Legal structures

Legal structures

Luxembourg investment funds, whether subject to the Fund Law or the SIF Law, are either created under a contractual or a corporate form (including the form of a partnership).

The contractual form: the Fonds Commun de Placement (“FCP”)

The FCP, which closely resembles the German or Swiss “Sondervermögen” and the UK Unit Trust, is an undivided collection of assets, managed by a management company on behalf of joint owners (the “unit holders”). Legally speaking, it is established by a contract between the management company and the depositary bank, which create “management regulations”. Investors, in the form of unit holders, buy units issued by the management company which represent a portion of the FCP managed, and by doing so become a party to the contract. The units acquired represent their right in the undivided collection of assets. Their liability is limited to the amount contributed by them.

This fund structure, which is available for funds under the Fund Law or the SIF Law, always requires a management company, which must, for the time being, be situated in Luxembourg as regards Part II funds and SIF.

The management company may be situated in Luxembourg or in another EU Member State, when it acts for UCITS funds (a “UCITS management company”). Wherever its location, a UCITS management company will have to obey strict conditions imposed by the UCITS directives and fulfil requirements in terms of capital, human, organisational and technical resources.

The corporate form: Investment Company with Variable Capital (“SICAV”)

SICAVs are corporate vehicles whose articles of incorporation provide that the amount of capital is at all times equal to the Net Asset Value (“NAV”) of the vehicle. The capital increases or decreases automatically as a result of subscriptions or redemptions, without any of the formalities generally imposed under company law regarding issuance or reduction of capital. Although called “unit holders” in the Fund Law, SICAV investors are legally-speaking, shareholders and as such have a right to vote in shareholders’ meetings in addition to their economic rights.

A SICAV created as a UCITS fund may either designate a UCITS management company (as for the FCP above) or may be a so-called Self-Managed SICAV, whereby the necessary processes and infrastructure are technically part of the fund itself.

For Part II funds and SIFs, no legal requirement exists for appointing a management company although other reasons (e.g. fiscal, governance structure, etc.) may make use of such a management company valuable.

SICAVs may take different legal forms, depending on the law to which they are subject. The Fund Law limits SICAVs to being public limited companies (S.A.) while the SIF Law allows them to also take the form of e.g. limited partnerships (S.C.A.) or private limited companies (S.à.r.l.). This flexibility in the choice of legal form has many advantages, from a tax and corporate law point of view.

Finally, in addition to the SICAV, a fund may also be structured as a SICAF, being a corporate vehicle with fixed capital. Available for all types of funds, its limited flexibility means it is rarely used.