On 15 January 2020, the Monetary Authority of Singapore (MAS) and the Accounting and Corporate Regulatory Authority (ACRA) launched a new regulatory framework that governs a modern and rather unusual new type of entity – the Variable Capital Company (VCC). The VCC regulation was provided by the VCC act back in 2018 but the Act only commenced in January 2020.

What is a Variable Capital Company?

The VCC is a special corporate structure, specifically tailored for investment funds. As stated by the VCC Act the sole object of the Variable Capital Company is to incorporate one or more investment schemes in the form of an entity. The VCC can not engage in any business activities that are inconsistent with this purpose.

Key Characteristics of the VCC?

The VCC has several key characteristics as outlined by ACRA. As evident from the name of the entity, these are mostly associated with its capital structure.

Variable Capital Structure

A VCC has a variable capital structure that provides flexibility in the issuance and redemption of its shares. It can also pay dividends out of capital, which gives fund managers flexibility to meet dividend payment obligations.

Single Fund or an Umbrella of Funds

The VCC can be set up as a single fund or a multitude of funds grouped under an umbrella of funds. Each fund can hold a portfolio of segregated assets and liabilities.

Open or Close-Ended Strategies

A close fund does not allow investors to redeem their investment at their sole discretion while open funds allow this option. Another difference between the two types of funds is that closed funds have a fixed number of shares while open funds allow for subscriptions after the initial offering. VCC can be set up in both ways.

Re-domicile Option for Foreign Investment Funds

In addition to the option for incorporating a new VCC, fund managers may also re-domicile in Singapore their existing overseas investment funds and register them locally.

A non-public register of shareholders

Variable Capital companies must keep a register of their shareholders but do not need to make this register public. It must, of course, be presented to authorities upon request.

How to Register a VCC

Any person or a group of persons can incorporate a VCC. For the purpose of incorporation, they must sign a company constitution. ACRA has already provided an example constitution for VCCS. The VCC must have a minimum of one member and the subscribers of the constitution are considered to have agreed to become its initial members. Additional members are entered in the member’s register. Corporations can also be members of variable capital companies.

In order to register a VCC, the initial members must file an application with BizFile. The statutory filing fee is S$8,000 together with S$15 for a name application.

Directors & Managers of the VCC

The company must have a manager and directors. A manager of a VCC must be

  • a holder of a capital markets services license for fund management under the Securities and Futures Act;
  • a Registered Fund Management Company;
  • any local bank;
  • any finance company licensed under the Finance Companies Act;
  • any company or co-operative society licensed under the Insurance Act

Every VCC must also have:

  1. at least one director who is ordinarily resident in Singapore; and
  2. at least one director who is either a director or a qualified representative of the manager of the VCC.

The persons under points 1 and 2 may also be the same person as long as they satisfy both criteria. A director can only be a natural person. MAS will likely provide a further fit and proper criteria for managers and directors of VCCs.

First Registered VCCs

So far there have been 20 registered VCCs in Singapore. A group of 18 fund managers participated in a VCC Pilot Programme that was initiated by MAS and ACRA in September last year. All of these fund managers have today incorporated or re-domiciled a total of 20 investment funds as VCCs.