How a Private Fund Is Structured: GP, LP, and Management Company

A private fund is almost always three entities, not one: a fund limited partnership that holds the investors' capital and makes the investments, a general partner LLC that controls the fund and earns the carried interest, and a management company LLC that employs the team and earns the management fee. Investors — the limited partners — invest in the fund LP; the other two entities belong to you. The entities are typically Delaware, regardless of where you or the assets are.

The separation isn't ceremony. It isolates liability, splits carry economics from fee economics, and keeps tax treatment clean — which is why the same skeleton shows up under nearly every real estate, private equity, venture, credit, and hedge fund in the United States. This page is the reference for what each entity does, why they're separate, how money moves between them, and which document attaches where.

The Three Entities and What Each One Does

Same skeleton across strategies; only the offering documents change by asset class.

The fund — a Delaware limited partnership. LPs subscribe here, their capital sits here, and the fund (directly or through subsidiary entities) owns the investments. It has no employees and no office; it is a pool of capital governed by a contract.
The general partner — an LLC that serves as the fund's GP. It signs for the fund, makes investment decisions, and receives the carried interest. Limited partners are limited precisely because the GP carries the authority and, with it, the exposure.
The management company — an LLC that runs the business: it employs you and the team, leases the office, pays the vendors, and earns the management fee under an investment management agreement with the fund. When people say they work at a fund, this is the entity that actually issues paychecks.

Why Three Entities Instead of One

Liability isolation. The GP has open-ended exposure for the fund's obligations, so it's a purpose-built LLC that holds essentially nothing — if the fund is sued, the entity in the line of fire has no assets to lose, and your operating business (and your house) sit elsewhere. One GP entity per fund also keeps each fund's liabilities from crossing into the next fund's.

Economics separation. Carry and fees are different kinds of money: carried interest is a profit share that generally receives capital-gains-flavored treatment and is often split among partners in a deal- or fund-specific way, while management fees are ordinary operating income that pays salaries. Routing carry to the GP entity and fees to the management company keeps each stream clean — for taxes, for partner splits, and for LPs auditing who gets paid what.

Continuity. Funds end; firms don't. Fund I's LP dissolves after its term and its GP entity retires with it, but the management company persists and signs the management agreement for Fund II. That's why the management company — not any single fund — is where the brand, the team, and the history live.

None of this requires bespoke engineering for a first fund: it is the standard scaffold, and Fund Launch prepares all three entities' formation documents as part of the fund formation package ($6,000, reviewed by independent counsel).

How the Money Flows

Trace a dollar through the structure and the design explains itself:

In: LPs sign subscription agreements and wire capital to the fund LP — up front or via capital calls against their commitments as investments are made.
Fees out: the fund pays the management company its management fee under the investment management agreement — commonly quarterly, on committed capital during the investment period. This is the money that runs the firm regardless of performance.
Investments: the fund deploys capital into assets per the LPA's mandate; proceeds come back to the fund when assets pay income or exit.
Distributions: the fund distributes through the LPA's waterfall — return of capital, then the preferred return, then (typically) a GP catch-up, then the carry split, commonly 80/20.
Carry: the GP entity's share of profits under that waterfall flows to it as carried interest, and from there to whoever holds points in the GP.
The GP's own commitment — commonly 1–5% of the fund — goes in alongside LP capital and earns the same returns, which is why LPs read it as skin in the game.

Where Each Document Attaches

Every fund document belongs to exactly one entity, and confusion about which is a reliable tell of a structure that hasn't been thought through. The fund LP carries the offering: its certificate of limited partnership forms it, its limited partnership agreement is the economic contract with LPs, and the PPM, subscription agreement, and accredited investor certification all govern buying into it. The GP LLC carries control: a certificate of formation and an LLC agreement that sets who holds carry points and who decides. The management company carries operations: its own formation documents plus the investment management agreement — the contract between it and the fund that authorizes it to manage the assets and be paid the fee.

On Fund Launch, Legal Canvas prepares the full set for counsel review — so the waterfall in your LPA, the fee in your management agreement, and the numbers in your PPM stay consistent. Independent counsel reviews the package before anything is signed.

