Formation counsel for buyout and growth-equity sponsors. The closed-end vehicle, the limited partnership agreement, and the economics that decide what a fund can raise and how it pays out are all settled before the first close.
A buyout fund's returns are divided twice, once in the waterfall and once by the tax code when the carry is realized. Section 1061 taxes carried-interest gain as short-term unless the asset was held more than three years. A European waterfall pays the sponsor nothing until investors have their capital and preferred return back; a deal-by-deal waterfall pays on each exit and relies on a clawback at the end. Which waterfall a sponsor can raise on is largely a question of track record.
We act for sponsors raising a first or a fifth fund and for the institutions and families that commit to them. The documents are the Delaware limited partnership agreement, the offering memorandum, and the subscription booklet, with blockers for tax-exempt and non-U.S. investors and parallel vehicles where the investor base requires them.
Growth-equity funds raise into the same shell to take minority positions, and the terms that differ, from follow-on rights to recycling, belong in the LPA rather than a side letter. We have represented clients in matters before the SEC, and where a feeder sits offshore we coordinate locally admitted counsel from the first draft.
Choosing the right closed-end vehicle and jurisdiction for the strategy and investor base, with the Delaware limited partnership, parallel and feeder structures, and the onshore/offshore mix decided before commitments are in.
Drafting and negotiating the LPA that governs the fund, from the investment period and commitment and drawdown mechanics to transfer and default provisions and the governance the manager will run on for the life of the vehicle.
The economics of the deal, meaning carried interest, management fee, the preferred return or hurdle, the distribution waterfall, and the GP commitment, drafted with the tax and regulatory consequences built into the terms.
Private placement memoranda, subscription agreements, and investor questionnaires prepared so the fund raises within the exemptions it relies on. Together they are the disclosure and eligibility framework that lets capital come in cleanly.
Multi-vehicle architecture for funds with taxable, tax-exempt, and non-U.S. investors, using blocker corporations, parallel partnerships, and feeders, with offshore counsel coordinated where a registered office or licensing applies.
Negotiating anchor and most-favored-nation side letters, fee and co-investment terms, and key-person and removal provisions, and managing the give-and-take with major LPs that shapes the fund toward a first close.
A Section 3(c)(1) fund stops at 100 beneficial owners. A Section 3(c)(7) fund may take more, but every investor must be a qualified purchaser, $5 million in investments for an individual and $25 million for most institutions, and 2,000 holders of record would force Exchange Act registration. Many sponsors run both as parallel funds.
If a deal-by-deal waterfall pays carry early and later exits disappoint, the general partner owes the excess back, usually net of the tax it already paid. Investors ask for an escrow holdback or guarantees from the individuals who received the carry, and the LPA names the test date, typically at final liquidation and sometimes earlier.
A tax-exempt investor owes unrelated business income tax on operating and debt-financed income that flows through a partnership; a non-U.S. investor is taxed on operating income as effectively connected. A corporate blocker between them and the fund converts both into dividends and pays corporate tax instead. The structure costs yield; investors ask for it anyway.
An adviser with $150 million or more in private fund assets under management in the United States must register with the SEC, and once registered it files Form PF, with the fuller reporting due when private equity assets reach $2 billion. The fund's exemptions do not carry the manager with them.
In most LPAs, when named principals stop devoting substantially all of their business time to the fund, the investment period suspends; it ends only if a stated majority of investors decline to lift the suspension within the cure window. Who is named, what counts as time, and how long the window runs are negotiated terms.
Side-letter concessions are usually offered to every investor of equal or larger size through an MFN election, so a fee break given to one anchor is priced against everyone who can elect it. Sponsors carve out regulatory, tax, and co-investment terms; investors push the size threshold down. The election package is a formation document.
Sponsor economics are settled before drafting begins, covering carry, hurdle, waterfall style (European or deal-by-deal), GP commitment, and the onshore/offshore stack, because every later negotiation happens inside this frame. The fund's real founding document is the structuring memo. The PPM comes later.
The LPA, private placement memorandum, and subscription package go out to anchor investors, and the exemption architecture goes live with them: Regulation D filings, adviser exemption or registration analysis, and the eligibility screens that decide who may wire. The fund is now a disclosure obligation as much as a vehicle.
