About Variable Capital Company Incorporation
Singapore is Asia’s leading fund management hub and their growth has reached trillions to date. The introduction of a new corporate structure that caters to investment funds is another reason for this recognition.
The Variable Capital Company (VCC) complements recent unit trusts and the investment companies. These funds are the most common investment fund structures they use in Singapore. At the same time, they bring better operational flexibility, tax benefits, and cost-efficiency.
Here are the common questions about the VCC:
What is VCC?
A VCC is a type of corporate structure that allows the issuance and redemption of shares to have an easier process. The VCC’s capital is always the same value as its net assets. Thus it gives more flexibility in distributing and reducing capital. This structure also pays dividends from the capital, which provides more freedom to fund managers in meeting their dividend payment requirements. In addition, the shareholders of VCC do not require publicity. This offers privacy to investors, which is not the same for regular companies.
What Are the Requirements for VCC Incorporation?
The requirements needed for a VCC incorporation are:
- The VCC name you propose, information about the financial year-end, proposed VCC officers particulars, registered office, proposed VCC constitution, and the applicable declarations/ endorsements.
- There must be one director who is a Singapore resident. That means Singapore citizens, Permanent residents, or EntrePass/Employment Pass holders who have a local address can qualify.
- One director who is a Qualified Representative, or proposed VCC management director.
- A manager who is also a Permissible Manager should appoint a manager to handle the VCC.
- Payment of the incorporation fee.
Who Can Incorporate a VCC?
You can incorporate a VCC can be done through ACRA by the help of a Corporate Service Provider (CSP) or a subscriber to VCC’s proposed constitution. A subscriber can be a corporate or individual entity that subscribes to the proposed VCC shares.
What Are the Main Features of a VCC?
- It is the Variable Companies Act that governs the VCC. When it comes to the administration and establishment, ACRA is the regulatory authority. The MAS oversees the anti-money laundering and financing for countering terrorism.
- VCCs can either be an umbrella or standalone fund entity that has multiple sub-funds, and each of them could have very distinct goals for investment, assets, liabilities, and investors.
- It must have a fresh shareholder registry and show details to the law enforcement authorities by request.
At Least How Many Directors Are Required in a VCC?
- There must be at least one Singapore resident director. It means that Singapore citizens, permanent residents, EntrePass/Employment Pass holders, or those with a residential address may become a director. The FIN holders may get consent from a relevant pass issuing authority before accepting the position or registering in a company.
- There should be at least 1 director who is a Qualified Representative or a VCC fund manager director.
What Are the Main Benefits of a VCC?
- Exemption from doing the corporate resolution and solvency tests – It is not necessary to have corporate resolutions and solvency tests to solve the shares problem and redemption if it is a VCC. Not having to do these requirements is helpful in making sure there is a seamless movement of capital. In addition, shareholders have more freedom and flexibility to enter or exit funds through the subscription and redemption of easy shares.
- Direct distribution of dividends from the capital – In contrast to the set up of companies following the Companies Act where dividends are only distributed from revenues, VCC dividends can come directly from its capital
- The register is not disclosed – Even if VCCs need a shareholders’ registry, they are not obliged to show it to the public.
- Umbrella funds can be constituted – The law allows VCCs to be arranged as umbrella funds that have sub-funds. They can share the same board of directors, with a similar auditor, fund manager, administrative officer, and custodian.
What is the Minimum Capital Requirement for a VCC?
- The law does not impose a capital maintenance requirement to have a VCC. The VCC needs to issue a minimum of 1 share.
- Shares do not have a par value. The exact value of a VCC paid-up capital is equal to the net asset value all the time. Therefore, the VCC share price of a VCC fluctuates with the value of its assets and share price that is equal to the total net asset value. It will then be divided by the outstanding number of shares.
What Are the Requirements for a VCC Fund Manager?
A VCC should choose a Permissible Fund Manager to handle its property or operate a CIS that includes the VCC. A Permissible Fund Manager means:
- It could be a company with a license for fund management that also holds a license for capital market services based on the Securities and Futures Act.
- A fund management company under the Second Schedule to the Securities and Futures Regulations.
- An exempted financial institution under section 99 or of the Securities and Futures Act according to the requirement that holds capital markets services license to do business in fund management.
What Are the Main Considerations for a VCC in Singapore?
One main concern of a VCC in Singapore is segregating the sub-fund assets and its liabilities. The sub-fund umbrella framework does not have its own separate legal entity. Therefore, this segregation must address the possibility of contagion where the assets and liabilities of sub-funds could be used in discharging other liabilities of the sub-funds.
The re-domiciliation of funds is also a consideration in countries outside Singapore. Since the Act permits the re-domiciliation of funds, there is more flexibility. The majority of funds which use overseas jurisdictions to pass investment through a similar media to the VCC can now re-domicile and combine their investments for the operation pool. The foreign-domicile funds that are constituted as corporations must first convert into a Variable Capital Company or incorporate a new one before they re-domicile in Singapore.
What Are the VCC Director Requirements?
- He/she should be 18 years old.
- Must have legal capacity.
- A fit and decent person. You can find the factors to determine if a person is and decent to become a VCC director under the Variable Companies Regulations 2020; and
- They must not be disqualified from being an acting VCC director like an undischarged bankrupt.
You can easily ask 3E Accounting to help you with the Variable Capital Company because their Singapore incorporation services are reliable and they are all experienced experts in this.