New York City Fund Formation Lawyer
Funds in New York face an array of formation and compliance issues, along with heightened pressure from investors and regulators. At Fridman Law Firm, our New York City fund formation lawyers understand these challenges and help different types of funds structure and restructure some of the most sophisticated funds in NYC. Our legal team leverages its vast regulatory experience to develop sound structures that comply with industry best practices.
Fridman Law Firm’s New York City attorneys apply their drafting and documentation skills to ensure compliance and mitigate risks in the long term. We also ensure structuring is done in a tax-efficient manner for different types of funds that serve industries such as technology and healthcare. But first, let’s find out some of the different types of investment vehicles.
Types of Fund Formations
A fund is a pool of money allocated for a specific purpose. In the realm of investments, various types of funds exist to cater to specific investor needs, and they include:
Venture Capital Funds
A venture capital (VC) fund is a form of private equity that investors offer to startups, emerging companies, and small businesses that are deemed to have growth potential. Businesses that have demonstrated high growth in terms of revenue, employees, and scale of operations may also be on the front lines of receiving venture capital.
This type of capital typically comes from entrepreneurs, well-off investors, and financial institutions such as investment banks. Venture capital funds invest in early-stage businesses in exchange for ownership stakes or equity, and they are extremely popular in the technology sector.
The Securities and Exchange Commission’s (SEC) parameters for VC fund definition are:
- Representation. Depicts itself as involved in pursuing a VC strategy, including using marketing materials.
- Redemptions. Doesn’t offer annual redemptions unless under extraordinary circumstances.
- Leverage limitations. Employs restrictions on leveraging portfolio companies.
- Qualifying investments. Invests at least 80% of its assets in qualifying investments.
Private Equity Funds
According to the SEC, a private equity fund is a “pooled investment vehicle where the adviser pools together the money invested in the fund by all the investors and uses that money to make investments on behalf of the fund.” This type of fund, managed by a general partner, purchases business shares on behalf of accredited investors, qualified clients, and institutions, such as pension funds, as part of consortiums or buyouts.
Private equity funds typically focus on long-term investments and take controlling interests in portfolio companies. They may also make minority investments in startups or fast-growing companies. Since they focus on long-term investments, these funds are often illiquid, and investors may have to hold their investments for years before realizing returns. They mainly generate returns when companies go public or are sold.
Real Estate Funds
A real estate fund is a private fund that invests primarily in real estate and related assets, such as real estate stocks. Given the high costs involved in owning property, these funds give investors an alternative entry point into commercial real estate, residential real estate, and land. They are an ideal investment for individuals who want a hands-off approach to daily real estate management activities. Real estate funds typically buy, build, or renovate properties to generate income for those interested in real estate but don’t want any direct ownership responsibilities.
Real estate funds can provide investors with flexibility, allowing them to customize their portfolios rather than putting all their eggs in one basket. Investors can invest in different asset classes, such as hotels or office buildings, or in different geographies.
Hedge funds are pooled investment vehicles that typically invest in publicly traded securities, derivatives, and foreign exchange. Investors in these types of funds make capital contributions and allocate profits — or losses — based on realized and unrealized gains. Although not regulated as heavily as mutual funds, hedge funds have more leeway than the latter and generally offer opportunities to investors who can afford the risks of hedge fund investing. They seek to profit by short-selling, using leverage, and other forms of speculative investment practices.
A mutual fund is an investment strategy that pools money from shareholders and invests in securities like bonds, stocks, short-term debt, or a combination of such investments. Investors buy shares, with each share representing their part ownership in the mutual fund.
What Does a Fund Formation Lawyer Do?
An experienced New York City fund formation lawyer can offer valuable insights during the formation of different types of funds, such as VCs, private equity funds, and hedge funds. At Fridman Law Firm, our fund formation practice in NYC has broad expertise in advising clients on relevant financial regulations, securities law, and ongoing obligations related to these investment vehicles.
Our fund formation expertise includes all aspects of fund structuring, including investor negotiations, drafting and reviewing terms and conditions, fundraising, and advising on tax-advantaged structures.
Comprehensive Fund Formation
A fund formation lawyer should have experience and knowledge of forming privately pooled funds across diverse business fields, such as technology, healthcare, and real estate. They may represent limited partners when investing in funds and fund sponsors when forming such funds. An attorney may advise sponsors on how to operate their funds, including all aspects of strategic planning, liquidating assets, preparing private placement memoranda, and negotiating partnership provisions with investors.
Other services that you can expect from a fund formation attorney in New York include:
- Fund restructuring
- Preparing capital commitment subscription documents and investment advisory contracts
- Representing fund executives in disputes with fund investors or other third parties
- Advising on state and federal law matters regarding investor qualifications and marketing regulations
- Tax structuring and governance advice
- Counseling on fund structure, compensation provisions, valuation procedures, and fundraising strategies
- Negotiating terms with placement agents
- Registering the fund with appropriate regulatory authorities
Call Fridman Law Firm Today for Fund Formation Advice and Representation
Fridman Law Firm’s fund structure and formation attorneys in New York focus on practical advice and solutions for investment funds and firms. Our legal team provides a comprehensive fund formation approach that reflects market and industry trends for fund executives, managers, and investors all across the five boroughs of New York. From private equity funds to venture funds and hedge funds, our New York City fund formation lawyers represent clients across all asset classes and structures.
Fridman Law Firm is ready to proactively help you with your investment fund’s structuring, compliance, marketing, and operation. Call us today at 212-262-9823 or contact us through our online form to learn more about our fund formation practice.