Factors the GP Should Consider When Structuring and Negotiating an Investment
Investments made by fund can be structured in many ways. In some cases, the fund may be a passive minority investor in a portfolio company, while in other cases, the fund may gain substantial or even complete control of the portfolio company.
In deciding how to structure investments, consideration should be given to the jurisdiction in which the investment is to be made, the fund's investment strategy and whether the investment is an acquisition of a minority or majority interest.
The GP may also need to consider carefully its position and strategy when investing alongside other parties (e.g. as part of a syndicate) and whether this places it under any obligations or liabilities to others.
It is possible that the structure of an investment may impose liabilities and responsibilities on the fund and such liabilities will normally be thoroughly investigated with the assistance of the fund's lawyers.
GP should structure and negotiate any investment made by the fund in a manner that satisfies both its obligations to the fund and the fund's interests. This will often involve engaging specialised local professional services firms to assist and advise on legal, tax and regulatory issues.
When structuring an investment, GP should take steps to consider the tax, regulatory (e.g., US ERISA) and other consequences of the investment for the fund and its LPs.