What You Should Know about the Variable Capital Company?

The Variable Capital Company (VCC) is a highly beneficial form of business organisation preferred by small enterprises. VCC offers advantageous features in terms of taxation, liability protection, and ease of establishment and dissolution, surpassing sole proprietorship and partnership. Furthermore, VCCs are highly efficient in administration and accounting, making them an ideal choice for small businesses.
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What is VCC?

A Variable Capital Company (VCC) is a corporate structure in Singapore designed for investment funds. It allows for flexible share issuance and redemption without requiring shareholder approval and permits dividend distributions from capital. VCCs can function as standalone entities or as umbrella structures with multiple sub-funds, each maintaining separate assets and liabilities. This structure supports both open-ended and closed-ended fund strategies. Establishing the VCC framework has bolstered Singapore’s position as a center for fund management and domiciliation.

How Variable Capital Company Established in Singapore?

In 2016, the Investment Management Association of Singapore proposed a new flexible investment fund structure. In March 2017, the Monetary Authority of Singapore issued a public consultation to get feedback on elements of this corporate structure, which was later approved.

The Ministry of Finance, in its 2018 Singapore Budget Statement, declared that Venture Capital Companies (VCCs) would be treated as separate entities for taxation purposes. On 10 September 2018, the first draft of the VCC bill was presented to the parliament. The bill was passed on 1 October 2018. The VCC Act will come into effect in 2019; however, no date has yet been announced.

The framework incorporates several features of open-ended investment companies already available in jurisdictions such as Luxembourg, Ireland, the United Kingdom, and the United States. Initially known as Open-End Investment Company (OEIC), the firm has now rebranded as Singapore Variable Capital Company (S-VACC). The name was later changed to Variable Capital Company.

Key Aspects of Variable Capital Company

The recently introduced framework has piqued the interest of the fund management sector due to its distinctive attributes, which will provide operational adaptability to fund managers based in Singapore. This is primarily due to the incorporation of a variable capital company administration and accounting system, which will allow for greater flexibility in managing funds. The industry professionals have taken note of these advantages and are keeping a watchful eye on this exciting development.
  • The administration and accounting of variable capital company (VCC) allow it to cater to both traditional and alternative funds, making it accessible to both retail and restricted class investors alike
  • Shares can be redeemed without shareholders' approval, and dividends are paid from capital. This offers greater flexibility than corporations
  • It must maintain up-to-date shareholder registers and disclose information to the regulatory authorities upon request
  • The fund must appoint a management company licensed or registered by MAS, or an exempt financial institution in Singapore. To ensure that the vehicle is not misused for unlawful purposes, it must be registered with the state
  • Variable capital company administration and accounting can be performed using various accounting standards by venture capital firms that offer their services to restricted investors such as accredited investors. These standards may include US GAAP, ASC Standard, or IFRS

Key Features and Advantages of VCCs:

Aspect
Details
Governing Legislation
Regulated under the Variable Capital Companies Act; the Accounting and Corporate Regulatory Authority (ACRA) handles establishment and administration, while the Monetary Authority of Singapore (MAS) oversees anti-money laundering and counter-terrorism financing obligations.
Fund Applicability
Suitable for both traditional and alternative funds; can cater to retail investors or restricted classes.
Structural Flexibility
Operates as a standalone fund or an umbrella entity with multiple sub-funds, each with distinct investment objectives, assets, and liabilities.
Capital Management
Allows share issuance and redemption without shareholder approval; permits dividend distributions from capital, providing operational flexibility.
Governance Requirements
Must appoint a fund management company licensed or registered by MAS or an exempt financial institution in Singapore; requires a Singapore-registered office, resident company secretary, auditor, and at least one resident director.
Confidentiality
Maintains an updated register of shareholders, which is accessible to regulatory and law enforcement authorities upon request but not publicly disclosed.
Accounting Standards
VCCs offered to restricted investors can adopt internationally accepted accounting standards like US GAAP, ASC Standard, or IFRS.

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Singapore Variable Capital Company

To ensure that your fund management company is properly licensed, and make sure it is registered with the Monetary Authority of Singapore (MAS).

Demonstrate proof of substance via

  • Singapore Registered Office
  • Singapore Resident Company Secretary and Auditor
  • 1 Resident Director

Maintain an updated shareholder register.

Key Steps to set up a Variable Capital Company (VCC) in Singapore

Creating a Variable Capital Company (VCC) in Singapore involves several essential steps to comply with regulatory and operational standards:

Select and Register a Name

Choose a unique name for the VCC and submit it for approval through the VCC Portal. Upon approval, the name is reserved for 120 days, within which the incorporation must be completed.

Define the VCC Structure

Decide whether the VCC will operate as a standalone fund or as an umbrella entity encompassing multiple sub-funds, each with distinct investment objectives, assets, and liabilities.

Appoint Key Personnel

  • Directors: Appoint at least one director who is a Singapore resident. For VCCs comprising authorised schemes, a minimum of three directors, including one independent director, is required.
  • Company Secretary: Appoint a resident company secretary within six months of incorporation.
  • Fund Manager: Engage a permissible fund manager who is licensed or registered by the Monetary Authority of Singapore (MAS) or is an exempt financial institution.

Establish a Registered Office and Constitution

Secure a registered office address in Singapore and prepare the VCC’s constitution, outlining its governance framework and operational guidelines.

Incorporate the VCC

Submit the incorporation application through the VCC Portal, providing all necessary documentation and paying the required fee. Upon successful incorporation, a Unique Entity Number (UEN) will be issued.

Register Sub-Funds (if applicable)

For umbrella VCCs, register each sub-fund by providing its proposed name and establishment date. If transitioning from a non-umbrella to an umbrella structure, update this change on the VCC Portal within 14 days.

Ensure Compliance and Ongoing Obligations

  • Audit Requirements: Appoint a Singapore-registered auditor within three months of incorporation.
  • Regulatory Compliance: Maintain adherence to financial reporting standards and anti-money laundering regulations.
  • Substance Requirements: Demonstrate substantial presence in Singapore through the appointment of local directors and a company secretary and maintaining a registered office.
By following these steps, fund managers can effectively establish a VCC in Singapore, utilising its flexible regulatory framework to accommodate diverse investment strategies.
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