Legal structure of a Search Fund?

February 15, 2019

by a searcher from Carleton College in Leesburg, VA, USA

I'm just beginning to explore the search process. I have a sole proprietorship LLC. How does it work I start recruiting investors? Is there a limit to the number of co-owners I can add without incorporating? Or should I incorporate in any case?

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Reply by a professional
from William Mitchell College of Law in Minneapolis, MN, USA

Hi Anne. I will disclaim any legal advice here, since your question is pretty broad. If you have a LLC now, you are organized and can add new investors. If you do not have an LLC now, you cannot add new investors to an entity that does not exist. You may or may not want to form a corporation as opposed to a LLC. Adding investors involves corporate and securities laws and should be carefully considered. You need to consider the fund structure, what your investors will receive and more. There are many good resources on this, including this one from Wharton. https://groups.wharton.upenn.edu/uploaD/wharton/2013/doc_209410_search_funds_primer_1117212333.pdf

Good luck

Reply by a searcher
from Fordham University in New York, NY 10025, USA

Here's a useful article on fund structures. Its important the structure be familiar to investors and similarly structure to what they're used to. The good news is that these structures are pretty boilerplate so if you find a competent fund lawyer they can create one for a flat rate. https://www.asimplemodel.com/insights/private-equity-fund-structure-gp-and-management-company

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