# Private Funds: Legal Guide to Structure, Documents, and Terms

> Legal architecture of a private fund: fund vehicle, investment manager, documents, and terms. Four structural elements for UHNW capital management explained.

Author: Алёна Дунаева — юрист, Family Office (https://wiki.private.law/authors/dunaeva)
Last modified: 2026-07-05T08:31:00.000Z
Canonical: https://wiki.private.law/en/funds
Topics: investments
Jurisdictions: global
Functional tags: fund-vehicle
Semantic tags: fund-vehicle
Article type: hub

---

## Concept

> 🔗 **Related**
> [Capital calls](https://wiki.private.law/en/capital-calls)  ·  [Side letter](https://wiki.private.law/en/side-letter)  ·  [Singapore VCC](https://wiki.private.law/en/vcc-singapore)  ·  [Section 13O / 13U](https://wiki.private.law/en/section-13o-13u)  ·  [Secondary shares](https://wiki.private.law/en/secondary-shares)  ·  [Fund of funds](https://wiki.private.law/en/fund-of-funds)

A private fund is a legal architecture rather than a single registered form. Four elements sit at its core: the fund vehicle, the wrapper in which capital is pooled and assets are held; the investment manager, who makes the investment decisions; the investors, the LPs or shareholders who sign commitments; and the service providers, namely the administrator, custodian and auditor. A stack of contracts ties them together: the LPA or articles, the PPM, the subscription agreement, side letters, the IMA and service agreements.

> ↗ This section covers investment funds (LP/GP mechanics, formations). Looking for a family wealth vehicle — Stiftung, Panama foundation, personal fund? See [Private foundations](https://wiki.private.law/en/private-foundations).

This article is a legal guide to how a private fund is built: which forms the vehicle can take, which licences the manager needs, which documents formalise the bargain between the parties, how profit is split through the waterfall, and which economic terms the LPA fixes. The same mechanics carry across asset classes, from private equity and venture to private credit, real estate and secondaries, with the LPA holding the differences.

> 🍓 The legal architecture of a fund revolves around two axes: (1) **separation of powers** between GP / manager and LP, formalized through the LPA; (2) **asset isolation** through the choice of vehicle form and jurisdiction. Everything else—economics, taxes, reporting—follows from these decisions.

## Legal Architecture

In a classic LP structure the fund is assembled from several distinct roles rather than a single entity:

| **Element** | **Legal Form** | **Function** |
| --- | --- | --- |
| **Fund vehicle** | Limited Partnership (LP), VCC, SPC, Cayman Exempted Company, ICAV, RAIF | holds fund assets, acts as counterparty in transactions. LPs / shareholders sign subscriptions and become partners / shareholders. |
| **General Partner (GP)** | separate corporation (often LLC, Ltd) | managing partner in LP structure with unlimited liability for fund obligations. Controls decisions, receives carried interest. In corporate vehicles, the GP role is replaced by the board of directors. |
| **Investment Manager** | separate corporation (Ltd, LLC) | operational team. Acts under investment management agreement (IMA) on behalf of fund vehicle. Receives management fee. Licensed by regulator. |
| **Limited Partners (LP)** | investor | signs commitment in subscription agreement, does not interfere in management, risk limited to commitment amount. |
| **Fund administrator** | third-party legal entity | maintains NAV, processes subscriptions and redemptions, prepares LP reports, maintains register of interests / shares. |
| **Custodian / Prime broker** | licensed bank or broker | holds fund assets. For hedge funds—prime brokerage with margin and securities lending. In Cayman / Singapore often required by lawful regulator condition. |
| **Auditor** | licensed auditor | audit of annual financial statements under IFRS / US GAAP. Mandatory for regulated funds. |
| **Legal counsel** | law firm | supports fundraising, portfolio transactions, regulatory matters, prepares LPA / IMA. |

In corporate vehicles (VCC, Cayman Exempted Company, ICAV), the GP role is performed by the board of directors; LP roles are taken by shareholders. The manager remains a separate licensed entity. This is a structural alternative to the classic LP model, increasingly used for family offices and regulated fund managers.

## Jurisdictions for Fund Vehicle

The choice of jurisdiction for the vehicle is determined by the composition of investors, target markets, tax neutrality, and regulatory regime.

