Private Placement Funds in Panama

An Investment Company, also known as a mutual fund or investment fund, is a legal entity, trust, or contractual arrangement, which through the issuance and sale of its participation quotas to the investing public, obtains funds. In turn, such funds are invested and negotiated for the benefit of investors, either directly or through investment managers, in securities, currencies, metals and commodities, real estate, or any other property determined by the Superintendence of the Securities Market of Panama.

The main benefit of an Investment Company is that it offers investors the opportunity to take advantage of the economies of scale to pay investment managers, who use their expertise to diversify the risks. Through this vehicle, investors can invest in a wide variety of underlying securities, which is often financially impossible without an Investment Company.

Panama Advantages

Panama is the most attractive state with ample opportunities for investment and distribution of financial investments. The local financial and tax laws of Panama are well adapted to external investors. For all foreigners who wish to invest their financial capital, the country offers the most attractive conditions and instruments to protect confidential rights. It is for this reason that Panama often attracts businessmen who strive for the maximum security for their savings abroad. And the most important thing with the task of asset preservation is the mechanism of foundation creation.

Investment Funds in Panama
Unregulated Funds

According to current securities regulations in Panama, any Mutual Fund Company that publicly offers its participation quotas or membership interests; or offers said quotas in or from Panama, must appoint an Investment Administrator as well as a Custodian and comply with very detailed and strict requirements that are stipulated in the Securities’ regulations. Notwithstanding the foregoing, if the Mutual Fund Company will not be required to appoint an Administrator or a Custodian if its membership interests or quotas are offered abroad, or the company is incorporated and administered in a foreign jurisdiction.

If a Mutual Fund Company or its Investment Administrator or another company on behalf of the Mutual Fund Company offer securities and carry out promotional activities within the Republic of Panama, then authorities shall consider that the Mutual Fund Company is publicly offering its membership interests or quotas in Panama and thus will be required to file a license application.

An investment company shall be defined as managed in or from the Republic of Panama according to the following criteria:

1) If the investment company designates an investment administrator in the Republic of Panama.
2) If the principal domicile of the investment company is located in the Republic of Panama or the prospectus or other promotional material indicate that it is located in the Republic of Panama.
3) If the investment company has designated a custodian in the Republic of Panama.
4) If the number of directors necessary for the board of directors of the investment company to adopt a resolution are domiciled in the Republic of Panama.

An investment company shall not be considered to be managed in nor from Panama should one or more of the following circumstances arise:

1) That the investment company is formed or incorporated under the laws of the Republic of Panama.
2) That the investment company has a domicile in the Republic of Panama, provided that the Republic of Panama is not its principal domicile and the prospectus or promotional material being used does not suggest otherwise.
3) That one or more of company’s directors, officers, trustees, attorneys-in-fact or employees have their domicile in the Republic of Panama, provided that the majority of them, which have the power to make decisions on behalf of the Company, are not domiciled in the Republic of Panama.
4) That the administrative services, such as accounting, secretarial, registry, stock transfer, and other similar services are provided for the investment company in or from the Republic of Panama.

Moreover, Mutual Fund Companies that only offer their membership quotas or interests abroad are those that:

a) have been incorporated in accordance with the laws of the Republic of Panama;
b) that the investment administrator’s office or principal place of business is located outside of the Republic of Panama;
c) that the mutual fund company’s assets are managed outside of the Republic of Panama;
d) that the mutual fund company offers its membership quotas to persons domiciled abroad; and
e) the securities and assets custodian is domiciled outside of the Republic of Panama.

We recommend the registration of a company that would exclusively offer its membership quotas abroad since the attainment of this registry at the National Securities Commission is expeditious and the company’s Investment Administrator shall not be required to obtain the license that is granted by the National Securities Commission. Kindly note that the aforementioned matters are currently regulated by Regulatory Agreement No. 1-2006 of the National Securities Commission.

Investment Funds in Panama
Requirements

The requirements to register a fund or investment company that will offer its quotas or participations to persons solely domiciled abroad Panama.

Registration request

Any investment company that will offer its participation quotas to persons domiciled outside Panama will have to submit an application before the National Securities Commission through a licensed attorney, with the name and address of:

a. The investment company
b. Of its investment manager
c. Of its representative in the Republic of Panama, that can be an investment manager in Panama, a brokerage firm, an investment advisor, a Bank, a Law Firm a Trust Company or any other person appointed by the petitioner. Said representative must have enough faculties to represent the company before the Commission and to receive administrative and judicial notifications.
d. Of the custody agent
e. Of the directors and officers
f. Of the main executives of the investment company

The NSC will review the application and could request additional information in writing and any necessary clarifications deemed convenient.

Documents that must be submitted with the application

1. Power of attorney to the Lawyer or Law Firm.
2. Libel of application for the registration.
3. Power of Attorney granted to the representative in the Republic of Panama.
4. Copy of the articles of Incorporation, trust or document by means of which the fund is constituted with any amendments thereof.
5. Audited Financial Statement for the previous fiscal year. If the applicant is on pre-operational stage at the time of filing the application then it must submit an initial general balance duly audited.
6. Extract from the public registry.
7. Copy of the prospectus to be utilized.

