Articles of Incorporation

Articles of Incorporation are the foundational legal documents that create a corporation. When hedge funds organize as corporate entities, these documents establish the basic framework for how the fund will operate.

The articles define essential elements like how much stock the company can issue, who makes key decisions, and what business activities are allowed. They create the legal foundation that everything else builds upon.

The specific name and filing requirements for these documents change depending on where you incorporate. This reflects different legal systems and regulatory approaches around the world.

For domestic funds in the United States, most hedge funds don't actually use the corporate structure. Instead, they typically organize as limited partnerships. These funds file certificates of limited partnership or certificates of formation with the Secretary of State, usually in Delaware.

work differently. These funds set up as corporations in foreign countries and must file their documents with the relevant foreign government agency. In the —the most popular location for offshore hedge funds—the equivalent documents are called . They serve the same basic purpose as articles of incorporation in the United States.

Articles of Incorporation create the essential management framework for corporate hedge funds, especially offshore vehicles. These documents give the the power to oversee the fund's operations, make decisions on behalf of the fund, and vote on various matters.

The memoranda and articles of association work together with the fund's marketing documents to create a complete management structure. This ensures clear lines of authority and responsibility.

The board of directors established through these documents typically has at least three members. Most of these directors are not affiliated with the investment manager, which helps ensure independent oversight. Professional service providers in offshore locations often supply these independent directors for a fee. This has created a specialized industry of professional directors who support hedge funds.

Articles of Incorporation define how much stock the company can issue and create different types of shares with different rights. For offshore funds, these documents often establish complex voting structures that balance efficiency with investor protection.

Fund sponsors—the people who create and manage the fund—may give voting rights to all shareholders. Alternatively, they might restrict voting rights to special "management shares" held only by the sponsor, its affiliates, or designated trustees.

The management share structure can make operations more efficient. Holders of these special shares may control who sits on the board of directors, change the memoranda and articles of association, or decide when to shut down the fund. However, management share holders cannot vote in ways that would harm the rights of other shareholders.

Articles of Incorporation establish procedures for making changes to the corporate structure and define what shareholders can vote on. The holder of voting management shares can usually change the memoranda and articles of association through a special resolution. However, they cannot change the rights attached to specific types of shares without broader approval.

Under Cayman Islands law, certain shareholder rights cannot be changed without approval from a majority of the outstanding shares in a particular class. This typically requires a two-thirds majority vote, which protects minority shareholders from having their rights taken away.

Articles of Incorporation for hedge funds must accommodate the unique needs of investment fund operations. These documents typically include provisions that address several key areas.

First, they establish procedures for issuing new shares to investors and allowing investors to redeem their shares. Second, they give directors the authority to make investment decisions on behalf of the fund. Third, they set up mechanisms for calculating and paying management fees and performance fees. Finally, they create procedures for communicating with investors and meeting reporting requirements.

While Articles of Incorporation create the legal entity, they work as part of a larger set of documents. This includes offering memoranda that describe the investment strategy to potential investors, for domestic funds, that investors sign, and various other supporting documents.

The articles create the legal foundation, and the other documents build the complete operational and investment framework on top of it.

Articles of Incorporation must comply with the laws of wherever the fund incorporates. At the same time, they must support the fund's broader compliance obligations with regulators in multiple countries.

For offshore funds, these documents become part of what must be filed with authorities like the Cayman Islands Monetary Authority. They also help the fund comply with various international reporting standards and requirements.

It's worth noting that as of March 2025, domestic U.S. entities, including hedge fund corporations, are exempt from requirements under the . However, foreign entities registered to do business in the United States may still need to file these reports.

Once filed with the appropriate government authority, articles of incorporation become part of the public record. Anyone can look them up and see the fund's basic corporate structure. This provides transparency about how the fund is organized while keeping proprietary information about investment strategies and detailed operations private.

This balance between transparency and confidentiality reflects how most offshore jurisdictions that hedge fund managers prefer approach regulation. Investors and regulators can see the basic structure, but competitive secrets remain protected.