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Venture Capital Bill 2002

Part 2 Registration of venture capital limited partnerships and Australian venture capital funds of funds

Division 7 A guide to this Part

   

7-1   What this Part is about

The PDF Board can register limited partnerships as venture capital limited partnerships or Australian venture capital funds of funds.

Registration is one of the requirements before investments of venture capital through a limited partnership can attract the operation of:

•      the capital gains tax exemption relating to venture capital under Subdivision 118-F of the Income Tax Assessment Act 1997 (and the related provisions about similar income gains and losses); and

•      the “flow-through” treatment, under Division 5 of Part III of the Income Tax Assessment Act 1936 , of the income of limited partnerships.

Broadly speaking, the PDF Board will register a limited partnership under Division 13 if an application meets the requirements of Division 11, unless the PDF Board is satisfied that the partnership does not meet the applicable registration requirements of Division 9.

Conditional registration is an option if an application does not meet the requirements of Division 11.

                   Note:             Conditional registration becomes important if full registration is achieved. Registration is then backdated to the time of conditional registration. However, this only backdates the “flow-through” treatment of the partnership income. The other tax consequences operate from the time of unconditional registration.

The PDF Board can revoke a registration under Division 17. Broadly speaking, the grounds for revocation are:

•      failure to meet the applicable registration requirements of Division 9; and

•      failure to provide information as required under Division 15.



 

Division 9 Registration requirements

   

Table of sections

9-1            Registration requirements of VCLPs

9-5            Registration requirements of AFOFs

9-10          Meaning of permitted loan

9-1   Registration requirements of VCLPs

             (1)  The registration requirements of a VCLP , in relation to a * limited partnership, are that:

                     (a)  the partnership was established by or under a law in force in, or in any part of:

                              (i)  Australia; or

                             (ii)  Canada; or

                            (iii)  France; or

                            (iv)  Germany; or

                             (v)  Japan; or

                            (vi)  the United Kingdom; or

                           (vii)  the United States of America; or

                          (viii)  any other foreign country prescribed by the regulations; and

                     (b)  all of the partners who are * general partners are residents of a country referred to in paragraph (a); and

                     (c)  under the partnership agreement the partnership is to remain in existence for a period of not less than 5 years and not more than 15 years; and

                     (d)  the partnership’s * committed capital is at least $20 million; and

                     (e)  each investment that the partnership holds is either:

                              (i)  an * eligible venture capital investment; or

                             (ii)  an investment in a company, in which the partnership owns one or more eligible venture capital investments, that would have been an eligible venture capital investment but for subsections 118-425(2) and (6) of the Income Tax Assessment Act 1997 ; and

                      (f)  the partnership only carries on activities that are related to making * eligible venture capital investments or investments to which subparagraph (e)(ii) applies; and

                     (g)  every * debt interest that the partnership owns is, and continues to be, a * permitted loan.

             (2)  The requirements in paragraphs (1)(e), (f) and (g) are investment registration requirements .

9-5   Registration requirements of AFOFs

             (1)  The registration requirements of an AFOF , in relation to a * limited partnership, are that:

                     (a)  the partnership is established by or under the law of a State or Territory; and

                     (b)  all of the partners who are * general partners are * Australian residents; and

                     (c)  under the partnership agreement, the partnership is to remain in existence for a period of not less than 5 years and not more than 20 years; and

                     (d)  each investment that the partnership owns is:

                              (i)  an investment in a * VCLP; or

                             (ii)  an * eligible venture capital investment in a company in which a VCLP, of which the partnership is a partner, owns one or more eligible venture capital investments; or

                            (iii)  an investment in a company referred to in subparagraph (ii) that would have been an eligible venture capital investment but for subsections 118-425(2) and (6) of the Income Tax Assessment Act 1997 ; and

                     (e)  the partnership only carries on activities that are related to making eligible venture capital investments, investments to which subparagraph (d)(iii) applies or investing in VCLPs; and

                      (f)  every * debt interest that the partnership owns is, and continues to be, a * permitted loan.

             (2)  The requirements in paragraphs (1)(d), (e) and (f) are investment registration requirements .