| **Jurisdiction / vehicle** | **Regulator** | **Where applied** |
| --- | --- | --- |
| **Cayman Exempted LP / Company** | CIMA | institutional standard for PE / VC / hedge globally. Tax neutrality. AIFMD-marketable in EU through third-country passport. Substance under Economic Substance Law. |
| **Delaware LP / LLC** | SEC (for manager) | standard for US-domiciled funds. US LP, US-tax planning. Not suitable for EU-investors without AIFM-marketing. |
| **Luxembourg SCSp / RAIF / SIF** | CSSF | EU-grade reputation, AIFMD passport, access to EU investors. RAIF—simplified reserved alternative investment fund without direct CSSF regulation (only through AIFM). |
| [**Singapore VCC**](https://wiki.private.law/en/vcc-singapore) | MAS | corporate form for umbrella and sub-funds. Tax regimes [13O / 13U](https://wiki.private.law/en/section-13o-13u). Regulated through VCFM or RFMC. Standard for family office and Asian-focused funds. |
| **Ireland ICAV** | Central Bank of Ireland | EU-domiciled corporate vehicle; popular for UCITS, QIAIFs and AIF structures. |
| **Jersey / Guernsey LP** | JFSC / GFSC | older alternatives to Cayman for EMEA PE / VC. Substance under Economic Substance Law. |
| **Hong Kong LPF** | SFC | local form since 2020; standard for Asia-focused PE / VC, especially working with Chinese and Asian capital. |
| **BVI Approved Fund / Incubator Fund** | FSC | light regime for small funds up to $100M (Approved) or $20M / 20 LPs (Incubator). |

The choice is fixed in the LPA and determines the applicable law for all fund documents.

## Regulatory Regime for Manager

Manager-level licenses are a separate category from vehicle regulation. Without a license, the manager cannot market the fund to institutional LPs and accept assets.

Beyond the licence itself, two regulatory layers shape a manager's setup. Marketing is the first: a fund sold into the EU engages AIFMD, through either a full-scope AIFM or national private-placement regimes, and the manager's home licence does not stand in for it. Substance is the second: a vehicle in a zero-tax centre such as Cayman or the BVI must meet economic-substance requirements where it carries on relevant activity, and tax authorities expect the manager's real decision-making to sit where the licence is held.

> 🧭 Where the manager is licensed and where the fund is actually run should line up. Thin substance in the management jurisdiction is among the first things a tax authority probes. See [economic substance](https://wiki.private.law/en/economic-substance) and the [Singapore fund management licence](https://wiki.private.law/en/singapore-fund-management-license).

| **Jurisdiction** | **License** | **Applicability** |
| --- | --- | --- |
| **USA** | SEC Registered Investment Adviser (RIA) | mandatory for managers with AUM > $110M, or exempt reporting adviser (ERA) for venture funds. |
| **EU** | AIFM (Alternative Investment Fund Manager) | mandatory for marketing to EU LPs. Sub-threshold AIFM up to €100M (leveraged) / €500M (unleveraged)—simplified regime. |
| **UK** | FCA Full-scope AIFM or small AIFM | UK-domiciled and UK-marketed funds. Post-Brexit separated from EU regime. |
| **Singapore** | [VCFM](/en/vcfm) (Venture Capital Fund Manager) or RFMC (Registered Fund Management Company) | VCFM—simplified for VC; RFMC—up to 30 qualified LPs and S$250M AUM. |
| **Hong Kong** | SFC Type 9 (asset management) | mandatory for managing third-party portfolios. |
| **Switzerland** | FINMA Asset Manager or FinIA | since 2020 FinIA distinguishes asset manager (small AUM) and manager of collective assets (institutional). |
| **UAE** | DFSA Category 3C (DIFC) or ADGM Category 3C | fund manager license within financial free zones. |

## Fund Documents

The contract between parties is formalized through a set of documents. Each has its own purpose and legal force:

| **Document** | **Content** |
| --- | --- |
| **Private Placement Memorandum (PPM)** | marketing document for potential LPs. Describes strategy, team, track record of previous funds, risks, economics, vehicle jurisdiction. Regulated by securities law: contains risk disclosures per SEC, AIFMD, MAS requirements. Not a contractual document—forms the basis of due diligence. |
| **Limited Partnership Agreement (LPA)** | main legal contract of the fund. Establishes: commitment mechanism, drawdown, waterfall, fee, governance, transfer restrictions, removal of GP, key man provisions, defaulting LP consequences, fund life and extensions. Dozens to hundreds of pages. For corporate vehicle, the equivalent is Articles of Association + Shareholders Agreement. |
| **Subscription Agreement** | individual contract of each LP with the fund: commitment amount, accreditation / professional investor status, AML / KYC declarations, representations and warranties, tax representations (FATCA, CRS). |
| [**Side Letter**](https://wiki.private.law/en/side-letter) | individual additions to LPA for large LPs: better fees, MFN clause, information rights, co-investment rights, excused / opt-out rights, regulatory carve-outs. Signed separately from standard subscription. |
| **Investment Management Agreement (IMA)** | contract between fund vehicle and manager. Defines investment mandate, fee, delegation, conflict of interest provisions, termination rights. |
| **Service Provider Agreements** | contracts with administrator, custodian, auditor. Define scope, SLA, fees and liability. |

**Most-Favoured-Nation (MFN) clause**

In side letter. GP's obligation to provide LP with the best terms granted to any other LP of the same or smaller class. Standard for institutional LPs. Implemented through annual disclosure procedure: GP collects all side letters and offers each LP with MFN right to select the best provisions.

