Fund formation and first-time fund managers
How do I form a Delaware limited partnership for a fund?
Short answer
Many sponsors work with an attorney on the state filings and a limited partnership agreement. In this kind of structure, the general partner typically runs the fund and the limited partners typically invest. Many sponsors talk to a securities attorney about the documents and about how they plan to raise money.
Many sponsors work with an attorney on the state filings and a limited partnership agreement. That agreement is where the real work sits. It sets out who runs the fund, who invests, and how money moves between them. I am not a lawyer, so treat everything here as general education and talk to securities counsel about the documents.
Why the two partner roles come first
Limited partnerships typically involve a general partner and limited partners. It helps to be clear on what each one does. I walk through this in our joint venture webinar. The general partner finds the deal, structures it and runs it. Limited partners come in as investors.
"Then the limited partners have limited risk. They're not operating the asset. The general partner has more risk. They're putting some of their capital on the line at risk."
That difference in risk is a big part of how people describe this structure. It also tells you something practical. In the way I describe it, the general partner often carries more exposure. Many sponsors set up a separate entity to be the general partner instead of using their own name. Ask your counsel whether that fits your situation.
Typical steps to talk through with counsel
- Choose a name for the partnership and ask your attorney how to check it.
- Ask your attorney about registered agent needs.
- Ask your attorney about the state filings.
- Work with your attorney on a partnership agreement that addresses contributions, fees, distributions and management.
- Talk with your attorney and accountant about tax identification and banking for the fund.
Many sponsors consider Delaware because investors and lawyers tend to be familiar with it. That does not mean it is right for every fund. Your attorney can discuss whether Delaware or another state makes more sense for you.
Forming the entity is only the starting point
People often assume the entity is the finish line. It is the starting line. Raising money for a fund brings up securities questions, including who can invest, how the offering can be promoted and whether any registrations apply. Many sponsors take all of that to securities counsel before speaking to investors.
Where a co-GP fits into the structure
One more point from the same webinar. You do not always have to carry the general partner role alone. In a co-GP deal, you bring in one or two other parties at the management level of the deal. Sometimes it is an even split. Many times it is customized to what each party contributes.
This clip shows how I describe the co-GP structure and why partners with complementary skills can share the general partner role.
Summary and key takeaways from this video
Meg, a Family Office Club member who develops real estate in Nashville, joined me on that webinar. She had done 12 deals, and five of them used a co-GP structure. Her point was that partners can fill gaps in track record or access. If you plan to form a fund, decide early whether a co-GP partner would sit inside your general partner entity, and talk with your attorney about how to document it.
From the Family Office Club stage
Before you form a Delaware limited partnership, ask whether you need a fund at all. One speaker on a webinar said starting a full fund can cost around $70,000 in formation work, and that a single deal done through an SPV LLC might save that amount. Actual costs vary widely. So I would not ask whether this is what everyone does. I would go to my attorney and describe what I actually plan to raise, how many deals, and from whom. Then let counsel tell me whether a fund or a simpler deal vehicle fits. Match the structure to the plan rather than the other way around.
"If you start a fund that costs you $70,000 to form, versus just doing an SPV LLC, that right there might save you $70,000."
"So I think always asking yourself, "Oh, is that what everyone does?" is not the right question. If you go to an attorney and say, "I want to form a fund."."
Facts and figures
- As described in the webinar, limited partners do not operate the asset, while the general partner puts some of its own capital at risk.
- A co-GP deal brings one or two other parties in at the management level of the deal.
- Meg had done 12 deals, and five of them used a co-GP structure.
Sources
From Richard C. Wilson's Centimillionaire Strategies YouTube channel: Joint Venture & Co-GP Webinar - How to Close Deals with Peers & Partners in the Family Office Club, Joint Venture & Co-GP Webinar - How to Close Deals with Peers & Partners in the Family Office Club. Quotes come from the video captions, lightly edited for readability. Figures are the speakers' own estimates and experience.
General education only. Not legal, tax or investment advice.
Talk to a securities attorney to explore options around partnership agreement terms, offering and investor rules and GP entity structure. Do not use AI to write your own legal agreements.
What to do next
- Decide who might serve as general partner and ask your attorney whether a separate GP entity makes sense.
- Consider talking to a securities attorney before you file or talk to investors.
- Work with your attorney on the state filings.
- Work with your attorney and accountant on the partnership agreement and tax setup.
- Talk to counsel about offering requirements before accepting any capital.
More questions on this
Do I need a lawyer to form a Delaware limited partnership?
Many sponsors work with securities counsel on the filings, the partnership agreement and questions around raising money.
Can I have a co-GP in my fund?
A co-GP is one way to bring one or two other parties in at the management level. How the roles and economics are split is something to work out with your attorney.
Is forming the partnership enough to start raising money?
Forming the entity is usually just one step. Raising money brings up securities questions, so many sponsors check with counsel first.
Related questions
- What is a fund of one and who uses it?A fund of one is a private fund set up for a single investor, usually a large family office or institution that wants its own terms.
- How long does fund formation take from start to launch?There is no single number, because fund formation runs on two clocks.
- What management fee and carry should a new fund charge?There is no single right number.
- What is the difference between a first close and a final close?The first close is the date your fund accepts its first group of investors and can start operating.
Work through it with the investor meeting follow-up checklist. See all fund formation and first-time fund managers resources.