What you need to do if you want to accept money from:
💰 Tax-exempt investors
🌍 Non-US investors

A big post discussing UBTI, ECI, blockers, and more.

⚠️ This is especially true for real estate and private equity (but is sometimes relevant for venture capital...we've seen it before).

Please share if you find this content helpful 🙏Image
Tax-exempt investors and UBTI Image
Where does UBTI come from? Image
How do funds generate UBTI? Image
Mitigating UBTI concerns Image
How to handle UBTI concerns with tax-exempt LPs Image
Non-US investors and ECI Image
How passive and active income are taxed Image
What's so bad about ECI? Image
The terrors of FIRPTA Image
How funds generate ECI Image
How to mitigate ECI concerns Image
How to handle ECI conversations with non-US LPs Image

• • •

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More from @investing_law

Feb 8
What is "carried interest" 💰 taxation and why is everyone so excited about it (again)?

⚖️ Is it fair?

(A big post and a chart explaining how this works 📊) Image
Carried interest is the share of an investment fund's profits earned by the investment manager (the GP). GPs typically take 20-30% of the fund's profits (sometimes after investors receive a priority return).

It got its name from centuries ago when people on merchant ships got a share of the goods they "carried" across the ocean. ⛵️

Carried interest is a key component of GP compensation.

It's the red line in the chart.Image
The second type of compensation earned by GPs is management fees. These are ~ guaranteed fees, often based on fund size. For example, the GP might earn a management fee equal to 2% of the fund size annually.

These fees are the green line in the chart above.

Management fees are taxed at *ordinary* rates - up to 37% federally. 🏦Image
Read 7 tweets
Dec 22, 2024
Typical tax structure of a US-based investment fund.

A thread 🧵 to explain the Fund, General Partner, and Management Company.

(And why you want to split up the GP and ManCo.)

Please share if you find this valuable 🙏 Image
Background on the structure Image
Entity #1: Fund Image
Read 7 tweets
Nov 9, 2024
4 graphics explaining how investment fund distribution waterfalls actually work 🌊

1. European Waterfall
2. American Waterfall
3. Preferred Return
4. GP Catchup

Please share this thread 🧵 if you find this helpful 🙏 Image
1. European Waterfall

Here, LPs get back ALL of their invested capital before the profit split kicks in and the GP gets carried interest (also called "promote").

This is considered more LP-favorable. Image
2. American Waterfall

Here, LPs get back only the capital they invested in the deal being sold before the profit split kicks in and the GP gets carried interest.

This is considered more GP-favorable.

(There are different flavors of American waterfalls. This is one kind.) Image
Read 6 tweets
Oct 24, 2024
What team members do you need to raise an investment fund or syndication? 👩‍👩‍👧‍👧

💵And who pays for them...?

A thread 🧵for successful fundraising.
Who pays for all of this?

Fund Expenses: Part 1 Image
Who pays for all this?

Fund Expenses: Part 2 Image
Read 20 tweets
Jul 28, 2024
7 things to do before contacting a lawyer to form your fund.

This will save you money 💸
1⃣ Target your asset class.

Determine which specific asset class you want to focus on.

In many cases, specific is better than general.

Your target investment class will inform the entire fund formation process.
2⃣ Decide whether you want a closed-end or open-end fund.

We will discuss these fund types in detail in a future post.

A closed-end fund is more common in real estate, private equity, and venture capital.

Open-end funds are more common in public equities.

Credit can be either.
Read 11 tweets
Oct 28, 2023
How the Corporate Transparency Act Affects Investment Funds.

A thread 🧵on how to not get fined $500/day or go to jail for 2 years.

⚠️Starting January 2024, corporations, LLCs, LPs, etc. will need to start providing information regarding their beneficial owners to FinCEN.
Image
Each entity in the fund structure (Fund, GP, Management Company, etc.) will need to register with FinCEN and disclose the following persons:

👨🏾‍🦱 Individuals who directly or indirectly own 25% of the entity
👱🏻‍♀️ Individuals who exercise substantial control over the entity Image
Each individual will need to provide:

➡️Name
➡️Date of birth
➡️Address
➡️ID (passport, driver's license, etc.)
Read 10 tweets

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