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The new Act on Investment Companies and Investment Funds

Many Czech investors have already invested their money or other assets into various types of funds (retail and those for qualified investors). A new legal regulation of the fund sector has been recently adopted which will have a significant impact not only on the fund administrators but also on investors themselves. On 19 August 2013, a new Act No. 240/2013 Coll., on Investment Companies and Investment Funds ("ZISIF") came into force.

The main impulse for the adoption of the new Act was mandatory implementation of the European legislation, in particular the AIFMD Directive (regulating alternative asset administrators). The aim of this directive is simply said to get under European control everything that somehow relates to the collection of money from European investors for the purpose of its investment. ZISIF will thus regulate any collection of financial resources from two or more investors, where the return on investment or investor's profit is (even if only partially) dependent on the value and yield of the assets to which they were invested (this however does not apply to family businesses, manufacturing, trading and holding companies).

Projects investing into land, buildings, receivables, companies for restructuring, private equity, venture capital, etc., which are co-financed by external investors, will often fall under the ZISIF regulation, although they do not have a status of a fund. Likewise, ZISIF will even regulate groups of investors who have joined their financial resources to purchase and participate in yield of the assets, which are individually out of their reach (office buildings, solar parks, etc.).

Most of these projects, however, will be subject only to a limited form of regulation (e.g. simplified reporting obligations, registration in the list held by CNB without the necessity to obtain the license), but they must fit into the limits - their assets shall not exceed EUR 100 million (or EUR 500 million, unless the leverage/loan is used) which cannot be distributed among investors for a period of at least 5 years.

Since many of these projects go through tax havens, AIFMD Directive aims to get these projects and money back into the EU. The Czech Republic is one of the jurisdictions that would like to compete with the well-established "fund industry" countries such as Luxembourg, Malta and Ireland.

New ZISIF introduces many new types of funds for which the Luxembourg market was an inspiration, such as:
- joint stock company with variable capital (SICAV), including possible sub-funds already known to many investors using Luxembourg funds;
- trust fund, which is a fund equivalent to a trust which will be introduced by the new Civil Code as of 1 January 2014;
- limited partnerships and limited partnerships for investment certificates, which is an equivalent to foreign limited liability partnerships, often used in private equity and venture capital area.

ZISIF cancels the limit on the maximum number of investors in the fund of qualified investors (100) the purpose of which was to ensure that the fund will be privately offered to a limited number of investors. On the other hand, ZISIF newly introduces the minimum limit for an investment of one investor in the amount of EUR 125,000 (or an equivalent in CZK) together with a declaration on acceptance of risk, probably by the logic that who is able to invest such a high amount, is also able to consider the increased risks associated with this type of fund (it usually applies: a lower regulation and diversification, a lower liquidity, more risky strategy).

The new legislation will hopefully represent a major step forward for the Czech fund business towards the developed foreign fund centres and will bring new business opportunities.
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