FUND REGISTRATION IN ESTONIA (AIF)
Estonia, along with Luxembourg and the UK, is one of the most favourable jurisdictions for setting up small private equity funds. In 2016, a new version of the Investment Funds Act was passed in Estonia, affording an opportunity to attract private collective investment under the simplified regulation of a small alternative investment fund (AIF).
We are ready to become your reliable partner in setting up a small alternative investment fund in Estonia. Contact us, and we will be happy to answer all your questions and provide you with high-quality legal support on Estonian and EU financial law.EESTI FIRMA provides registration, licensing and arranging of activities of a small alternative investment fund (AIF) in Estonia. Send enquiry
INVESTMENT FUND IN ESTONIA
Registration and support of small alternative investment fund (AIF)
We are a team of professionals and have many years of experience in the field of Estonian and EU commercial and financial law. Competence of our specialists enables us to offer a full range of services for the regulation and implemetation of activities of small alternative funds, starting with preliminary advice, assistance in obtaining the necessary licence and ending with further maintenance of the fund and the preparation of financial statements.
- Legal acts:
- Investment Funds Act of the Republic of Estonia
- Directive 2011/61/EU of the European Parliament and of the Council (AIFMD)
- Regulatory authorities:
- Financial Supervisory Authority (FSA)
- Financial Intelligence Unit (FIU).
Capabilities of a small alternative investment fund
Small alternative investment fund (AIF) is the simplest and most efficient form of attracting private capital for the further investment in accordance with the fund’s predetermined investment policy. Current legislation gives the fund manager wide-ranging powers in selecting investment areas and instruments and therefore a small alternative fund can be the best solution for organising collective investments in venture capital, stocks, derivatives, fiat currencies, cryptocurrencies, tokens and other virtual values, real estate and other financial and commodity assets.
A small alternative fund can, among other things, provide an effective basis for the establishment of projects or funds in the following areas:
An investment fund aimed at engaging with innovative businesses and start-up projects. The activities of venture funds are characterised by an expectation of substantial profits at the same time as high investment risks, and the investment policy is designed in such a way that profits from successful investments should fully offset the losses that arise.
An investment fund in which cryptocurrencies (such as BTC, ETH, XRP, etc.), tokens and other virtual assets are the main object of investment. Within the framework of the cryptocurrency fund, it is also possible to invest the raised funds in individual cryptocurrency or blockchain projects, initial coin offering (ICO), staking, or to use other investment opportunities offered by the developing blockchain technology industry, as well as combining investment opportunities with each other.
Real estate fund
This fund specialises in investing the raised funds of depositors in highly liquid real estate and development projects, both for short-term speculative purposes and for the long term, in order to manage the real estate objects effectively and to receive regular dividends or royalties from landlords.
The structure of a small alternative fund can be used successfully to raise collective funds and investments in a transparent and efficient way through crowdfunding or crowdinvesting to finance a pre-defined project, start-up or other idea, and for the fund investors to profit from their investment in such projects.
Advantages of registering a small alternative fund in Estonia
Registering a small alternative fund in the jurisdiction of the Republic of Estonia has many advantages, which include, among others:
- Simplicity of establishment.
The process of registering a small alternative fund takes up to 60 days.
- Transparency of management
The fund is managed and represented by a fund management company in accordance with the predetermined investment policy and the provisions of the articles of association.
- Ample opportunities
The total assets under the management of a single AIF manager in a long term investment without leverage can be up to 500 million euros. In case of short-term investments or the use of financial enhancement, total investment assets are limited to the amount of 100 million euros.
- Universal investment portfolio.
Ability to make collective investments in venture capital, stocks, cryptocurrencies, derivatives, money market instruments, precious metals, etc.
- Limited liability
Material liability of investors is limited to the amount of their investment.
- Complete confidentiality
The lists of the small fund’s investors and the size of their investments are not public information.
- Low costs
Relatively low costs of registering and maintaining a small alternative fund compared to other jurisdictions such as Luxembourg or the UK.
Structure of the small alternative fund
The functioning of a small alternative fund is carried out through the interaction of the investment fund manager and the AIF itself, which is registered with the Commercial Register as a separate legal entity – a limited partnership fund, or LPF (Est. Usaldusfond).
The fund manager is usually a legal person – a fund management company established specifically for this purpose. The main task of the fund manager is to manage investors’ financial assets in order to generate profits in accordance with the predetermined investment policy of the fund. The manager of a small alternative fund is entitled to control several AIFs whose total assets may not exceed 100 million euros (short-term investments, leveraged investments) or 500 million euros (long-term investments only). The AIF manager is entitled to receive a management fee as well as a success fee if the fund achieves certain results.
The list of tasks and responsibilities of the fund manager, among other things, includes the following:
- formation of investment policy;
- making investment decisions;
- investment and disposition of financial assets of the AIF;
- representing the interests of the fund to third parties;
- attraction of new investors;
- organising the issue of fund units;
- organising the redemption of fund units;
- distribution of income to unit holders;
- maintaining accounting and financial records;
- interaction with the regulatory authorities and other government instituitions.
