Does anyone know in regards to hedge funds, the advantage of having an LP within the LLC? Does it provide legal protection, or does the LLC alone suffice?
Hedge funds are generally structured as limited partnerships for the benefit of the investors. They want to be shielded from any liability created by the manager so they participate as limited partners. The manager/general partner (they can be the same or separate entities) can organize itself as an LLC or another limited partnership to shield its principals from liability. Whether an LP or LLC structure is chosen will be driven by tax or other considerations, seek competent counsel.
Hedge and PE partnerships are typically structured as a limited partnership. A limited partnership provides more flexibility in terms of allocations. The general partner of a limited partnership is typically structured in a one-tier or two-tier structure – either as an LLC only or as an limited partnership with an additional LLC serving as the general partner of the general partner limited partnership. The LLC is the control vehicle of the general partner and will consist of only a few of the sponsor’s senior managers and provides the sponsor’s controlling managers with liability protection. The limited partnership under it serves as the carry vehicle and its interests will be held by more of the sponsor’s employees/managers. Because of non-us tax concerns, among others, the single LLC structure was not used. Those tax issues are less of a problem these days, and you’re seeing it more.
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