**Key man provision**

In LPA. Condition under which the departure of certain senior partners from the manager gives LPs the right to suspend the investment period or early termination of the fund. Standard mechanism to protect against loss of key team. Triggers: death, incapacity, departure from manager, breach of fiduciary duties.

## Fund Models

> 🔗 **Related**
> [Capital calls](https://wiki.private.law/en/capital-calls)

By legal mechanics of capital collection and return, funds are divided into several models. Each is enshrined in the LPA through its own formulation of subscription, redemption, and distribution.

| **Model** | **Legal Mechanics** | **Applicability** |
| --- | --- | --- |
| **Closed-end (drawdown)** | fixed fundraising period with initial and subsequent closes; commitment without right of early exit; drawdown by GP drawdown notice; distributions after exits. Life—7–12 years with possible extension period. | PE, VC, infrastructure, private credit (closed), real estate development |
| **Open-end** | continuous acceptance of subscriptions and redemption at NAV. Liquidity conditions through lock-up periods, redemption gates, side pockets. Perpetual or renewable term. | Hedge funds, liquid alternatives, public credit funds |
| **Evergreen (semi-liquid)** | hybrid: periodic subscription and redemption (quarterly, annually), without classical drawdown. Perpetual. | Private credit (semi-liquid), real estate income, retail-friendly private equity |
| **Single-asset fund** | fund for one asset. Legally—often SPV structure within vehicle. | Real estate single-asset, specialized direct deals |
| **Continuation vehicle** | new fund into which assets from an ending fund are transferred (GP-led secondary). Allows extending hold of successful portfolio companies. | PE secondary transactions |

Capital call mechanics in detail—in separate article Capital calls.

## Income Distribution: Waterfall

Distribution waterfall is the legal sequence of distributing exit revenue between LP and GP, prescribed in the LPA. This is the main mechanism for aligning interests: GP receives carry only after return of capital and hurdle to investors.

Standard PE waterfall—four levels:

| **Level** | **Recipient** | **Condition** |
| --- | --- | --- |
| **1. Return of Capital** | 100% LP | LPs return all called capital plus management fee (in deal-by-deal models). |
| **2. Preferred Return** | 100% LP | LPs receive hurdle on called capital (typically 6–8% per annum, simple or compound interest). |
| **3. GP Catch-up** | 80–100% GP | GP receives catch-up until target split is reached (usually 80/20). Catch-up can be 100% (aggressive) or 50/50 (soft). |
| **4. Carried Interest** | 80% LP / 20% GP | Everything else is distributed in standard proportion. This is carry—the main compensation for GP for results. |

**Two waterfall application regimes:**

**European waterfall (whole-of-fund)**

Waterfall is applied at the level of the entire fund. GP receives carry only after return of ALL called capital and hurdle to all LPs. Safer for LPs, slower for GP. Standard for European PE.

**American waterfall (deal-by-deal)**

Waterfall is applied to each deal separately. GP receives carry from each successful exit immediately. Faster for GP, riskier for LPs—requires clawback mechanics. Standard for US PE and VC.

**Clawback**

GP's obligation to return excess carry if, at the end of the fund, LPs did not receive minimum aggregate return. Secured by escrow (part of carry is held by administrator until end of fund) or personal guarantees of GP partners. Especially important in American waterfall.

**Hurdle rate (preferred return)**

Minimum annual return to LPs before GP receives carry. Can be **hard** (carry only on above-hurdle profit) or **soft** (after exceeding hurdle, carry is calculated on all profit through catch-up). Typical values—6–10% per annum.

## Capital: Commitment and Drawdown

> 🔗 **Related**
> [Capital calls](https://wiki.private.law/en/capital-calls)

In a closed-end fund, capital is not contributed immediately. LP signs commitment—a legal obligation to fund the fund at GP's request during the investment period (typically 3–5 years).

| **Concept** | **Definition** |
| --- | --- |
| Committed capital | amount LP signed up for in subscription agreement (legal obligation). |
| Called / paid-in capital | actually transferred by LP as of date. |
| Uncalled commitment | committed − called. Remainder that GP can still call. |
| Investment period | period (3–5 years) during which GP can call capital for new investments. After—only for follow-ons and fund expenses. |
| Drawdown notice | GP notice of capital call: amount, share of commitment, details, deadline (10–20 business days). |
| Capital call line | short-term bank credit line secured by LP commitments. Used by GP to smooth cash-flow. |
| Defaulting LP consequences | in LPA: penalty interest, dilution, forced transfer, participation restriction. Enshrined in Section 6 / 7 of typical LPA. |

More details: Capital calls.

