Private Equity Fund Formation Documents

by Richard Wilson on October 1, 2011

The legal formation of a private equity fund requires the necessary certificates, documents, and agreements to form both the fund and the general partner.  Investors in private equity funds expect to see the funds set up as a Delaware limited partnership. Since a limited partnership needs to have a general partner, it is advisable for liability purposes to create a limited liability company to serve as the general partner of the fund.

The following article provides a detailed list and description of the legal materials required to form a private equity fund:

  1. Confidential Private Placement Memorandum (the “PPM”): The PPM includes a description of the Fund’s investment objective and investment process, a summary of terms, risk factors, U.S. federal income tax considerations, ERISA and other benefit plan considerations and other relevant disclosure.
  2. Limited Partnership Agreement: The Limited Partnership Agreement provides the rights and obligations of the limited partners and the general partner of the Fund.
  3. Subscription Agreement: The Subscription Agreement provides the representations, warranties and covenants of limited partners investing in the Fund.
  4. Certificate of Limited Partnership: The Certificate of Limited Partnership is filed with the Delaware Secretary of State and forms the Fund.
  5. Form SS-4: Form SS-4 is used to obtain an Employer Identification Number (“EIN”) from the Internal Revenue Service (“IRS”) for the Fund and the General Partner
  6. Form U-2: Form U-2 must be filed with each state in which the Fund’s limited partners reside.
  7. Form D: Form D must be filed with the SEC and each in state in which the Fund’s limited partners reside.
  8. Application for EDGAR Codes: This Application for EDGAR Codes is used to obtain EDGAR Codes so the Fund can file its Form D with the Securities and Exchange Commission (“SEC”) within 15 days of its initial closing.
  9. Certificate of Formation: The Certificate of Formation is filed with the Delaware Secretary of State and forms the General Partner.
  10. Operating Agreement: The Operating Agreement is signed by each member of the General Partner.

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Private Equity Investment Strategies

by Richard Wilson on October 1, 2011

The private equity industry typically employs five main types of investment strategies: (1) Leveraged Buyouts; (2) Venture Capital; (3) Growth Capital; (4) Distressed Investments; and (5) Mezzanine Capital.  The following article presents a brief description of the Top 5 investment strategies.

  1. Leveraged Buyouts—A leveraged buyout or “LBO” is an investment strategy that allows private equity funds to purchase a company and leverage the company as collateral for the bonds or loans used to purchase the equity securities. 
  2. Venture Capital—Venture capital investments focus on providing capital and managerial expertise and services to promising companies.  Venture capital strategies identify firms and companies with growth potential and invest capital in equity securities.
  3. Growth Capital—Growth capital investments are those investments that supply capital in exchange for equity securities in a company.  These companies are typically chosen due to their positioning in the industry and potential for growth in response to the capital investment of the private equity fund.
  4. Distressed Investments—Distressed investments are those strategies that invest capital from private equity funds in identified companies that are financially stressed.  The distressed investment strategy will typically employ the “distressed-to-control” or “special situation” techniques when deciding to invest capital in the company.
  5. Mezzanine Capital—Mezzanine capital is an investment strategy that is structured financing as an unsecured debt that requires no collateral.  Mezzanine capital investments often require interest rates of 20-30% in order to make it profitable to the private equity fund.  The mezzanine capital investment strategy allows companies to attain financing without going public and ceding equity securities of the company.  However, in the case of default loan payments, private equity funds have the ability to convert their investment to an equity security of the company.

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Private Equity Fee Structure

October 1, 2011

Firms that specialize in private equity funds vary in regards to fee structures and management styles.  Typically, private equity firms will incorporate management and performance fees in association with the private equity fund.  For example, a private equity firm may institute an annual management fee of 2% of assets under management, and 20% of net […]

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Private Equity Fund

October 1, 2011

Private equity or “PE” is defined as those investments in the securities of companies that are not publicly owned or traded.  Private equity firms focus on raising capital from individuals and organizations to invest in the securities of private companies.  Capital investments made by private equity funds are restricted to private companies or public companies […]

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What is Private Equity?

September 30, 2011

Private equity or “PE” is defined as those investments in the securities of companies that are not publicly owned or traded.  Private equity firms focus on raising capital from individuals and organizations to invest in the securities of private companies.  Capital investments made by private equity funds are restricted to private companies or public companies […]

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Venture Capital Fund Formation Documents

August 18, 2011

Venture capital funds require specific documents to form a venture capital fund.  Most investors in venture capital funds expect to see the fund set up as a Delaware limited partnership. A limited partnership needs to have a general partner and it is advisable for liability purposes to create a limited liability company to serve as […]

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Venture Capital Fund Structure

August 18, 2011

The structure of venture capital funds are typically seen as limited partnerships or limited liability companies, where the general partner or managing member manage the invested funds and offer investment advice with regards to potential ventures.  The investors of the venture capital fund are known as limited partners or members.  The following graphic displays the […]

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What is a Venture Capital Fund?

August 18, 2011

A venture capital fund is defined as an investment vehicle formed as a limited partnership or limited liability company that manages and invests financial capital. Venture capital investment funds typically invest in 6 general financing stages: (1) The Seed Stage; (2) The Start-up Stage; (3) Series A Round; (4) The Second Round; (5) Mezzanine Financing; […]

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What is Venture Capital?

August 18, 2011

Venture capital is defined as financial capital or expertise invested in start up companies. Investors supply venture capital to start up companies based upon their growth potential.  The investment of venture capital is categorized as high risk but retains the capacity to make high returns from the investment. Click here for additional Venture Capital Fund […]

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Venture Capital Fund

August 18, 2011

A venture capital fund is defined as an investment vehicle formed as a limited partnership or limited liability company that manages and invests financial capital. Venture capital is defined as financial capital or expertise invested in start up companies. Investors supply venture capital to start up companies based upon their growth potential.  The investment of […]

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