Panama Fund Formation

There are two types of private funds (fondo privado) in Panama, namely, a private investment fund with up to 20 qualified investors or a private investment fund with up to 50 investors.

The operation of FPs is governed by Decree-Law No.1 of 8 July of 1999 (the “Securities Act”) together with Regulation No.5 of 23 of July of 2004 (the “Regulations”) issued by the Superintendency of the Securities Market (the “SSM”), which is the governmental body responsible for regulating funds in Panama.

There is no restriction on the type of assets the Private Fund can invest in. However, should the Private Fund hold local assets then it may require additional regulation in Panama.

Types of Private Funds

The two types are of Private Funds in Panama, the 20-FP and the 50-FP.

The 20-FP is a Private Fund for 20 investors only:

• a 20-FP is generally a Panamanian company.
• the shares of a 20- FP must only be offered on a private basis only rather than to the public.
• the constitutional documents of the 20-FP must state that there will be no more than 20 shareholders/investors.
• 20-FP does not require an auditor, a custodian or investment manager.

A 20-FP therefore has a very light regulatory touch in Panama and can be established relatively quickly and cost effectively.

Upon establishment of the 20-FP, there is no requirement to register with, or notify the SSM. Additionally, a 20-FP is not required to comply with the provisions of the Regulations, which are set out in more detail below in relation to establishment of a 50-PF.

The 50-FP is a Private Fund for 50 investors only:

• a 50-FP is generally a Panamanian company.
• SSM must be notified of the establishment of a 50-FP
• a 50-FP must have a legal representative in Panama
• the legal representative will represent the 50-FP before the SSM

As with 20-FP’s, a 50-FP does not need to be registered with the SSM. However, unlike a 20-FP, the SSM must be notified of the establishment of a 50-FP. This notification does not, however, mean that the 50-FP is classified as a registered person by the SSM.

The documents establishing a 50-FP must contain any one of the following provisions:

• a provision limiting the number of investors to 50;
• a provision requiring that all offers will be made privately and not publicly;
• a provision stating that its participation shares will only be offered to qualified investors; and
• a provision confirming that an investor’s minimum initial investment must be not less than USD $100,000.

In order to invest in a 50-FP, the investor must be a qualified investor. A qualified investor is a person who has signed a statement confirming that his assets, individually or together with his/her spouse, are worth no less than US$1,000,000 and providing his express consent to be treated by the 50-FP as a qualified investor.