## Typical Economic Terms

Standard LPA parameters by strategy:

| **Parameter** | **PE / Buyout** | **VC** | **Private credit** | **Real estate** | **Hedge** |
| --- | --- | --- | --- | --- | --- |
| Management fee (investment period) | 1.5–2.0% | 2.0–2.5% | 1.0–1.5% | 1.0–1.5% | 1.0–2.0% |
| Management fee (post-investment) | 0.75–1.0% | 1.5–2.0% or fixed | 1.0% of NAV | 1.0% | — |
| Management fee base | committed → invested | committed entire term | NAV or invested | committed → invested | NAV |
| Carry | 20% | 20–30% | 10–15% | 15–20% | 15–20% performance fee |
| Hurdle rate | 8% | often none | 5–7% | 8–10% | high-water mark |
| Catch-up | 100% or 50% | — | 50% | 50–100% | — |
| GP commitment | 1–5% | 1–3% | 1–2% | 1–5% | often without formal commitment |
| Fund term | 10 + 2 + 2 | 10 + 2 | 6–8 years | 8–10 + 2 | open-end |
| Investment period | 5 years | 3–4 years | 3 years | 3–4 years | — |
| Waterfall | European | American (often) | European or deal-by-deal | mixed | annual high-water mark |

**GP commitment**

Obligation of manager partners to invest their own capital in the fund on par with LPs. Standard **1–5%** of fund size. Enshrined in LPA as a separate class of interests with LP rights. Reduces conflict of interest.

**Management fee offset**

Transaction and monitoring fees received by GP from portfolio companies are credited against management fee. Modern market standard—**80–100%** offset, enshrined in LPA. Without offset—conflict of interest.

**Carry distribution**

Within GP, carry is distributed according to carry plan with vesting (typically **4–6 years**) for senior and junior partners. Separate contractual arrangement within manager-entity, not part of LPA. Team retention tool.

## Tax Transparency

> 🔗 **Related**
> [13O / 13U](https://wiki.private.law/en/section-13o-13u)

The legal form of the vehicle determines the tax regime:

**Pass-through (partnership)**

Limited Partnership (Cayman, Delaware, UK, Luxembourg SCSp, HK LPF)—tax transparent. Fund does not pay tax at vehicle level. Each LP reports their share of income in their jurisdiction of residence.

Standard for PE / VC / private credit. Compatible with FATCA, CRS, AIFMD reporting.

**Corporate (with preferential regime)**

VCC under 13O / 13U, Cayman Exempted Company, Ireland ICAV—corporate, but with tax exemption or near-zero rate. Fund is formally taxed, but actual rate is close to zero.

Applied for family office, regulated investment vehicles, retail-distributed funds.

> ⚙️ Singapore retuned its fund tax exemptions from 1 January 2025. Section 13O now needs at least S$5M in designated investments and two Singapore-resident investment professionals; Section 13U needs S$50M and three. Both carry a tiered local business-spend floor of S$200k, S$300k or S$500k by fund size, and the new Section 13OA extends exemption to Singapore-registered limited partnerships. The schemes run to 31 December 2029. See [section 13O / 13U](https://wiki.private.law/en/section-13o-13u) and [Singapore VCC](https://wiki.private.law/en/vcc-singapore).

> 🍓 The manager is taxed apart from the fund: the management fee is income of the manager entity, while carry is a separate class of fund interests. How carry is taxed depends on where the GP's individuals are resident. The US gives long-term capital-gains treatment when the three-year holding test under §1061 is met. The UK, from 6 April 2026, taxes carry as trading profit under income tax and Class 4 NIC; qualifying carry is charged on 72.5% of the amount, an effective rate near 34%, while non-qualifying carry runs up to 47%. The UAE and Singapore reach 0% on carry with the right tax residence. See [carried interest 2026](https://wiki.private.law/en/carried-interest-2026).

## Types of Funds by Strategy

Legal architecture is the same, but LPA details and regulatory regime depend on strategy:

| **Strategy** | **What it acquires** | **Hold** | **LPA features** |
| --- | --- | --- | --- |
| **Buyout PE** | controlling stakes in mature companies | 5–7 years | LBO leverage, control rights, exit provisions |
| **Growth equity** | minority stakes in growing companies Series C+ | 4–6 years | Tag-along / drag-along, anti-dilution |
| **Venture Capital** | startups Seed–Series B | 5–10 years | Pro-rata rights, board seats, follow-on reserves |
| **Private Credit** | direct lending, mezzanine, distressed | 3–5 years | Income distributions, reinvestment provisions |
| **Real Estate** | property: core, value-add, opportunistic | 5–10 years | Property-level SPV, leverage covenants |
| **Infrastructure** | transport, energy, digital | 10–25 years | Long fund term, inflation protection |
| **Hedge funds** | liquid public markets | — | Open-end, lock-up, gates, side pockets |
| [**Fund of funds**](https://wiki.private.law/en/fund-of-funds) | portfolio of other funds | 10–12 years | Double layer of fees, diversification clauses |
| [**Secondaries**](https://wiki.private.law/en/secondary-shares) | LP interests from investors on secondary market | 3–6 years | Discount mechanism, transfer provisions |

## Q/A

### What is the legal difference between closed-end and open-end fund

Closed-end—LPA fixes commitment without right of early exit, drawdown by GP requirement, distributions only after exits, finite life of 7–12 years. Open-end—LPA provides for periodic subscriptions and redemption at NAV under lock-up / gates / side pockets conditions, without fixed term. The difference is not in strategy but in fund vehicle mechanics.