An ordinary limited liability company (Est. Osaühing) with at least 2 board members (directors), who may be non-residents of Estonia, is suitable for organising the activities of a small fund manager. There are no other additional requirements for the legal entity of the fund manager or its structure, including no mandatory contribution of reserve capital or share capital.
Limited Partnership Fund (LPF)
A small alternative fund is most often registered with the Commercial Register as a limited partnership fund or LPF (Est. Usaldusfond), which is the simplest, most convenient and common legal form for the operation of an AIF. The structure of the LPF is very similar to that of a limited partnership (est. Usaldusühing). Thus, LPF members include at least one general partner (Est. Täisosanik), who is usually the fund management company, and several limited partners (Est. Usaldusosanik), who are the investors in the fund, whose relations are regulated by the foundation agreement and the provisions of the Estonian Commercial Code. The fund management company has the right to represent the fund to third parties and is obliged to deal with the day-to-day management and various issues related to the operation of the AIF. Investors, as limited partners, do not participate in the day-to-day management of the fund, but have the right to vote at general meetings of unit-holders.
Fund registration stages
In order to establish a legally correct structure of a small alternative fund and to start attracting and placing investments in accordance with all the nuances and requirements of Estonian and EU legislation, certain registration and licensing steps must be taken for the activities of the future fund.
Our experts will provide you with comprehensive support in development and preparation of all required documentation and formulation of business processes of the future AIF, as well as qualified legal support in each of the following steps required for successful registration and licensing of your AIF.
- Registration of a fund management company
First of all, it is necessary to register a legal entity to act as a fund manager. You can register a company either in person or remotely on the basis of a power of attorney or with an e-residency card. The registration process takes no more than five working days.
- Obtaining an AML licence for a fund manager
A fund management company is required to obtain an AML licence of a non-banking financial institution issued by the Financial Intelligence Unit (FIU). As part of the process of obtaining this licence, internal anti-money laundering and counter-terrorism financing procedural rules (internal AML policy) must be prepared and submitted to the regulatory authorities for review, which must include, among other things, a description of the model for applying precautionary measures and KYC to investors in onboarding and further engagement, as well as guidance on operation and risk management. The AML licence application process takes up to two months.
- Obtaining a permission to register a fund
In order to register a fund as a separate legal entity, permission must be obtained from the Financial Supervisory Authority (FSA). Together with the application for registration of the fund, the legal analysis of the AIF in accordance with the regulations of the European Securities and Markets Authority (ESMA) and the fund’s documentation package, FSA must submit a legal which will include the foundation documents, the fund management company’s articles of association and contact details, the foundation agreement, and information on the AIF’s investment policy, planned investments and investment instruments, trading venues, principal risks and other required information must be submitted to FSA in accordance with Investment Funds Act of the Republic of Estonia and the Directive 2011/61/EU of the European Parliament and of the Council. It takes approximately 2 months to process an application for an AIF registration permit, the submission and processing of this application can take place in parallel to the AML licensing process.
- Registration of a small alternative fund
After receiving authorisation from the FSA to establish an AIF, the small alternative fund must be registered within 2 months as a limited partnership fund (LPF) with the Estonian Commercial Register. You can register your LPF either in person or remotely. The LPF registration process takes up to 5 working days.
- Preparing the infrastructure
In the final stage of preparing a small alternative fund for profile activities, all issues and nuances related to the infrastructure of the future AIF should be carefully explored. For example, current accounts in banks or payment systems, investment or securities accounts, corporate accounts in various stock exchanges and investment platforms, etc. have to be envisaged and opened. It is also necessary to consider a correct and transparent system for accounting for the fund’s assets and calculating their current value, to organise the accounting and financial reporting process, etc. Our specialists are qualified and will assist you with the above-mentioned issues.
Limitations and exceptions
The activities of the small alternative fund are subject to certain restrictions. Thus, according to current legislation, the offer of small fund units cannot be public.
According to the Investment Funds Act of the Republic of Estonia and Regulation 2017/1129 of the European Parliament and of the Council, an offer of fund units is not considered public in the following cases:
- The total offer of fund units does not exceed 2.5 million euros within one year for all member states of the European Union;
- Only professional investors are offered to buy fund units;
- The offer to buy fund units is made to a maximum of 150 non-professional investors in each member state of the European Union;
- Only units with a nominal value of at least 100,000 euros are offered under the fund’s unit purchase offer;
- Each individual fund unit offer has a minimum entry threshold of at least 100,000 euros per investor.
Despite the restrictions established by the law, the small alternative fund is one of the simplest and most effective tools for attracting and managing private capital.
For personalised advice and a personalised proposal for registering and operating a small alternative fund in Estonia, please contact our specialists.