Common Variations You'll Hear About

The three-entity scaffold covers most first funds, and the variations are extensions of it rather than departures. Hedge funds targeting non-US or tax-exempt investors add an offshore feeder in a master-feeder structure. Firms running many funds sometimes use one management company with a fresh GP entity per fund — which is the standard pattern anyway. Some real estate strategies rely on the Investment Company Act's 3(c)(5)(C) exclusion rather than 3(c)(1), and funds for qualified purchasers use 3(c)(7); the entity skeleton is the same, the exemption analysis differs. When a variation matters for your strategy, that's a counsel conversation — the scaffold itself is the part that doesn't change.

Frequently Asked Questions

Why Delaware, even if my fund invests elsewhere?

Delaware's limited partnership and LLC law is the settled standard: its statutes give broad freedom of contract, its case law is deep enough that LPA provisions have predictable meaning, and LP counsel reviews Delaware documents without friction. Where the entities are formed and where the fund invests are independent questions — a Delaware fund buying Texas real estate registers to do business where it operates. Choosing an unusual formation state saves little and costs diligence time.

Can the GP and the management company be the same entity?

Legally possible, and some small funds collapse them — but it forfeits the point of the separation: fee income and carry land in one pot, the entity with open-ended fund liability is the same one holding your operating assets, and unwinding it for Fund II means restructuring. The second entity costs a formation filing and a franchise fee; keeping them separate is the cheap default that experienced LP counsel expects to see.

Do I need all three entities before I talk to investors?

You need them before you take money — subscriptions are signed with the fund LP, so it must exist, with its GP in place, before first close. Conversations can start earlier, subject to the securities rules governing your raise (see the 506(b) vs 506(c) guide). In practice managers form the entities alongside finalizing documents — days, not months, on Fund Launch — so the scaffold is rarely the long pole.

Who owns the GP entity and the management company?

You and your partners, directly or through holding entities. The GP LLC's agreement allocates carry points; the management company's agreement allocates the fee business and typically the equity in the firm itself. They need not be owned identically — a senior adviser might hold GP points in Fund I but no stake in the management company — which is exactly the flexibility the separation exists to provide.

Where do the fund's regulatory filings sit in this structure?

The fund's offering filings — Form D within 15 days of first sale and state blue-sky notices — attach to the fund LP as issuer. The fund typically relies on an Investment Company Act exclusion such as 3(c)(1). Adviser-side obligations attach to the management side: many first-time managers operate as exempt reporting advisers under the venture capital or private fund adviser exemptions, but thresholds and state rules vary, so confirm your footing with counsel.

Related Guides

The Documents Every Private Fund Needs

Every private fund document explained in plain language: the PPM, LPA, subscription agreement, accredited investor certification, formation documents, and IMA.

506(b) vs 506(c): Which Raise Fits Your Fund

506(b) vs 506(c) for fund managers: what each rule permits, the verification burden in practice, switching rules, and how the choice shows up in your documents.

Syndication vs Fund: Which Structure Fits Your Next Raise

Syndication or fund? Single-asset SPV vs blind-pool fund compared: investor psychology, economics, operational load, and when to graduate from one to the other.

How Much Does It Cost to Start a Fund?

Real numbers for starting a private fund: traditional formation runs $50k–$100k+ in legal alone. Line-by-line costs, what recurs annually, and what changes the math.

The First-Time Fund Manager's Guide to Launching

How first-time fund managers actually launch: proving the strategy, sizing the fund to your LP base, terms that close, the document step, and honest raise math.

Management Fee and Carry: Typical Terms by Fund Type

Typical management fees, carry, and preferred returns by fund type — real estate, PE, VC, hedge fund, private credit, crypto — and why the structures differ.

Stand Up the Whole Structure

Define your fund's terms once and Fund Launch prepares all three entities' documents and the offering package — consistent by construction, reviewed by independent counsel.

Start building your fund

This guide is educational material, not legal, tax, or investment advice. Fund Launch is not a law firm and does not provide legal advice; fund formation documents prepared on the platform are reviewed by independent counsel before use. Consult your own advisors about your specific situation.