Anchor LPs negotiate side letters against the LPA in parallel, working through MFN sequencing, fee breaks, co-invest rights, and excuse provisions, while blockers, feeders, and parallel funds are stood up for tax-exempt and non-U.S. commitments. Everything converges on one signing date, and the give on day one is priced against the MFN it triggers for everyone after.
Later investors come in with interest-style true-up payments as if present at first close, the MFN election process runs, and the fund closes to new commitments at the hard cap or the deadline. Formation counsel hands the sponsor a vehicle already deploying and starts the file for Fund II.
A fund's returns are negotiated once, in the waterfall, years before the first exit.
A private equity or growth fund is a closed-end pooled vehicle through which a sponsor raises committed capital from investors, calls it down over an investment period, and deploys it into private companies, through controlling buyouts in the case of classic PE and minority growth stakes in the case of growth equity. The fund has a fixed life, a defined strategy, and economics set in advance, and most of those terms are negotiated into the limited partnership agreement before the first close.
There is no single right answer, because it depends on the investor base and the strategy. A US-focused fund with taxable domestic investors often uses a Delaware limited partnership. A fund with tax-exempt or non-U.S. investors usually adds blocker or parallel vehicles, frequently formed offshore. We work through the vehicle and jurisdiction questions before the structure is fixed, coordinating local counsel where an offshore registered office or licensing is required, because the choice is difficult to change once commitments are in.
They are negotiated, within conventions. The management fee is usually a percentage of commitments during the investment period and of invested capital afterward, with the step-down date and any offset for transaction fees fixed in the LPA. Carried interest is a share of profits paid only after investors receive their capital back plus a preferred return, followed by a catch-up that brings the sponsor to its full share, and the LPA says whether that calculation runs deal by deal or across the whole fund. The GP commitment, the clawback, and the treatment of fee waivers complete the picture. We draft and negotiate these terms for sponsors and for investors, with the Section 1061 holding period in view.
The fund does not register. It relies on Section 3(c)(1) or 3(c)(7) of the Investment Company Act and sells its interests under Regulation D, reporting the offering on Form D within 15 days of the first sale. The manager is a separate question. An adviser with $150 million or more in private fund assets under management in the United States must register with the SEC; below that it may file as an exempt reporting adviser instead, with a shortened Form ADV due within 60 days of relying on the exemption. Registration brings the custody, marketing, and compliance rules with it, and the anti-fraud rule applies either way. We have represented clients in matters before the SEC.
Yes. The U.S. side is the Regulation D and Investment Company Act analysis. In the United Kingdom, a non-UK manager may market to professional investors only after notifying the Financial Conduct Authority under the national private placement regime, and retail investors are off the table. In the Gulf, each regulator runs its own professional-investor channel, with the DIFC and ADGM free zones operating separately from the onshore UAE regime. Parallel and feeder vehicles let one strategy admit taxable, tax-exempt, and non-U.S. investors on terms each can accept, and we coordinate locally admitted counsel where a registered office or local marketing rule requires it. From Chicago, London, and Dubai, the structure is designed as one.
The documents take weeks and the raise takes months, and the two run in parallel. Vehicle selection and the term sheet come first, because every later document inherits them. The limited partnership agreement, offering memorandum, and subscription package follow and go to anchor investors, whose side-letter comments drive the final drafts. First close happens when enough commitments are in to start investing. Most LPAs then allow 12 months for subsequent closings, often extendable with advisory-committee consent, with later investors paying an equalization charge as if they had been in from the start. Formation ends at final close; the documents keep working for a decade.
Formation counsel for early- and growth-stage venture sponsors, covering fund structures, management entities, and the terms that fit a venture portfolio and its investor base.
Explore →Structuring and launch for real-estate fund sponsors, with the vehicles, REIT and blocker considerations, and economics particular to property-focused strategies.
Explore →Open-ended and evergreen vehicles, and the liquidity, subscription, and redemption mechanics that distinguish a continuously raising fund from a closed-end one.
Explore →Reviewed by Jonathan D. Herpy, Sr., Senior Partner · Last updated October 2026 · Educational overview · Not legal advice
One partner is accountable for the whole matter, and you have that partner's direct line. Chicago, London, and Dubai work to the same standard.