9-10   Meaning of permitted loan

             (1)  A debt interest is a permitted loan if:

                     (a)  it is a loan made to a * company and the sum of:

                              (i)  the * equity interests that the partnership owns in the company; and

                             (ii)  any debt interests that the partnership owns in the company that can be converted into equity interests in the company;

                            is at least 10% of the sum of:

                            (iii)  all of the equity interests in the company; and

                            (iv)  all of the debt interests in the company that can be converted into equity interests in the company;

                            and the company meets the requirements of subsections 118-425(2) to (7) of the Income Tax Assessment Act 1997 in relation to the investments referred to in subparagraphs (i) and (ii); or

                     (b)  it is repaid within 6 months, or such longer period as the * PDF Board allows under subsection (3).

             (2)  A * general partner may apply to the * PDF Board, in the * form approved by the PDF Board, for the PDF Board to allow a longer period for the purposes of paragraph (1)(b).

             (3)  The * PDF Board may, for the purposes of paragraph (1)(b), allow a longer period if the PDF Board is satisfied that:

                     (a)  there are exceptional circumstances; and

                     (b)  the extended period is no longer than reasonably necessary.



 

Division 11 Application for registration

   

Table of sections

11-1          Application for registration

11-5          Determination of further information to be included in application

11-10        Further information may be requested

11-15        Period within which application must be decided

11-1   Application for registration

             (1)  A * general partner of a * limited partnership may apply, in the * form approved by the PDF Board, to the * PDF Board for registration of the partnership as a * VCLP or an * AFOF under this Part.

             (2)  An application must be in writing, and must include the following information:

                     (a)  the name and residency status of, and the relevant qualifications and experience of, each * general partner;

                     (b)  the name, address and residency status of each * limited partner;

                     (c)  for each general partner that is a * company—the address of the general partner’s registered office;

                     (d)  for each general partner who is an individual—the general partner’s business address;

                     (e)  the partnership’s business address;

                      (f)  a copy of the partnership agreement, which must:

                              (i)  require partners to contribute their * committed capital as and when required under the agreement; and

                             (ii)  prohibit the addition of new partners to the partnership except as provided for in the agreement; and

                            (iii)  prohibit increases in the partnership’s committed capital except as provided for in the agreement; and

                            (iv)  confer on a general partner the right to require partners to contribute their committed capital to the partnership; and

                             (v)  include a plan which outlines the partnership’s future intended investment activities;

                     (g)  any documents that were issued inviting investment in the partnership;

                     (h)  the amount of each partner’s committed capital in the partnership;

                      (i)  in relation to each limited partner claiming to be tax exempt in his or her country of residence—details of the facts that qualify the partner to be tax exempt in his or her country of residence;

                      (j)  if the application is an application for registration as a VCLP—a statement by a general partner as to whether the partnership meets the * registration requirements of a VCLP;

                     (k)  if the application is an application for registration as an AFOF—a statement by a general partner as to whether the partnership meets the * registration requirements of an AFOF;

                      (l)  such further information as the * PDF Board determines under section 11-5.

Note:          Part 7.4 of the Criminal Code creates offences for making false and misleading statements, giving false or misleading information and producing false or misleading documents.

11-5   Determination of further information to be included in application

             (1)  The * PDF Board may, for the purposes of paragraph 11-1(2)(l), determine, by writing signed by the Chairperson of the PDF Board pursuant to a resolution of the PDF Board, that specified information is to be included in the application.

             (2)  A determination under this section is a disallowable instrument for the purposes of section 46A of the Acts Interpretation Act 1901 .

11-10   Further information may be requested

                   If the * PDF Board needs further information to decide an application for registration under this Part, it may ask a * general partner to provide further information.

11-15   Period within which application must be decided

             (1)  Subject to this section, the * PDF Board must decide an application for registration or conditional registration under this Part within 60 days after receiving it.

             (2)  If the * PDF Board thinks that it will take longer to decide the application, the PDF Board may extend, by up to 60 days, the period for deciding it.

             (3)  An extension must be made by written notice given to a * general partner within 60 days after the * PDF Board receives the application.

