Frequently Asked Questions
Quick answers to common questions about private fund compliance, registration, and operations.
58 questions
Fund Formation & Structure
View topic →Can I Form a Fund Outside Delaware?
Yes, but Delaware is the default for good reasons. Its flexible partnership statute, specialized judiciary, and institutional familiarity make it the standard choice for most fund formations.
Do I Need a Separate GP Entity?
It depends on your structure. Traditional LP funds typically need a separate GP entity for liability protection and carry allocation. SPV managers operating deal-by-deal LLCs generally do not.
Do LPs Have to Participate in a Continuation Vehicle?
No. Existing LPs are not required to roll into a continuation vehicle. The election process gives LPs a choice: sell for cash, roll into the new vehicle, or in some cases do a partial election.
How Is the Price Set in a GP-Led Secondary?
The transaction price in a GP-led secondary is typically established through competitive bidding among secondary buyers, third-party valuation, negotiated deals, or a combination of these approaches.
What Documents Do I Need Before First Close?
At minimum: an LPA (or operating agreement for an LLC fund), a subscription agreement, and a Form D filing within 15 days of first close. Most funds also prepare a PPM and side letter template.
What Happens to Carry in a Continuation Vehicle?
Carry treatment in a continuation vehicle has two components: what happens to carry accrued in the original fund (crystallized, rolled, or a combination) and what new carry arrangement applies in the new vehicle.
What Is a Continuation Vehicle?
A continuation vehicle is a new fund entity that acquires portfolio companies from an existing fund, allowing continued management while giving LPs a choice between liquidity and continued exposure. Most are GP-led, though LPs sometimes initiate the process.
What Is a Series LLC and Should I Use One?
A series LLC is a single entity that allows creation of separate "series," each with its own assets, liabilities, and members that are legally isolated from the other series. It is popular with SPV syndicators doing multiple deals.
What Is the Difference Between an LPA and an Operating Agreement?
An LPA governs a limited partnership. An operating agreement governs an LLC. Both define economic terms, voting rights, and investor protections. The difference is the entity type underneath.
What Regulatory Filings Does a Continuation Vehicle Require?
A continuation vehicle is a new fund entity that typically requires its own Form D filing within 15 days of first close, blue sky filings in states where it has investors, and Form ADV updates to reflect the new fund.
When Should I Use an SPV vs. a Traditional Fund?
Use an SPV for a single known deal with a defined investor group. Use a fund for multiple investments over time with blind-pool capital. The deciding factor is deal frequency.
Who Pays for Continuation Vehicle Transaction Costs?
Transaction costs in a continuation vehicle are typically split among the original fund, the new vehicle, secondary buyers, and the GP, with allocation varying by transaction.
Securities & Investor Compliance
View topic →Can I Switch from 3(c)(1) to 3(c)(7)?
Not mid-fund. The Investment Company Act exemption is chosen at formation and embedded in your fund documents. You can use a different exemption for your next fund.
Can Non-Accredited Investors Invest in My Fund?
Under Rule 506(b), yes. Up to 35 sophisticated but non-accredited investors can participate. Under Rule 506(c), no. Every investor must be accredited and independently verified.
Do Knowledgeable Employees Count Toward Investor Limits?
No. Under both Section 3(c)(1) and Section 3(c)(7), knowledgeable employees are excluded from beneficial owner counts. Document each employee's qualifications at the time they invest.
How Do I Verify Accredited Investor Status?
For 506(b) offerings, accept subscription agreement representations. For 506(c) offerings, use SEC safe harbor methods: review tax returns, bank statements, or obtain a third-party verification letter.
What Counts Toward the 100-Investor Limit Under Section 3(c)(1)?
Beneficial owners, not just the names on your cap table. The count looks through to natural persons who hold investment power or economic interest in the fund.
What Happens If I Exceed the Investor Limit?
Exceeding 100 beneficial owners under Section 3(c)(1) can cause the fund to lose its exemption from the Investment Company Act. The consequences are immediate and severe.
What Is a Qualified Client and When Does It Matter?
A qualified client is an investor with $2.2 million in net worth or $1.1 million under management with the adviser. This standard governs whether you can charge performance-based compensation.
What Is General Solicitation and When Is It Allowed?
General solicitation is any public communication intended to attract potential investors. It is prohibited under 506(b) but permitted under 506(c), provided every investor is independently verified as accredited.
What Is the Difference Between 506(b) and 506(c) Verification?
Under 506(b), investors self-certify through subscription agreement representations. Under 506(c), you must independently verify every investor's accredited status through SEC-approved methods.
What Is the Difference Between an Accredited Investor and a Qualified Purchaser?
Accredited investor is the baseline standard for private fund investing. Qualified purchaser is a higher bar requiring $5 million or more in investments for natural persons. All qualified purchasers are typically accredited investors, but most accredited investors are not qualified purchasers.
Registration & Regulatory Filings
View topic →Can I Use the VC Exemption If Some Funds Qualify but Others Do Not?
No. Every fund you advise must qualify. One non-qualifying SPV disqualifies the entire exemption.
Do I Need to File Form ADV If I Only Run a Small Fund?
Yes. Managing a private fund makes you an investment adviser under federal law. Size does not exempt you from filing, but it affects whether you register as a full RIA or as an Exempt Reporting Adviser.
Do SPVs Count as Separate Funds in Schedule D?
Yes. Each SPV requires its own Schedule D entry, regardless of size. Same for co-investment vehicles, parallel funds, and feeder structures.
Does ERA Status Exempt Me from Blue Sky Filings?
No. You still need to make state notice filings in states where you have investors.
Does ERA Status Exempt Me from Filing Form D?
