Startups and funds that plan to raise capital through private funds or investment vehicles quickly realize they’re navigating two overlapping legal frameworks: state-level entity laws and federal securities regulations. Both layers play a vital role in shaping how your fund is formed, governed, and permitted to operate.

Understanding how these systems interact—and where they can create friction—is critical. The right strategy from day one can mean the difference between a clean launch and a costly delay. At the Fridman Law Firm, we help founders cut through the complexity so they can focus on building and scaling with confidence.

How the Fridman Law Firm Helps You Navigate Multi-Level Regulation

Fund formation isn’t just paperwork—it’s strategic infrastructure. We work with founders at every stage of business to ensure that your legal setup matches your goals, your investor strategy, and your timeline.

Our approach is designed around clarity and momentum. We help clients:

• Select the optimal formation state and structure
• Align internal governance with investor expectations
• Comply with federal securities laws and filing obligations
• Minimize risk by avoiding early missteps that can trigger regulatory scrutiny

Because we serve startups and emerging fund managers exclusively, we understand the pace and pressure of early-stage capital formation. We don’t just help you comply—we help you scale.

Understanding the Basics: State vs. Federal Oversight

At a high level, state and federal laws serve distinct functions in fund formation. States govern how entities are created and operated. This includes selecting whether you’re forming an LLC, LP, or other structure, determining internal rights and responsibilities, and managing ongoing reporting.

Federal law, meanwhile, controls how interests in your fund can be offered and sold. The Securities and Exchange Commission (SEC) regulates private placements, investor qualifications, and disclosure obligations under laws like the Securities Act of 1933 and the Investment Company Act of 1940.

The result? Even if you’ve formed your fund correctly under state law, you’re not free to raise capital until you comply with federal securities rules. And even if you qualify for a federal exemption, you may still need to file notice in every state where your investors are located.

Choosing a Formation State: Why It Matters

Startups and fund managers tend to think of Delaware as the default—and for good reason. Delaware offers a predictable legal environment, a sophisticated court system, and flexible statutes that are friendly to fund managers and investors alike.

But Delaware is not the only option. Depending on your tax footprint, investor base, or fund strategy, forming in your home state or another jurisdiction may make sense. What matters is understanding how each choice affects:

• Liability protections for general partners or managing members
• State-level taxes and franchise fees
• Investor expectations, particularly for institutional capital
• The cost and complexity of operating across multiple jurisdictions

We help clients make this decision with a full view of legal, operational, and investor dynamics—so your structure supports your strategy, not the other way around.

Federal Securities Law: Regulation D and Beyond

Once your fund is formed, the next legal hurdle is complying with federal securities laws. Most early-stage funds rely on exemptions under Regulation D, which allows you to raise capital without registering with the SEC.

The most common paths are:

• Rule 506(b): You can raise unlimited capital from an unlimited number of accredited investors—and up to 35 non-accredited—but you cannot generally solicit or advertise.
• Rule 506(c): You may publicly advertise the offering, but all investors must be accredited, and their status must be verified through documentation.

Both exemptions require you to file a Form D within 15 days of your first sale. This filing is a public notice of your offering and must be updated if material changes occur.

Beyond Reg D, certain funds may need to consider whether they’re subject to regulation as investment companies or investment advisers. These rules can trigger further registration or compliance obligations depending on fund size, structure, and investor type.

Where State Blue Sky Laws Still Apply

Many founders assume that federal exemptions eliminate state-level compliance—but that’s not the case. Even when your fund qualifies under Rule 506, states retain the right to require notice filings, fees, or other limited disclosures under their “blue sky” laws.

These laws vary widely across jurisdictions. Some states require filings within 15 days of a sale, mirroring Form D timelines. Others impose unique document requirements, late fees, or exemptions of their own. Failure to comply can lead to fines or even bans on future offerings in that state.

We help clients stay ahead of these requirements by coordinating filings across all relevant jurisdictions. That way, your offering remains clean, compliant, and fully aligned with your investor base—wherever they are.

Entity Type and Fund Structure Considerations

The entity you choose—LLC, LP, or otherwise—has ripple effects across your tax strategy, liability exposure, and investor relations.