             (4)  If the * PDF Board extends the period, the PDF Board must decide the application within the extended period.



 

Division 13 Registration

   

Table of sections

13-1          Registration

13-5          Conditional registration

13-10        When registration is in force

13-1   Registration

             (1)  The * PDF Board must register a partnership as a * VCLP under this Part if:

                     (a)  a * general partner has applied for registration as a VCLP; and

                     (b)  the application meets the requirements under section 11-1; and

                     (c)  any further information requested under section 11-10 has been provided; and

                     (d)  a general partner has notified the PDF Board that the VCLP has sufficient funds to begin its investment program;

unless the PDF Board is satisfied that the partnership:

                     (e)  does not meet the * registration requirements of a VCLP; or

                      (f)  has had a previous registration revoked under Division 17.

             (2)  The * PDF Board must register a partnership as an * AFOF under this Part if:

                     (a)  a * general partner has applied for registration as an AFOF; and

                     (b)  the application meets the requirements under section 11-1; and

                     (c)  any further information requested under section 11-10 has been provided; and

                     (d)  a general partner has notified the PDF Board that the AFOF has sufficient funds to begin its investment program;

unless the PDF Board is satisfied that the partnership:

                     (e)  does not meet the * registration requirements of an AFOF; or

                      (f)  has had a previous registration revoked under Division 17.

             (3)  If the * PDF Board decides to register the partnership as a * VCLP or an * AFOF under this Part, the PDF Board must notify a * general partner of the partnership as soon as practicable after the decision is made.

             (4)  If the * PDF Board decides not to register the partnership as a * VCLP or an * AFOF under this Part, the PDF Board must:

                     (a)  notify a * general partner of the partnership as soon as practicable after the decision is made; and

                     (b)  provide reasons for the decision.

             (5)  The * PDF Board cannot register the partnership both as a * VCLP and as an * AFOF.

13-5   Conditional registration

             (1)  The * PDF Board may conditionally register the partnership as a * VCLP if:

                     (a)  a * general partner has applied for registration as a VCLP; and

                     (b)  either:

                              (i)  the application for registration does not meet the requirements under section 11-1; or

                             (ii)  any further information requested under section 11-10 has not been provided;

unless the PDF Board is satisfied that the partnership:

                     (c)  would not, if it was conditionally registered, meet the * registration requirements of a VCLP within the period specified under subsection 13-10(3); or

                     (d)  has had a previous registration revoked under Division 17.

             (2)  The * PDF Board may conditionally register the partnership as an * AFOF if:

                     (a)  a * general partner has applied for registration as an AFOF; and

                     (b)  either:

                              (i)  the application for registration does not meet the requirements under section 11-1; or

                             (ii)  any further information requested under section 11-10 has not been provided;

unless the PDF Board is satisfied that the partnership:

                     (c)  would not, if it was conditionally registered, meet the * registration requirements of an AFOF within the period specified under subsection 13-10(3); or

                     (d)  has had a previous registration revoked under Division 17.

             (3)  Conditional registration under this section does not mean that the partnership is registered under this Part as a * VCLP or an * AFOF.

13-10   When registration is in force

             (1)  Registration of the partnership as a * VCLP or an * AFOF comes into force on the day on which registration under section 13-1 was granted.

             (2)  However, if conditional registration of the partnership had been granted under section 13-5 and was in force on the day on which registration under section 13-1 was granted, registration of the partnership as a * VCLP or an * AFOF is taken to have come into force on:

                     (a)  if, since its establishment, the partnership has only carried on activities related to becoming registered as a VCLP or an AFOF—the day on which it was established; or

                     (b)  otherwise—the day on which the conditional registration was granted.

             (3)  If a * VCLP or an * AFOF is not registered under section 13-1 within 24 months after the day on which the conditional registration of the partnership was granted under section 13-5, the conditional registration lapses.

             (4)  Registration is taken to be in force until revoked under Division 17.



