|Fund Structure||Limited Partnership or Limited Liability Company|
|Costs||$200 to form a limited partnership plus an additional $50 for a certified copy of the formation certificate|
$90 to form a limited liability company plus an additional $50 for a certified copy of the formation certificate
$300 annual LLC/Partnership Tax
Ongoing securities filings are also relatively cheap
Formation can become costly depending on the law firm or tax advisor engaged
|Timing||Entity formation can be done quickly and can be expedited on a same day turn-around for an additional fee|
|Fund Marketing||Investment Advisers Act of 1940|
Securities Act of 1933
Typically no general solicitation and all investors must be US Accredited Investors
If you do engage in general solicitation, a third party must verify all investors’ Accredited Investor status (additional cost and risk to the fund)
|Tax Treatment||Limited Partnerships and LLCs are pass-through entities and investors will be asked to claim a US tax withholding rate. |
Non-US investors are typically not subject to income tax on capital gains unless the fund is engaged in a U.S. trade or business.
|National Venture Capital Association||https://nvca.org/|
In the United States, Delaware is a commonly used jurisdiction to set up a venture capital fund due to the state’s business friendly laws. In addition to having pro-business laws Delaware also has a long history of court precedents, which makes it an appealing jurisdiction to form entities. For funds in particular, Delaware law offers a “clean slate upon which managers can build an entity that works”. Because of this, many fund managers opt for a Delaware fund structure and there are many reputable service providers that can handle setting up a Delaware fund structure efficiently. Funds formed in Delaware are typically formed as Limited Partnerships (LP) or Limited Liability Companies (LLC) (though this is less common). Delaware LPs and LLCs are both pass through entities for tax purposes, which means gains and losses flow through to the underlying investors.
Delaware LPs must be formed by the fund’s General Partner, which is typically a Delaware LLC. US-based funds are also required to have a management company that acts as the investment adviser to the fund. The management company is also typically structured as a Delaware LLC.
Investment funds are regulated by the Securities and Exchange Commissions (SEC) and are required to be registered with the SEC. However, VC funds can claim certain exemptions to get around these registration requirements.
If you are fundraising primarily in the US and investing in the US, setting up a fund in Delaware could be a good option. However, if you are primarily fundraising and investing outside of the US, you may be interested in exploring other jurisdictions. Below is a list of non-US countries that are often used as fund domiciles. Again, this is not an exhaustive list, however the countries listed below are highlighted as potential alternatives to Delaware.
More Domicile Analysis
For more information on fund domiciles, including details and analysis below:
- Venture Capital Domicile Report
- Fund Domicile in Delaware, United States
- Fund Domicile in Ontario, Canada
- Fund Domicile in Singapore
- Fund Domicile in Hong Kong
- Fund Domicile in Caymans
- Fund Domicile in Mauritius
- Fund Domicile in the Netherlands
- Fund Domicile in Luxembourg
- Fund Domicile in Estonia
- Fund Domicile in the United Kingdom