Investment Funds in Panama
A. Legal Framework.
In the Republic of Panama, the operation of investment funds and the securities market in general is regulated by Decree-Law No. 1 of 8 of July of 1999 (as amended to date, the “Securities Act”) and the regulations issued by the SSM (the “Regulations”). The government entity that is in charge of the regulation and supervision of the securities market in Panama is the Superintendency of the Securities Market (the “SSM”). In addition to the foregoing, the SSM has issued Regulation No. 5 of 23 of July of 2004 which applies specifically to investment funds in general.
B. Public Investment Funds
Generally speaking, Panama’s securities laws establish that investment funds that publicly offer their shares or quotas to persons domiciled in Panama or that are managed in or from Panama must be registered with the SSM, except if the fund is considered a Private Fund (as such term is described below). An investment fund is considered to be managed in or from Panama if any of the following conditions apply:
(a) If the investment fund has appointed an investment manager in the Republic of Panama;
(b) If the main domicile of the investment fund is located within the Republic of Panama;
(c) If the investment fund has appointed a custodian in the Republic of Panama; or
(d) If the minimum number of the directors of the investment fund required to adopt a corporate resolution of the investment fund are domiciled within the Republic of Panama.
C. Private Funds
C.1. Types of Private Funds
C.1.2. Fifty (50) Investors
Private Investment Funds (“PIF”) are not required to be registered in the SSM. PIF are those investment funds which operate in or from the Republic of Panama, whose participation quotas are not offered in the Republic of Panama and whose articles of incorporation, trust or indenture instrument, or otherwise its articles of association contain one of the following:
(i) a provision that limits to fifty (50) the number of effective owners of the PIF’s participation quotas;
(ii) a provision mandating that all offers be made through private communications and not through public media; or
(iii) a provision establishing that its participation quotas will only be offered to qualified investors whose minimum initial investment is US$100,000.00.
Qualified investors are those individuals or legal entities (1) whose line of business includes negotiation, on its own behalf or on behalf of third parties, of tradable goods composing the trading portfolio of the PIF or a substantial amount of its trading portfolio or (2) those who have signed a statement that their assets, individually or together with his/her spouse, are worth no less than US$1,000,000.00 and have given their consent to be treated as qualified investors.
PIF must have a legal representative in the Republic of Panama, who may be a broker, a brokerage house, an investment advisor, a bank, a firm of public accountants, a lawyer, a law firm or, in any event, persons authorized for such purposes by the SSM. The legal representatives must have the necessary qualifications to represent the PIF before the SSM and to receive administrative and judicial notifications in representation of the PIF.
Before starting operations in the Republic of Panama, PIF must notify the SSM, through an attorney, that they have fulfilled the requirements set forth in the Regulations. This notification does not mean that the PIF is considered a registered person with the SSM. PIF must deliver to their representative in the Republic of Panama, for purposes of being available for inspection by the SSM, the following information:
The PIF must notify to 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. The PIF 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.
C.1.3. Twenty (20) Investors
Another type of private investment fund recognized by Panama law is a fund with constitutional documents that state 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 quotas will be offered on a private basis and not by public means of communication. This type of fund does not have to be registered with the SSM nor notified thereto and will not be subject to compliance of the provisions of Regulation No. 5 of 23 of July of 2004.
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