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Investors are solicited every day by professionals looking for investments in vehicles where capital is raised, put into a common fund or pool, possibly leveraged, and then invested in private or public securities. This is how venture capital, angel investing, private equity, and hedge funds all work. Investors usually don’t invest their money in these funds without considering the investment goals and strategies of the investment professionals. That’s sensible. Rational investors consider their risk tolerance, their comfort with the strategy to be deployed, and the different circumstances under which they can get their money back as they may desire. Few investors, however, consider the legal implications associated with the investment managers’ choice of entity and the state in which that entity was formed and what all that might have to do with their investment. Those choices may have significant ramifications.

Delaware is a very popular choice for state of formation for investment funds. A common structure is that the fund takes the form of a limited partnership and the investor becomes a limited partner in that fund. The fund is managed by one or more general partners and those may take the form of limited liability companies (LLCs). The funds may be advised by yet other LLCs and the managing members of the general partners may be other LLCs. You may need a chart in order to understand the corporate web into which you have invested your money.

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