### Why is a separate GP needed in LP structure

GP bears unlimited liability for fund obligations. This is a requirement of the Limited Partnership Act in most jurisdictions. To isolate partners from this liability, GP is made a separate corporation (LLC / Ltd) with limited liability. Manager partners are shareholders of GP-entity, not LP structure directly. In corporate vehicles (VCC, Cayman Exempted Company), this trick is not needed—there is limited liability of shareholders by default.

### What is the difference between GP and Investment Manager

GP—legal managing partner of vehicle with unlimited liability. Investment Manager—operational entity with team, acting under IMA on behalf of fund vehicle. In practice, both entities are controlled by the same partners, but legally separated: GP enters into contracts, manager performs investment functions. Manager receives management fee, GP receives carry. Separation is needed for regulatory, tax, and liability reasons.

### What is a side letter and why is it needed

> 🔗 **Related**
> [Side letter](https://wiki.private.law/en/side-letter)

Individual contract of LP with fund, supplementing standard LPA. Used for large LPs (anchor investors, sovereign wealth funds, pension funds) to whom GP provides special terms: fee discount, MFN clause, expanded information rights, co-investment rights, excused / opt-out provisions, regulatory carve-outs (ERISA, UCITS, Volcker Rule). Signed separately from subscription. More details: Side letter.

### What is MFN clause

Most-Favoured-Nation provision in side letter—GP's obligation to provide this LP with the best terms granted to any other LP of the same or smaller class. Protects large LPs from situation where later investors receive better terms. Implemented through annual disclosure procedure: GP collects all side letters and offers each LP with MFN right to select provisions for application. Standard for institutional LPs.

### What is the difference between European and American waterfall

European (whole-of-fund)—waterfall is applied at the level of the entire fund; GP receives carry only after return of ALL called capital and hurdle to all LPs. Safer for LPs, standard for European PE. American (deal-by-deal)—waterfall is applied to each deal separately; GP receives carry from each successful exit immediately. Faster for GP, requires clawback mechanics to protect LPs. Standard for US PE and VC.

### What is clawback and how does it work

GP's obligation to return excess carry if, at the end of the fund, LPs did not receive minimum aggregate return. Arises in American waterfall: GP could receive carry from early successful deals, and later deals turned out to be unprofitable, and cumulative fund return is below hurdle. Secured by escrow (part of carry is held by administrator until end of fund) or personal guarantees of GP partners. Prescribed in LPA as a separate Section.

### What is key man provision

Condition in LPA under which the departure of one or more key senior partners of manager gives LPs the right to suspend investment period, remove GP without cause, or early termination of fund. Standard mechanism to protect against loss of key team on which LPs signed commitment. Triggers usually: death, incapacity, departure from manager on full-time, breach of fiduciary duties. After trigger, LPs vote on consequences (60–75% majority).

### What manager licenses are needed to manage a fund

> 🔗 **Related**
> [VCFM](https://wiki.private.law/en/vcfm)

Depends on the manager's jurisdiction and its LPs. US — SEC registration once regulatory AUM passes $110M, or Exempt Reporting Adviser status for venture funds and US private-fund advisers under $150M. EU — AIFM authorisation, full-scope or sub-threshold. UK — FCA AIFM. Singapore — VCFM, or a Licensed Fund Management Company; MAS repealed the Registered FMC regime on 1 August 2024 and former RFMCs moved to accredited/institutional LFMC status with AUM capped at S$250M. Hong Kong — SFC Type 9. Switzerland — FinIA. UAE — DFSA or ADGM Category 3C. A home-jurisdiction licence does not by itself allow marketing abroad: selling to LPs in another country usually needs a cross-border passport or local registration.

### Which jurisdiction is preferable for a new fund

Depends on LP composition and strategy. Cayman—institutional standard globally, tax neutrality, simple setup. Delaware LP—for US-domiciled funds with US LPs. Luxembourg SCSp or RAIF—for EU-investor pool with AIFMD passport. Singapore VCC—for Asia-focused funds and family office with 13O / 13U tax regimes. HK LPF—for Asia-focused PE / VC with Chinese capital. Ireland ICAV—for regulated UCITS structures and retail funds.

### Is a private fund tax transparent

> 🔗 **Related**
> [13O / 13U](https://wiki.private.law/en/section-13o-13u)

In LP structure (Cayman, Delaware, UK LP)—yes, tax transparent (pass-through). Fund does not pay tax at vehicle level; each LP reports share of income in their jurisdiction of residence. In corporate vehicles (VCC under 13O / 13U, Cayman Exempted Company, Ireland ICAV)—formally corporate, but with tax exemption, actually close to zero. Manager—separate taxpayer with ordinary regime of their jurisdiction. Carry of GP partners is taxed according to rules of their personal residence.

