Taxation of private equity funds—how is a fund structured?
Produced in partnership with Emily Clark of Travers Smith
Taxation of private equity funds—how is a fund structured?

The following Tax guidance note Produced in partnership with Emily Clark of Travers Smith provides comprehensive and up to date legal information covering:

  • Taxation of private equity funds—how is a fund structured?
  • What is a private equity fund?
  • Who invests in a private equity fund?
  • Typical onshore limited partnership private equity fund structure
  • Onshore private equity fund structure—the Fund
  • Onshore private equity fund structure—general partner of the fund
  • Onshore private equity fund structure—investors
  • Onshore private equity fund structure—manager
  • Onshore private equity fund structure—founder partner/carried interest partner
  • Onshore private equity fund structure—the general partner of the founder partner
  • more

This Practice Note provides an introduction to the structure of a typical onshore private equity fund. In particular, it explains:

  1. what a private equity fund is

  2. who the investors in a private equity fund typically are

  3. how a typical onshore private equity fund is structured, and

  4. the terms that might be agreed with investors

This Practice Note does not deal with regulatory matters.

What is a private equity fund?

A private equity fund provides finance to unlisted companies in return for an equity stake in their business. Most, but not all, private equity funds aim to acquire a majority stake so that they can work alongside the company's management team to achieve growth.

A typical onshore private equity fund will have a limited life of around seven to ten years. During the first four to six years of the fund's life (usually referred to as the 'investment period') its focus is on identifying and making investments. As the fund's term draws to an end, it will need to exit its investments and may achieve this through:

  1. listing the company's shares on the public markets

  2. selling the investment to:

    1. the management team responsible for that investment—known as a management buyout (for more details, see Practice Note: Tax on management buyouts—background)

    2. another trade buyer—known as a trade sale, or

    3. another private equity fund—known