Launching a fund involves more than raising capital. Before your first close, you need the right legal structure, the right documents, and the right service providers in place. The decisions you make during formation, from entity type to LPA terms, will shape your fund's operations, economics, and regulatory obligations for its entire life.
This guide covers the core structural and documentary decisions in fund formation, with a focus on what matters most for emerging and mid-sized managers launching their first or second fund.
Choosing Your Structure
The two most common structures for private investment funds are the traditional limited partnership and the special purpose vehicle (SPV). The right choice depends on your investment strategy, investor base, and how many deals you plan to do. For a detailed comparison, see our Funds vs SPVs: Choosing the Right Vehicle guide.
Traditional Limited Partnership
The Delaware limited partnership is the standard structure for private equity, venture capital, and hedge funds. It consists of a general partner (GP) entity that manages the fund and limited partners (LPs) who invest capital. The GP has unlimited liability for the fund's obligations; LPs have liability limited to their capital commitments.
This structure works best when you plan to make multiple investments over a multi-year investment period, call capital as needed, and return capital through distributions. It accommodates institutional investors, supports carried interest economics, and has decades of legal precedent.
Typical LP Structure
- A Delaware limited partnership as the main fund entity
- A Delaware LLC as the general partner
- A separate management company (also a Delaware LLC) that employs investment professionals and receives management fees
- Optionally, a parallel fund or feeder structure for tax-exempt or non-U.S. investors
SPV / Series LLC
A special purpose vehicle is a single-deal entity. Investors commit to a specific investment rather than a blind pool. SPVs are common in venture capital (especially for angel syndicates and deal-by-deal investing), real estate, and co-investment structures.
A series LLC allows you to create multiple segregated series under a single umbrella entity, with each series functioning as a separate SPV. This reduces formation costs and administrative overhead when you are doing multiple deals. Each series has its own assets, liabilities, and investors, legally separate from the other series.
When to Use an SPV vs. a Traditional Fund
Use an SPV when you have a specific deal and want to raise capital for that deal only. Use a traditional fund when you want discretion over capital deployment across multiple investments over time. If you are doing both, you can run a traditional fund for your core strategy and spin up SPVs for co-investments or one-off opportunities.
Entity Formation in Delaware
Most private funds are formed in Delaware regardless of where the manager is based. Delaware offers a well-developed body of partnership and LLC law, a specialized court system (the Court of Chancery), and flexible statutory frameworks that support customized governance arrangements.
Formation Steps
- File the Certificate of Limited Partnership with the Delaware Secretary of State. This creates the fund entity. The filing is simple: it identifies the fund name, the registered agent in Delaware, and the general partner.
- Form the General Partner LLC. File a Certificate of Formation for the GP entity. The GP will be the managing entity of the fund, so its operating agreement defines how investment decisions are made and who has authority.
- Form the Management Company LLC. This is the entity that employs the team, enters into office leases and vendor contracts, and receives management fees from the fund. Keeping the management company separate from the GP provides liability protection and operational flexibility.
- Obtain EINs. Each entity needs its own Employer Identification Number from the IRS for tax reporting, bank accounts, and regulatory filings.
- Register in your home state. If you operate outside Delaware, you will need to register the fund, GP, and management company as foreign entities in the state where you maintain your principal office.
Core Fund Documents
Once the entities are formed, you need the documents that govern how the fund operates and how investors participate. These documents work together as an integrated package.
Limited Partnership Agreement (LPA)
The LPA is the central governing document of the fund. It defines the economic terms (management fee, carried interest, distribution waterfall), governance provisions (GP authority, LP rights, LPAC), investment restrictions, fund term, and the rights and obligations of all parties. Every other fund document references or is subordinate to the LPA.
Key sections to draft carefully include the fee and carry provisions, the distribution waterfall, key person provisions, GP removal for cause, transfer restrictions, and confidentiality. For a detailed walkthrough of LPA terms, see our Reviewing Investment Documents guide.