 

Division 15 Obligations while registered

   

Table of sections

15-1          Annual return

15-5          Determination of further information to be included in returns

15-10        Quarterly returns

15-15        Further information may be requested

15-20        Other information may be requested

15-1   Annual return

                   A * general partner of a partnership registered under this Part as a * VCLP or an * AFOF must, within 3 months after the end of each * financial year, give the * PDF Board a written return that includes the following information:

                     (a)  the name and address of each partner, and that partner’s residency status at the end of the financial year (including details of changes to that status during the year);

                     (b)  in relation to each partner claiming to be tax exempt—details of the facts that qualify the partner to be tax exempt in his or her country of residence;

                     (c)  details of:

                              (i)  the amount of each partner’s * committed capital in the partnership; and

                             (ii)  any acquisitions or disposals of a partner’s * equity interests in the partnership during the year including any consideration given or received for that acquisition or disposal;

                     (d)  details of any variation made to the partnership agreement during the year;

                     (e)  details of:

                              (i)  investments the partnership made during that year; and

                             (ii)  investments the partnership owns at the end of that year; and

                            (iii)  disposals of investments during that year including any profits derived or losses incurred from that disposal;

                      (f)  if the partnership is registered under this Part as a VCLP—a statement from a general partner as to whether the partnership met the * registration requirements of a VCLP throughout the financial year;

                     (g)  if the partnership is registered under this Part as an AFOF—a statement from a general partner as to whether the partnership met the * registration requirements of an AFOF throughout the financial year;

                     (h)  such further information as the PDF Board determines under section 15-5.

Note:          Part 7.4 of the Criminal Code creates offences for making false or misleading statements, giving false or misleading information and producing false or misleading documents.

15-5   Determination of further information to be included in returns

             (1)  The * PDF Board may, for the purposes of paragraph 15-1(h), determine, by writing signed by the Chairperson of the PDF Board pursuant to a resolution of the PDF Board, that specified information is to be included in returns.

             (2)  A determination under this section is a disallowable instrument for the purposes of section 46A of the Acts Interpretation Act 1901 .

15-10   Quarterly returns

                   A * general partner of a partnership registered under this Part as a * VCLP or an * AFOF must, within one month after the end of each * quarter, give the * PDF Board a written return that includes:

                     (a)  details of any investments it has made during the quarter, and the consideration given for those investments; and

                     (b)  details of any disposals of investments during the quarter, and any profit derived or loss incurred from those disposals (including details of how that profit or loss was calculated).

15-15   Further information may be requested

                   The * PDF Board may ask a * general partner of the partnership to provide further information about the investments or disposals notified under section 15-10.

15-20   Other information may be requested

                   The * PDF Board may ask a * general partner of the partnership to provide the PDF Board with information that the PDF Board considers necessary for the purposes of administering this Act.



 

Division 17 Revocation of registration

   

Table of sections

17-1          Revoking registration for not meeting investment registration requirements etc.

17-5          Revoking registration for not meeting other registration requirements

17-10        Revocation at discretion of PDF Board

17-15        Notice of revocation

17-20        Date of effect of revocation

17-25        Revocation on application by partnership

17-1   Revoking registration for not meeting investment registration requirements etc.

             (1)  If the * PDF Board has reason to believe that:

                     (a)  a partnership registered as a * VCLP does not meet the * investment registration requirements of a VCLP; or

                     (b)  a partnership registered as an * AFOF does not meet the * investment registration requirements of an AFOF;

it must notify a * general partner of the partnership, in writing, that it will revoke the registration if it is satisfied that, at the end of the period determined under subsection (2), the partnership does not meet the investment registration requirements of a VCLP or an AFOF, as the case may be.

             (2)  The * PDF Board must, for the purposes of subsection (1), determine a period that:

                     (a)  it is satisfied is a reasonable period; and

                     (b)  does not exceed 6 months.

             (3)  The notice must:

                     (a)  state the matters that in the * PDF Board’s opinion, may constitute grounds for revocation; and

                     (b)  state the period, determined by the PDF Board under subsection (2), within which the * investment registration requirements must be complied with; and

                     (c)  state that the * general partner may make written submissions to the PDF Board about the matters in the notice within that period.