No. Form D is due within 15 days of your first sale of securities. ERA status does not affect fund-level securities filings.
Does ERA Status Exempt Me from State Filing Requirements?
No. Federal ERA status does not preempt state law. If you have a place of business in a state, you likely need notice filings or full registration with that state's regulator.
Does Investing in Startups Automatically Make My Fund a VC Fund?
No. The SEC definition is technical. Secondary transactions, fund-of-funds, and most debt instruments do not count as qualifying investments, even if the underlying companies are early-stage startups.
Form ADV Deadlines for Private Fund Managers
Form ADV has specific deadlines that matter. Initial filing: 60 days from first close. Annual amendment: 90 days from fiscal year end. Missing them can result in ERA status revocation.
How Do I Classify My Funds in Schedule D?
Select the type that matches your fund's actual strategy: venture capital fund, private equity fund, hedge fund, or other. Your classification should be consistent with your Form D and exemption election.
How Do I Make State Notice Filings?
Most states accept filings through IARD. Select the relevant states in Item 2.C of Form ADV, and your filing routes to those states automatically.
Is Form ADV the Same as Form D?
No. Form ADV is an adviser-level filing about your firm. Form D is a fund-level filing about your securities offering. You need both.
What Happens If I Miss a Form ADV Filing Deadline?
The SEC can revoke your ERA status, leaving you operating as an unregistered adviser. Late filings also show up in your public record, which institutional LPs notice during diligence.
What Happens When I Hit $150 Million in AUM?
If you rely on the private fund adviser exemption, you have 90 days from your annual amendment to apply for RIA registration, triggering full compliance obligations.
What Is Form ADV?
Form ADV is the disclosure document investment advisers file with the SEC and state regulators. It collects information about your firm, your funds, your ownership structure, and any disciplinary history.
What Is Schedule D?
The section of Form ADV where you report information about each private fund you advise. Each fund gets its own entry with details on fund type, assets, investors, and service providers.
What Is the Difference Between an RIA and an ERA?
RIAs are fully registered with the SEC and face full compliance obligations. ERAs are exempt from full registration but still file Form ADV with a subset of Part 1A and Schedule D.
What Is the Private Fund Adviser Exemption?
An exemption for advisers who only advise private funds and manage less than $150 million in U.S. AUM. More flexibility on strategy, but you must register as an RIA once you cross $150 million.
What Is the VC Fund Adviser Exemption?
An exemption from RIA registration under Section 203(l) for advisers who only advise qualifying venture capital funds. No AUM cap applies, but every fund must meet the SEC definition of a venture capital fund.
What Parts of Form ADV Do ERAs Complete?
ERAs complete Items 1, 2.B, 2.C, 3, 6, 7, 10, and 11 of Part 1A, plus Schedule D. You do not complete Part 2 or Part 3.
When Do I Need to File an Other-Than-Annual Amendment?
Promptly (typically within 30 days) for material changes such as name, address, ownership, control persons, disciplinary events, or receipt of a previously pending audit report.
When Is My Form ADV Annual Amendment Due?
Within 90 days of your fiscal year end. For calendar-year advisers, the deadline is March 31. You must file even if nothing has changed.
When Is My Initial Form ADV Filing Due?
Within 60 days of your first fund's initial close. The clock starts when you close your first investor, not when you form the entity or start marketing.
Which States Are Problematic for Fund Manager Registration?
Delaware and Washington have exemptions that exclude 3(c)(1) funds. California has its own framework with additional requirements for non-VC funds.
Fund Tax & Reporting
View topic →Do I Need to Make Tax Distributions to LPs?
Check your LPA. Tax distributions are common but not universal. If the LPA includes a tax distribution provision, the fund must distribute cash to cover partners' estimated tax liabilities.
Does My Fund Qualify for QSBS Treatment?
QSBS qualification depends on each portfolio company meeting specific requirements, not the fund itself. Key factors include company size, business type, and holding period.
How Is Carried Interest Taxed?
Carried interest is taxed as capital gains if the fund holds the underlying investment long enough. The holding period for carry is three years under Section 1061.
What Is a Blocker Corporation?
A blocker is a taxable entity placed between the fund and certain investors to block pass-through income that would create tax problems.
What Is UBTI and Why Do Tax-Exempt LPs Care?
UBTI is income from activities unrelated to a tax-exempt entity's exempt purpose. It creates tax liability for otherwise exempt investors like endowments and foundations.
When Are Fund K-1s Due?
K-1s for calendar-year funds are due March 15, but most funds extend to September 15. LPs typically expect delivery by mid-summer.
Ongoing Compliance
View topic →Can I Show Performance Numbers on My Website?
Yes, but performance presentations must include both gross and net returns, show standardized periods, and not be misleading.
Do ERAs Need a Compliance Manual?
It is not technically required under the Advisers Act for ERAs, but institutional LPs expect it and it protects your firm.
Does the Custody Rule Apply to My Fund?
If the GP has authority to deduct fees, control distributions, or move fund money, the adviser likely has custody under the SEC's definition.
How Often Does the SEC Examine Fund Managers?
There is no fixed schedule. Risk-based factors influence examination priority, and some managers go years without an exam.
What Is a Deficiency Letter?
A letter from the SEC following an examination that identifies specific areas where your practices do not meet regulatory requirements.
What Records Do I Need to Keep and for How Long?
Keep all financial, investment, investor, compliance, and communication records. The Advisers Act requires five-year retention.
What Triggers an SEC Examination?
Routine risk-based selection, tips, complaints, referrals, prior deficiencies, new registration, and industry-wide initiatives can all trigger an exam.