1. The DFSA would generally not expect an ordinary company, partnership or trust (an undertaking) that carries on a general commercial business to be a Fund, and therefore regulated. An undertaking would be regarded as carrying on a general commercial business where it pursues a business strategy that involves activities such as:
a. running a business involving the purchase, sale or exchange of goods and commodities;
b. supplying services – such as maintenance, cleaning, electrical or plumbing, servicing appliances;
c. providing non-financial professional services – such as legal or accounting;
d. conducting media activities/business;
e. operating an industrial activity, such as the production of goods or construction of property; or
f. carrying on a combination of the above or similar activities.
Similarly, an arrangement that pursues a charitable purpose (such as a charitable trust) would not be regarded as a Fund.
2. Further indicators which can be used to identify if an undertaking is a commercial business include:
a. the particular structure of the undertaking – i.e. if it is open-ended, then the structure is generally regarded as more suited for collective investment, rather than a commercial operation (because a commercial business does not lend itself to having parts of it sold off to meet redemption rights of investors and, also, investors in commercial businesses do not expect the business to do so);
b. the distribution mechanism used by the undertaking – if it is closed-ended and has a specified period at the end of which it will be wound up and proceeds from realising assets will be distributed to investors, then generally such an undertaking is an investment vehicle, rather than a commercial undertaking;
c. how it conducts its business – for example:
i. if the business has a large number of employees engaging in its business activities, this is a possible indicator it is a commercial business. This is because many investment companies delegate or outsource their investment and administration activities to third party service providers, and have limited staff;
ii. if the undertaking merely holds the property to take advantage of changing market prices or the income stream, it is an indicator of conducting collective investment business, rather than undertaking any construction or development activities, which are commercial activities;
iii. if the business is designed to expand any existing commercial business of investors, this is a pointer that it is a commercial business, as opposed to an undertaking which would achieve gains or benefits by realisation of the underlying assets – which is a pointer that it is an investment business; and
iv. if the business itself creates the property or assets it manages (e.g. by constructing a building), it indicates that such a business is more likely to be a property development business, which is a commercial business, rather than an investment vehicle.
d. How the undertaking promotes its business to potential investors. For example, if the business promotes itself based on its investment mandate and the investment skills of the person carrying out the investment and risk management function in the business, it is likely to be a Fund rather than a commercial business.
3. See further Guidance under CIR Rule 3.1.7 about property companies that are not Funds.