             (4)  A * general partner may make submissions about the matters in the notice at any time during that period.

             (5)  The * PDF Board must revoke the registration if, after considering any submissions made under subsection (4), it is satisfied that, at the end of that period, the partnership does not meet the * investment registration requirements of a VCLP or the * investment registration requirements of an AFOF, as the case may be.

             (6)  Subsection (5) does not apply if the registration is revoked under section 17-10 within that period.

17-5   Revoking registration for not meeting other registration requirements

             (1)  If the * PDF Board has reason to believe that:

                     (a)  a partnership registered as a * VCLP does not meet the * registration requirements of a VCLP that are not * investment registration requirements; or

                     (b)  a partnership registered as an * AFOF does not meet the * registration requirements of an AFOF that are not * investment registration requirements;

it must notify a * general partner of the partnership, in writing, that it will revoke the registration if it is satisfied that, in 60 days time, the partnership does not meet the registration requirements of a VCLP or an AFOF, as the case may be.

             (2)  The notice must:

                     (a)  state the matters that, in the * PDF Board’s opinion, may constitute grounds for revocation; and

                     (b)  state that the * general partner may apply for an extension of the 60 day period; and

                     (c)  state that the general partner may make written submissions to the PDF Board about the matters in the notice within the 60 day period or that period as extended under subsection (4).

             (3)  A * general partner may apply to the * PDF Board, in the * form approved by the PDF Board, for an extension of the 60 day period.

             (4)  The * PDF Board may, for the purposes of paragraph (2)(c), extend, by up to 60 days, the period if it is satisfied that:

                     (a)  reasonable progress is being made towards meeting the requirements; and

                     (b)  the requirements will be met within the extended period.

             (5)  A * general partner may make submissions about the matters in the notice at any time during:

                     (a)  the 60 day period; or

                     (b)  if the period was extended under subsection (4)—that extended period.

             (6)  The * PDF Board must revoke the registration if, after considering any submissions made under subsection (5), it is satisfied that:

                     (a)  at the end of the 60 day period; or

                     (b)  if the period was extended under subsection (4)—that extended period;

the partnership does not meet the * registration requirements of a VCLP or the * registration requirements of an AFOF, as the case may be.

17-10   Revocation at discretion of PDF Board

             (1)  Subject to subsection (2), the * PDF Board may revoke a partnership’s registration as a * VCLP or an * AFOF under this Part if the PDF Board is satisfied that the partnership has:

                     (a)  failed to lodge an annual return under section 15-1; or

                     (b)  failed to lodge a quarterly return under section 15-10; or

                     (c)  failed to provide any further information requested under section 15-15; or

                     (d)  failed to provide any information requested under section 15-20; or

                     (e)  during a 12 month period, received more than one notice under section 17-1:

                              (i)  that related to a failure to meet the registration requirement set out in paragraph 9-1(1)(e) or 9-5(1)(d) (whichever is applicable); and

                             (ii)  in relation to which the partnership’s registration has not been revoked.

             (2)  The * PDF Board must not revoke the partnership’s registration unless the PDF Board:

                     (a)  by notice in writing given to a * general partner of the partnership, allows the general partner at least 28 days after the notice is given in which to make written submissions to the PDF Board about the matters specified in the notice that, in the PDF Board’s opinion, may constitute grounds for revocation; and

                     (b)  considers any such submissions.

17-15   Notice of revocation

                   As soon as practicable after revoking a partnership’s registration under section 17-1, 17-5 or 17-10, the * PDF Board must give a * general partner of the partnership a notice that advises of the revocation and sets out the PDF Board’s reasons for deciding to revoke.

17-20   Date of effect of revocation

                   The revocation takes effect from the day on which the * PDF Board decides to revoke registration.

17-25   Revocation on application by partnership

             (1)  A * general partner of a partnership registered under this Part as a * VCLP or an * AFOF may apply in writing to the * PDF Board to have the registration revoked.

             (2)  The * PDF Board must revoke the registration as soon as practicable after receiving the application.

             (3)  The revocation takes effect on the day on which notice of the revocation is given to a * general partner of the partnership.