> 🍓 The legal skeleton of a fund (the LP and GP split, the choice of vehicle, the waterfall, the shape of carry) has held steady for years. What moves is the tax and licensing overlay on top of it. The live 2026 variables are the UK pulling carry into income tax, Singapore retiring the RFMC regime and tightening the 13O/13U thresholds, and heavier substance expectations on zero-tax vehicles. A fund is structured once; the overlay is worth re-checking every year. Related: [holding structures](https://wiki.private.law/en/holding-structures), [carried interest 2026](https://wiki.private.law/en/carried-interest-2026), [family office](https://wiki.private.law/en/family-office).

## Related Topics

> 🔗 **Related**
> [Capital calls](https://wiki.private.law/en/capital-calls)  ·  [Side letter](https://wiki.private.law/en/side-letter)  ·  [SPV](https://wiki.private.law/en/spv)  ·  [Singapore VCC](https://wiki.private.law/en/vcc-singapore)  ·  [Section 13O and 13U](https://wiki.private.law/en/section-13o-13u)  ·  [Private fund Singapore](https://wiki.private.law/en/private-fund-singapore)  ·  [Secondary shares](https://wiki.private.law/en/secondary-shares)  ·  [Fund of funds](https://wiki.private.law/en/fund-of-funds)  ·  [Satellite strategy](https://wiki.private.law/en/satellite-strategy)  ·  [Source of funds](https://wiki.private.law/en/source-of-funds)

- Capital calls—capital call mechanics in LP fund
- Side letter—individual LP terms and MFN
- SPV—corporate vehicle for one-off deals and projects
- Singapore VCC—corporate form for umbrella fund
- Section 13O and 13U—tax regimes for Singapore funds
- Private fund Singapore—structuring private fund in Singapore
- Secondary shares—transactions on secondary market of LP interests
- Fund of funds—portfolio of other funds
- Satellite strategy—fund's place in international architecture
- Source of funds—KYC package for LP onboarding
External references: [MAS — repeal of the Registered Fund Management Company regime (2024)](https://www.mas.gov.sg/-/media/mas-media-library/publications/consultations/cmi/2024/faqs--repeal-of-rfmc-regime-25-apr-2024.pdf); [GOV.UK — revised tax regime for carried interest, in force 6 April 2026](https://www.gov.uk/government/publications/reform-of-the-tax-treatment-of-carried-interest/revised-tax-regime-for-carried-interest).

---

## FAQ

### Why is a separate GP needed in LP structure

GP bears unlimited liability for fund obligations. This is a requirement of the Limited Partnership Act in most jurisdictions. To isolate partners from this liability, GP is made a separate corporation (LLC / Ltd) with limited liability. Manager partners are shareholders of GP-entity, not LP structure directly. In corporate vehicles (VCC, Cayman Exempted Company), this trick is not needed—there is limited liability of shareholders by default.

### What is a side letter and why is it needed

Individual contract of LP with fund, supplementing standard LPA. Used for large LPs (anchor investors, sovereign wealth funds, pension funds) to whom GP provides special terms: fee discount, MFN clause, expanded information rights, co-investment rights, excused / opt-out provisions, regulatory carve-outs (ERISA, UCITS, Volcker Rule). Signed separately from subscription. More details: Side letter.

### What is MFN clause

Most-Favoured-Nation provision in side letter—GP's obligation to provide this LP with the best terms granted to any other LP of the same or smaller class. Protects large LPs from situation where later investors receive better terms. Implemented through annual disclosure procedure: GP collects all side letters and offers each LP with MFN right to select provisions for application. Standard for institutional LPs.

### What is clawback and how does it work

GP's obligation to return excess carry if, at the end of the fund, LPs did not receive minimum aggregate return. Arises in American waterfall: GP could receive carry from early successful deals, and later deals turned out to be unprofitable, and cumulative fund return is below hurdle. Secured by escrow (part of carry is held by administrator until end of fund) or personal guarantees of GP partners. Prescribed in LPA as a separate Section.

### What is key man provision

Condition in LPA under which the departure of one or more key senior partners of manager gives LPs the right to suspend investment period, remove GP without cause, or early termination of fund. Standard mechanism to protect against loss of key team on which LPs signed commitment. Triggers usually: death, incapacity, departure from manager on full-time, breach of fiduciary duties. After trigger, LPs vote on consequences (60–75% majority).

### What manager licenses are needed to manage a fund

In practice the licence follows the manager's base and its investor pool. A US manager registers with the SEC once regulatory AUM passes $110M, and below that files as an Exempt Reporting Adviser if it runs only private or venture funds under $150M. An EU base means AIFM authorisation; the UK uses the FCA AIFM regime. In Singapore the choice is now the VCFM or a Licensed Fund Management Company, after MAS repealed the Registered FMC regime on 1 August 2024. Hong Kong uses SFC Type 9, Switzerland FinIA, the UAE the DFSA or ADGM Category 3C. Whichever applies, marketing into another jurisdiction is a separate permission from the home licence.

