of managerial or advisory fees, rather than having the investment decisions made on an informal basis.  

Registration of the Fund

Generally, all funds and the management companies thereof are required to be registered or licensed under the BVI Mutual Fund Act.  Exceptions to this rule involve registration of the fund in another recognised jurisdiction or the absence of presence in the BVI.  

The application for registration of the fund and for a license for the manager of the fund to act require the furnishing of references and resumes for the directors and officers (evidencing their appropriate experience), as well as other relevant information concerning the fund, its managers, custodians and sponsors.  

Registration requirements are somewhat less strict for the fund and its manager where the funds are not classified as "public funds". 

For More Information Contact:

Shirley Trust Company Limited
90 Main Street, Road Town, Tortola, British Virgin Islands
Tel: 1-284-494-3000
FAX: 1-284-494-3002
Internet: stcl-info@surfbvi.com

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Copyright 2000 - 2007, Shirley & Associates

updated 21-Aug-2003