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PERG 9.3 The definition


For a body corporate to be an open-ended investment company, as defined in section 236(1) of the Act:

  1. (1)

    it must be a collective investment scheme;

  2. (2)

    it must satisfy the property condition in section 236(2); and

  3. (3)

    it must satisfy the investment condition in section 236(3).


Each of these aspects of the definition is considered in greater detail in PERG 9.4 (Collective investment scheme (section 235 of the Act)) to PERG 9.9 (The investment condition: the 'satisfaction test' (section 236(3)(b) of the Act)). Although the definition has a number of elements, the FCA considers that it requires an overall view to be taken of the body corporate. This is of particular importance in relation to the investment condition (see PERG 9.6.3 G and PERG 9.6.4 G (The investment condition (section 236(3) of the Act: general))).


An open-ended investment company may be described, in general terms, as a body corporate, most or all of the shares in, or securities of, which can be realised within a reasonable period. Realisation will typically involve the redemption or repurchase of shares in, or securities of, the body corporate. This realisation must be on the basis of the value of the property that the body corporate holds (that is, the net asset value).


In the FCA's view, all of the elements of the definition are clearly objective tests. In applying the definition to any particular case, a person would need to have regard to all the circumstances. This includes any changes in the way that the body corporate operates.


The FCA understands that the aim of the definition in section 236 of the Act is to include any body corporate which, looked at as a whole, functions as an open-ended investment vehicle. The definition operates against a background that there is a wide range of different circumstances in which any particular body corporate can be established and operated. For example, the definition applies to bodies corporate wherever they are formed. So, in the application of the definition to different cases, the law applicable to, and the detailed corporate form of, particular bodies corporate may differ considerably.


For a body corporate formed outside the United Kingdom, there is an additional issue as to how the applicable corporate law and the definition of open-ended investment company in the Act relate to one another. The FCA understands this to operate as follows. The term 'body corporate' is defined in section 417(1) of the Act (Interpretation) as including 'a body corporate constituted under the law of a country or territory outside the United Kingdom'. So, whether or not any particular overseas person is a body corporate will depend on the law applicable in the country or territory in which it is constituted. But if it is a body corporate under that law, the question whether it is an open-ended investment company is determined, as a matter of United Kingdom law, by the definition in section 236 of the Act. This is regardless of whether or not the body corporate would be considered to be open-ended under the laws of the country or territory in which it is constituted.