### Which jurisdiction is preferable for a new fund

The vehicle follows the LP base and the strategy. Cayman remains the institutional default for a global LP pool; Luxembourg (SCSp, RAIF) carries an AIFMD passport for EU investors; Delaware suits US-domiciled funds and US LPs. For onshore Asian setups, Singapore's 13OA, in force from 1 January 2025, extends fund tax exemption to Singapore-registered limited partnerships, putting a domestic PE or VC vehicle alongside the VCC; Hong Kong's LPF serves Asia-focused PE and VC with Chinese capital. The vehicle is fixed together with the manager's licence and the LPs' reporting needs.

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## FAQ

### What is the legal difference between closed-end and open-end fund

Closed-end—LPA fixes commitment without right of early exit, drawdown by GP requirement, distributions only after exits, finite life of 7–12 years. Open-end—LPA provides for periodic subscriptions and redemption at NAV under lock-up / gates / side pockets conditions, without fixed term. The difference is not in strategy but in fund vehicle mechanics.

### Why is a separate GP needed in LP structure

GP bears unlimited liability for fund obligations. This is a requirement of the Limited Partnership Act in most jurisdictions. To isolate partners from this liability, GP is made a separate corporation (LLC / Ltd) with limited liability. Manager partners are shareholders of GP-entity, not LP structure directly. In corporate vehicles (VCC, Cayman Exempted Company), this trick is not needed—there is limited liability of shareholders by default.

### What is the difference between GP and Investment Manager

GP—legal managing partner of vehicle with unlimited liability. Investment Manager—operational entity with team, acting under IMA on behalf of fund vehicle. In practice, both entities are controlled by the same partners, but legally separated: GP enters into contracts, manager performs investment functions. Manager receives management fee, GP receives carry. Separation is needed for regulatory, tax, and liability reasons.

### What is a side letter and why is it needed

Related
Side letter
Individual contract of LP with fund, supplementing standard LPA. Used for large LPs (anchor investors, sovereign wealth funds, pension funds) to whom GP provides special terms: fee discount, MFN clause, expanded information rights, co-investment rights, excused / opt-out provisions, regulatory carve-outs (ERISA, UCITS, Volcker Rule). Signed separately from subscription. More details: Side letter.

### What is MFN clause

Most-Favoured-Nation provision in side letter—GP's obligation to provide this LP with the best terms granted to any other LP of the same or smaller class. Protects large LPs from situation where later investors receive better terms. Implemented through annual disclosure procedure: GP collects all side letters and offers each LP with MFN right to select provisions for application. Standard for institutional LPs.

### What is the difference between European and American waterfall

European (whole-of-fund)—waterfall is applied at the level of the entire fund; GP receives carry only after return of ALL called capital and hurdle to all LPs. Safer for LPs, standard for European PE. American (deal-by-deal)—waterfall is applied to each deal separately; GP receives carry from each successful exit immediately. Faster for GP, requires clawback mechanics to protect LPs. Standard for US PE and VC.

### What is clawback and how does it work

GP's obligation to return excess carry if, at the end of the fund, LPs did not receive minimum aggregate return. Arises in American waterfall: GP could receive carry from early successful deals, and later deals turned out to be unprofitable, and cumulative fund return is below hurdle. Secured by escrow (part of carry is held by administrator until end of fund) or personal guarantees of GP partners. Prescribed in LPA as a separate Section.

### What is key man provision

Condition in LPA under which the departure of one or more key senior partners of manager gives LPs the right to suspend investment period, remove GP without cause, or early termination of fund. Standard mechanism to protect against loss of key team on which LPs signed commitment. Triggers usually: death, incapacity, departure from manager on full-time, breach of fiduciary duties. After trigger, LPs vote on consequences (60–75% majority).

### What manager licenses are needed to manage a fund

Related
VCFM
Depends on the manager's jurisdiction and its LPs. US — SEC registration once regulatory AUM passes $110M, or Exempt Reporting Adviser status for venture funds and US private-fund advisers under $150M. EU — AIFM authorisation, full-scope or sub-threshold. UK — FCA AIFM. Singapore — VCFM, or a Licensed Fund Management Company; MAS repealed the Registered FMC regime on 1 August 2024 and former RFMCs moved to accredited/institutional LFMC status with AUM capped at S$250M. Hong Kong — SFC Type 9. Switzerland — FinIA. UAE — DFSA or ADGM Category 3C. A home-jurisdiction licence does not by itself allow marketing abroad: selling to LPs in another country usually needs a cross-border passport or local registration.

### Which jurisdiction is preferable for a new fund

Depends on LP composition and strategy. Cayman—institutional standard globally, tax neutrality, simple setup. Delaware LP—for US-domiciled funds with US LPs. Luxembourg SCSp or RAIF—for EU-investor pool with AIFMD passport. Singapore VCC—for Asia-focused funds and family office with 13O / 13U tax regimes. HK LPF—for Asia-focused PE / VC with Chinese capital. Ireland ICAV—for regulated UCITS structures and retail funds.