The document on point 5 can be issued by a local or foreign CPA. If issued by a foreign CPA it must be translated to Spanish and legalized before a Panamanian Consulate or by means of the Apostille. The same situation for any and all documents issued abroad.

There doesn’t seem to be any minimum capital requirement, however, we would recommend using a minimum capital of $25,000.00 as this is the capital required for funds to be offered to persons domiciled in Panama.

Types of Private Investment Funds

In Panama, there are two types of Private Funds based on the number of investors:

Only the private fund for up to 20 investors (no registration, no license, no supervision) and the private fund for up to 50 qualified investors (requires notice to the local regulator and other requirements + investors have to invest a minimum of US$100,000).

The 20PF fund does not mention a minimum or maximum amount, but it is a private placement of funds, so it cannot be offered publicly. The 50PF refers to a minimum of US$100,000 per investor and it also needs to be a private placement.

There are no funds that can be offered publicly that don’t require registration or supervision.

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PIF20
Fund Not Exceeding Twenty Investors (20-I)

A type of private investment fund recognized by Panama law is a fund with constitutional documents which states that there will be no more than twenty (20) investors due to their membership to an enterprise or an association and that the shares or units will be offered on a private basis and not by public means of communication. This type of fund does not appoint an investment manager or custodian in the Republic of Panama. Furthermore, this type of fund does not have to be registered with the SMV – Superintendencia del Mercado de Valores de Panamá – nor notified thereto and will not be subject to compliance of the provisions of Regulation No. 5 of 23 of July of 2004.

Once we have obtained the due diligence information/documentation, we will be able to register the PIF20 in about a week.

Our firm will be able to provide you or your clients with the required legal assistance to establish an Investment Fund in Panama. Below please find some of the frequent questions we receive and their answers.

PIF50
Fifty Investors (50-I)

This option does not require to be registered and regulated with the SSM – Superintendency of the Securities Market of Panamá – to be established, but it does need to be notified of its constitution.

Provisions to create a 50-I PIF:

– Limited to 50 investors and solicitation can only be done privately, and not publicly.
– Shares shall only be offered to qualified investors with a minimum initial investment of US$ 100,000.00 each.

Who is a qualified investor?

An individual or legal entity considered professional investors (licensed fund managers or advisors) or with a net worth of at least US$1,000,000.00.

Requirements to establish a 50-I PIF:

1. Registered agent, usually a Panamanian law firm
2. Legal representative, the Panamanian serving as registered agent can be used as legal representative.
3. Documentation:
– Copy of articles of incorporation and other constitutional documents such as trust instruments.
– Copy of documents used by the fund to offer its shares
– Financial statements for the last fiscal year
– Certificate of good standing
– Evidence of appointment of a legal representative
– Certificate of the directors or corporate body confirming compliance with all the requirements
– Name and address of the fund, investment manager, offeror, custodian, directors and key executives.

The prospectus or other similar document that is used to offer the participation quotas of a Private Investment Fund will prominently require the following legend:

“This Private Investment Fund, in accordance with the terms set forth in Decree Law No. 1 of July 8, 1999, has not been registered with the National Securities Commission, nor is it within its supervision or oversight, for complying with some of the following conditions: (1) a provision that limits the number of effective owners of their participation quotas to fifty, or that forces the offers to be made through private communication and not through public means of communication; (2) A provision that establishes that its participation quotas can only be offered to qualified investors in minimum initial investment amounts of one hundred thousand Balboas (B/.100,000.00)”.

The PIF must notify its representative in the Republic of Panama any change to the aforementioned information within the next 120 days after the change to the information has occurred. It must also deliver to its representative in the Republic of Panama copies of its audited financial statements for the latest fiscal year within the next 120 days after the end of the corresponding fiscal year.

Our services and fees include the total legal fees and expenses for registering the PIF20 or PIF50 company with a special provision in the articles of incorporation, to comply with the Panama Securities Law. There is no need to appoint a local director or representative. Opening a bank account for a PIF in Panama is not unrealistic but it can certainly be very bureaucratic. Kindly note that the PIF is generally incorporated with two (2) classes of shares (i.e. investors shares and management shares). For your information, the fund manager of a PIF must be a separate legal entity that can be established as an ordinary Panama company or of any other jurisdiction that is not managed in or from Panama.

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Why TBA

What separates us from our competitors is that our services don’t end with the registration of your company. We offer a wide range of additional services others can’t or just won’t offer, such as lifetime free support.

Whilst most providers either specialise on personalized consultation at relatively high rates or run bulk registration factories without any support, we want to offer the positive aspects of both types.

Therefore TBA combines professional advice, worldwide registration services, reasonable fees, customized order processing, lifetime support and fast processing. Where others see company formation services as a bulk registration with no support and no individual assistance, we do care about your business needs.

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