I received a question on Twitter I thought might be useful for everyone to see the answer to.
Disclosures: I'm not a lawyer. I don't play one on TV. Consult a lawyer to make decisions like these and don't listen to me.
Here's our current structure:
Delaware Multi-member LLC - we have 4 equal partners.
We're planning on raising a fund some time this year and we've been kicking around ideas on how to structure it.
Proposed fund structure:
GP LLC - this is the 4 of us. This could also be an LLP. I'm not clear on why that would be better though.
XOXO Capital Fund Alpha LLC - this is a multi-member llc with a slightly different / custom management structure compared to an out of the box llc like you'd get from Stripe Atlas. It will be managed by the GP LLC as opposed to just a normal member managed LLC
Investors - individual investors or companies that invest in the fund.
I did see that Andrew Gazdecky from Micro Acquire started doing stuff like this for their minispac or microspac but they do it as a C-corp. Here's my interpretation of using a c-corp for this stuff:
- double taxation sucks - you pay taxes as a corp and then you pay income taxes on distributions
- only needed if investors can only invest in c-corps (some investors require this)
- you're going to have more than 99 people on your cap table (might be lower depending on various things I don't understand
- Getting money out of a c-corp is also kind of a pain in the ass.
In short, try to use an LLC. It's easier to go from an LLC to a C-Corp, but going from a C-corp to an LLC takes an act of congress (very hard).