### Is a private fund tax transparent

Related
13O / 13U
In LP structure (Cayman, Delaware, UK LP)—yes, tax transparent (pass-through). Fund does not pay tax at vehicle level; each LP reports share of income in their jurisdiction of residence. In corporate vehicles (VCC under 13O / 13U, Cayman Exempted Company, Ireland ICAV)—formally corporate, but with tax exemption, actually close to zero. Manager—separate taxpayer with ordinary regime of their jurisdiction. Carry of GP partners is taxed according to rules of their personal residence.
The legal skeleton of a fund (the LP and GP split, the choice of vehicle, the waterfall, the shape of carry) has held steady for years. What moves is the tax and licensing overlay on top of it. The live 2026 variables are the UK pulling carry into income tax, Singapore retiring the RFMC regime and tightening the 13O/13U thresholds, and heavier substance expectations on zero-tax vehicles. A fund is structured once; the overlay is worth re-checking every year. Related: holding structures, carried interest 2026, family office.

### Why is a separate GP needed in LP structure

GP bears unlimited liability for fund obligations. This is a requirement of the Limited Partnership Act in most jurisdictions. To isolate partners from this liability, GP is made a separate corporation (LLC / Ltd) with limited liability. Manager partners are shareholders of GP-entity, not LP structure directly. In corporate vehicles (VCC, Cayman Exempted Company), this trick is not needed—there is limited liability of shareholders by default.

### What is a side letter and why is it needed

Individual contract of LP with fund, supplementing standard LPA. Used for large LPs (anchor investors, sovereign wealth funds, pension funds) to whom GP provides special terms: fee discount, MFN clause, expanded information rights, co-investment rights, excused / opt-out provisions, regulatory carve-outs (ERISA, UCITS, Volcker Rule). Signed separately from subscription. More details: Side letter.

### What is MFN clause

Most-Favoured-Nation provision in side letter—GP's obligation to provide this LP with the best terms granted to any other LP of the same or smaller class. Protects large LPs from situation where later investors receive better terms. Implemented through annual disclosure procedure: GP collects all side letters and offers each LP with MFN right to select provisions for application. Standard for institutional LPs.

### What is clawback and how does it work

GP's obligation to return excess carry if, at the end of the fund, LPs did not receive minimum aggregate return. Arises in American waterfall: GP could receive carry from early successful deals, and later deals turned out to be unprofitable, and cumulative fund return is below hurdle. Secured by escrow (part of carry is held by administrator until end of fund) or personal guarantees of GP partners. Prescribed in LPA as a separate Section.

### What is key man provision

Condition in LPA under which the departure of one or more key senior partners of manager gives LPs the right to suspend investment period, remove GP without cause, or early termination of fund. Standard mechanism to protect against loss of key team on which LPs signed commitment. Triggers usually: death, incapacity, departure from manager on full-time, breach of fiduciary duties. After trigger, LPs vote on consequences (60–75% majority).

### What manager licenses are needed to manage a fund

In practice the licence follows the manager's base and its investor pool. A US manager registers with the SEC once regulatory AUM passes $110M, and below that files as an Exempt Reporting Adviser if it runs only private or venture funds under $150M. An EU base means AIFM authorisation; the UK uses the FCA AIFM regime. In Singapore the choice is now the VCFM or a Licensed Fund Management Company, after MAS repealed the Registered FMC regime on 1 August 2024. Hong Kong uses SFC Type 9, Switzerland FinIA, the UAE the DFSA or ADGM Category 3C. Whichever applies, marketing into another jurisdiction is a separate permission from the home licence.

### Which jurisdiction is preferable for a new fund

The vehicle follows the LP base and the strategy. Cayman remains the institutional default for a global LP pool; Luxembourg (SCSp, RAIF) carries an AIFMD passport for EU investors; Delaware suits US-domiciled funds and US LPs. For onshore Asian setups, Singapore's 13OA, in force from 1 January 2025, extends fund tax exemption to Singapore-registered limited partnerships, putting a domestic PE or VC vehicle alongside the VCC; Hong Kong's LPF serves Asia-focused PE and VC with Chinese capital. The vehicle is fixed together with the manager's licence and the LPs' reporting needs.

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## Factual claims

- The choice is fixed in the LPA and determines the applicable law for all fund documents.
- Manager-level licenses are a separate category from vehicle regulation.
- Capital call mechanics in detail—in separate article Capital calls.
- Clawback
- Within GP, carry is distributed according to carry plan with vesting (typically 4–6 years) for senior and junior partners.
- Limited Partnership (Cayman, Delaware, UK, Luxembourg SCSp, HK LPF)—tax transparent.
- VCC under 13O / 13U, Cayman Exempted Company, Ireland ICAV—corporate, but with tax exemption or near-zero rate.
- External references: MAS — repeal of the Registered Fund Management Company regime (2024); GOV.UK — revised tax regime for carried interest, in force 6 April 2026.