A continuation vehicle requires its own legal entity structure, separate from the original fund. The structure affects governance, tax treatment, investor eligibility, and ongoing administration. The choice of entity type, GP structure, and parallel vehicles should be made early in the transaction process, since they affect governance, tax reporting, investor onboarding, and ongoing administration.
Basic Structure Options
Delaware Limited Partnership
The most common structure for CVs, particularly those with institutional investors. A Delaware LP provides:
- A general partner with management authority and unlimited liability
- Limited partners with economic interest and capped liability
- Pass-through taxation (no entity-level tax)
- A well-established legal framework that institutional investors and their counsel are familiar with
This is the standard structure for institutional-quality CVs, especially single-asset vehicles with significant secondary buyer participation.
Delaware LLC
An alternative sometimes used for smaller CVs or those with simpler governance. An LLC offers members rather than partners, flexible management structures (manager-managed or member-managed), pass-through taxation, and governance flexibility.
LLCs work well for smaller transactions, deals with fewer investors, or situations where the limited partnership structure is not necessary.
GP Entity Structure
The GP entity for a CV is typically a new LLC formed specifically for the new vehicle.
Separate GP Entity
The standard approach is forming a new LLC as the GP of the continuation vehicle. This keeps the GP's liability for the new vehicle separate from other fund activities and provides clean governance.
The GP LLC is typically owned by the same principals who control the management company and the GP of the original fund. Ownership percentages may differ if the team composition has changed since the original fund.
Management Company Relationship
The GP usually delegates day-to-day management to the management company through an investment management agreement, consistent with how primary funds operate. The management company employs the team, provides advisory services, and receives management fees.
Parallel Structures and Feeders
When Parallel Vehicles Are Needed
If the original fund had parallel vehicles (domestic and offshore) or feeder structures, the CV may need similar structures to accommodate different investor types.
Tax-exempt investors may need a blocker corporation to manage UBTI exposure. If the original fund used a blocker for these investors, the CV likely needs one too.
Foreign investors may need an offshore feeder or blocker to manage effectively connected income exposure and withholding obligations.
Regulatory considerations. Some investors face regulatory constraints that require specific vehicle structures.
Typical Configuration
A full parallel structure might include:
- A domestic LP (Delaware) for US taxable investors
- An offshore feeder (Cayman Islands LP or company) for non-US investors
- A blocker (Delaware C-corporation) interposed between tax-exempt or foreign investors and the domestic fund
The CV structure should accommodate the same investor types as the original fund to ensure rolling LPs can transition smoothly. If the original fund's foreign LPs invested through an offshore feeder, the CV should have an equivalent structure available.
Governance Provisions
Fund Term
CVs typically have shorter terms than primary funds, reflecting the later-stage nature of the assets and the narrower mandate. Terms generally run several years with extension options, though the specific duration depends on the expected hold period and exit timeline for the portfolio company.
GP Removal
CV investors (particularly secondary buyers making significant commitments) may negotiate for GP removal provisions. These might include removal for cause (fraud, gross negligence) and in some cases, no-fault removal by a supermajority of LPs.
Removal provisions in CVs can be more investor-friendly than in primary funds because the investor base is more concentrated and the asset is known.
Key Person Provisions
If specific individuals are critical to the investment thesis (and they often are, given that the CV is built around continued GP management of a specific asset), key person provisions trigger consequences if those individuals leave or reduce their involvement.
Typical triggers include the GP losing the ability to make new investments until the key person issue is resolved, or enhanced LP rights (including the right to wind down the vehicle).
LPAC
Many CVs establish an LPAC with representatives from both rolling LPs and new investors. The LPAC's role typically includes reviewing conflicts, approving certain transactions, and providing a governance checkpoint for the GP.
Subscription Documents and Closings
The CV requires its own set of investor documentation.
New investors go through a standard subscription process: subscription agreements, investor questionnaires, KYC/AML checks, and accreditation or qualification verification.
Rolling LPs also need to subscribe to the new vehicle. Even though they are existing investors in the original fund, the CV is a separate legal entity with its own terms. Rolling LP subscriptions may be shorter relative to new investor onboarding, but they still need to execute the new vehicle's documents.
Regulatory Filings
The continuation vehicle is a new fund and may trigger regulatory filing obligations.
Form D. If the CV is a separate issuer raising capital under Regulation D, it needs its own Form D filing within 15 days of first close.
Blue sky filings. State notice filings are required in states where the CV has investors.
Form ADV updates. The GP's adviser filing may need to be amended to reflect the new fund, particularly if the GP is an RIA or ERA reporting private fund information on Schedule D.
These filings are separate from the original fund's filings and need to be tracked independently. For related vehicle types, see Co-Investment Vehicles and Fund Formation and Structure.
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This content is for informational purposes only and does not constitute legal, tax, or compliance advice. Consult qualified counsel for guidance specific to your situation. Capital Company is not a law firm and does not provide legal advice.