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Chapter 10. Venture Capital Funds > The Structure and Activities of Venture Cap...

The Structure and Activities of Venture Capital Funds

The Organization of Venture Capital Funds

The basic principle underlying the structure of venture capital funds is the creation of a distinction between the passive investors (the limited partners) and the fund managers (the general partners and the management company). The actual structure of the funds is determined according to the identity of the investors and the specific legal restrictions to which they are subject.

A venture capital fund is usually a private corporation organized as a limited partnership, or a company taxed as a partnership, such as an LLC (limited liability company) (see Chapter 2 on types of corporations for a discussion of the nature of LLCs). Being organized as a partnership excludes taxation at the level of the fund in the form of corporate tax, enables the partners to offset losses incurred against their capital gains, facilitates the dissolution of the partnership from the points of view of corporate and tax law, and protects the limited partners against legal liability.


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