• Limited Partnerships (LPs): Often preferred by institutional investors, LPs create a clear division between general partners (GPs) who manage the fund and limited partners (LPs) who invest. They’re particularly useful for traditional venture, hedge, or private equity funds.
• Limited Liability Companies (LLCs): These offer greater structural flexibility, making them popular for smaller or more experimental fund models. LLCs can be manager-managed, taxed as partnerships, and customized via operating agreements.

Startup founders must also consider whether to separate fund management into a distinct management entity, which can streamline operations and isolate liability. We assist in structuring both the fund and the management company to reflect your specific growth plans and operational model.

Common Compliance Pitfalls for Founders

Even experienced founders can misstep when forming a fund—especially when trying to move fast or handle legal strategy piecemeal. Fund formation touches multiple areas of law, and small oversights can trigger costly consequences later. Some of the most frequent issues we see include:

Filing Form D Late—or Not At All

While this may seem minor, failing to file Form D with the SEC within 15 days of the first sale can raise red flags with regulators. It may also create issues during future fundraising rounds, when investors request evidence of prior compliance.

Overlooking State Notice Filings

Many founders assume that a federal Regulation D exemption eliminates the need for state-level compliance. In reality, most states require separate “blue sky” filings and fees. Skipping these steps can result in administrative penalties or limitations on offering activity in that jurisdiction.

Inconsistent or Investor-Unfriendly Entity Structures

Some founders form LLCs when institutional investors expect LPs. Others draft vague or incomplete operating agreements that fail to reflect deal terms. Both scenarios can erode investor trust or force restructuring midstream—adding cost and delay.

Commingling Fund and Business Activity

When a single entity is used for both fund operations and unrelated startup activity, it creates governance confusion and tax complications. It may also blur fiduciary duties or expose the fund to liabilities outside its scope.

Unclear or Unenforceable Investor Agreements

Whether through DIY documents or mismatched templates, we frequently see issues with investor subscription agreements, side letters, or capital call provisions. These gaps can create disputes, regulatory exposure, or cap table uncertainty down the line.

At the Fridman Law Firm, we help clients avoid these traps by building a clear, compliant legal foundation from the outset. Our goal is to reduce friction before it starts—so your fund can launch smoothly, operate cleanly, and scale confidently.

When to Engage Legal Counsel

Founders often wait until they’re about to close capital—or worse, after investor funds have already been wired—before seeking legal guidance. At that point, key documents may already be in circulation, structural missteps may have gone unnoticed, and regulatory deadlines could have passed. These oversights often require costly revisions, investor renegotiations, or state-level compliance fixes that delay momentum and shake investor confidence.

The better approach is to engage legal counsel early—ideally, before your fund is announced or your pitch deck is shared. A knowledgeable fund formation attorney can guide you through the foundational steps that reduce risk and accelerate your fundraising process. This includes helping you:

• Choose the right entity structure and formation jurisdiction
• Draft and tailor offering documents that comply with Regulation D and other applicable exemptions
• File Form D and coordinate necessary state blue sky filings
• Ensure all investor agreements are properly executed, with clear allocation of rights, responsibilities, and exit terms

Proactive legal input also helps identify potential investor issues in advance—such as limitations on non-accredited participation, transfer restrictions, or cap table misalignments. And if you’re forming a management entity alongside your fund, early coordination ensures those structures are aligned and tax-efficient from the start.

Even if you’re moving quickly, experienced legal support should fit your timeline—not slow it down. At the Fridman Law Firm, we work at your pace, providing responsive, founder-first counsel that keeps you compliant, confident, and ready to close.

Build Your Fund on a Strong Legal Foundation

Every startup raising capital through a fund structure faces a complex legal landscape—state formation rules, federal securities regulations, and evolving investor expectations. The path is navigable, but only if you start with a foundation that’s both solid and scalable.

At the Fridman Law Firm, we provide early-stage fund managers and founders with the legal tools to launch with confidence. Whether you’re forming your first Delaware LP, exploring a multi-state offering, or building out your GP/LP infrastructure, we’re here to guide every step.

Contact us today to schedule a strategy session and find out how we can help you navigate fund formation with clarity, compliance, and confidence.