Private Placement Memorandum (PPM)
The PPM is the disclosure document you provide to prospective investors. It describes the fund's investment strategy, terms, risks, conflicts of interest, and the backgrounds of the investment team. While not legally required for a Regulation D offering, a PPM is standard practice for institutional fundraising and provides important anti-fraud protection for the GP.
The PPM should be consistent with the LPA in all material respects. Inconsistencies between the PPM and the LPA create legal risk and undermine investor confidence. Have your fund counsel prepare both documents together to ensure alignment.
Subscription Agreement
The subscription agreement is the contract by which an LP commits capital to the fund. It captures the commitment amount, collects the LP's representations (qualified purchaser status, investment authority, ERISA status), and binds the LP to the LPA. The subscription agreement also typically includes an investor questionnaire that collects tax, AML/KYC, and regulatory information needed for fund administration.
Investor Questionnaire
Often attached to or incorporated within the subscription agreement, the investor questionnaire collects detailed information about each LP: legal name, tax identification, beneficial ownership, ERISA status, FATCA classification, and AML/KYC documentation. This information feeds regulatory compliance, tax reporting (K-1 preparation), and anti-money laundering obligations. Design the questionnaire to capture everything you need at closing so you do not have to chase LPs for information later.
Investment Management Agreement (IMA)
The IMA is the contract between the fund and the management company. It formalizes the management company's role as the investment manager, defines the scope of its authority, and establishes the basis for management fee payments. If the management company is a registered investment adviser, the IMA also serves as the advisory agreement required under the Investment Advisers Act.
GP and Management Company Operating Agreements
The operating agreements for the GP LLC and the management company LLC define internal governance: who has decision-making authority, how profits are allocated among the principals, vesting schedules for carry, and what happens if a principal leaves. These are internal documents, not investor-facing, but they are critical. Disputes among fund principals are among the most destructive events in a fund's life. Draft these agreements thoroughly, with clear provisions for departure, disability, death, and removal.
SPV-Specific Documents
If you are forming an SPV instead of (or in addition to) a traditional fund, the document set is simpler but follows similar principles.
SPV Operating Agreement
Functions like an LPA but for a single-deal vehicle. Defines the investment being made, the economics (management fee, carry), distribution provisions, and the manager's authority. Simpler than a traditional LPA because there is no investment period, no capital call mechanism for multiple deals, and no portfolio-level considerations.
SPV Subscription Agreement
Similar to a fund subscription agreement but typically shorter. Captures the investment amount (usually contributed at closing rather than called over time), investor representations, and agreement to be bound by the operating agreement.
Series LLC Supplement
If using a series LLC, each new series is created by a supplement to the master LLC operating agreement. The supplement defines the specific investment, economics, and investors for that series. This is faster and cheaper than forming a new entity for each deal.
Regulatory Filings at Formation
Fund formation triggers several regulatory filing requirements. Missing these deadlines can result in penalties, rescission rights for investors, or disqualification from relying on certain exemptions.
- Form D (SEC). File within 15 days of the first sale of securities. This is the notice filing for your Regulation D exemption (typically Rule 506(b) or 506(c)). Late filing does not void the exemption, but it can create complications with state filings and LP diligence.
- State Blue Sky Filings. Many states require notice filings for Regulation D offerings made to investors in that state. Requirements and deadlines vary by state. Your fund counsel should identify applicable states based on your investor base.
- Form ADV (SEC or State). If the management company is a registered investment adviser (or exempt reporting adviser), file or update Form ADV to reflect the new fund. The fund should appear as a private fund on Schedule D of the ADV.
- Form PF (SEC). If the adviser manages $150 million or more in private fund assets, Form PF filing is required. Even below that threshold, check whether your registration status triggers an initial filing obligation.
How Capital Company Helps
Capital Company handles fund and SPV formation, from entity setup through bank accounts and registered agents. Schedule a demo to learn more.
This article is for informational purposes only and does not constitute legal, tax, or investment advice. The content reflects general principles and may not apply to your specific situation. Consult qualified legal, tax, and regulatory advisors before forming a fund or making decisions about fund structure. Capital Company provides fund administration and operational support services; we do not provide legal, tax, or investment advisory services.