A sponsor who plans to invest deal by deal through SPVs usually ends up with three layers. The first is a GP or managing member entity, typically a Delaware LLC, that controls each SPV and receives the carried interest. The second is a management company, also typically a Delaware LLC, that signs a management agreement with each SPV and receives any management fee. The third is the SPVs themselves: one vehicle per investment, usually a Delaware LLC whose members are that deal's investors and whose manager is the GP entity. If the investors or the tax profile call for it, an SPV can be a Delaware limited partnership instead.

The question that comes up in the first meeting is whether the first two layers need to be separate entities from day one. Strictly, they don't. A single manager entity can be the managing member of every SPV and also act as the adviser. Whether it should depends on what that entity will receive, who will share in it, and where the sponsor expects to be in a few years.

What Each Entity Does

The GP entity holds control. Under each SPV's operating agreement, it makes the decisions the investors have delegated: when to fund, how to vote the SPV's shares, when to sell, and when to distribute. Its economic right is the carry, which is an allocation of the SPV's profits after investors get their capital back and any agreed return. If the SPV is taxed as a partnership, the carry is a share of partnership income, not a payment for services.

The management company is the operating business. It employs the team, pays the salaries and overhead, signs the office lease and vendor contracts, and enters into the management agreement with each SPV. Any management fee is paid to it. Because it is the entity that selects investments and advises the SPVs, it is usually the entity that files Form ADV as an exempt reporting adviser. Which exemption it relies on is covered in Venture Capital Fund Adviser or Private Fund Adviser.

Keeping Carry Apart From Fee Income

The first reason to separate them is tax. A management fee is compensation for services, which is ordinary income to the management company and, through it, to its owners. Carry follows the character of the SPV's income. If the SPV sells stock it has held long enough, the carry allocation can be long-term capital gain, subject to Section 1061, which applies a three-year holding period instead of one year to gain on applicable partnership interests. That rule is explained in Carried Interest: Structure, Tax Treatment, and the Section 1061 Haircut. Running both streams through one entity doesn't change the law, but it makes the accounting messier and blurs what each owner is actually receiving.

The second reason is people. Sponsors often want to give team members, operating partners, or a co-sponsor a share of the carry without giving them a share of the management company. The fee stream pays salaries and expenses, and the management company carries the operating liabilities. Carry is the upside on the deals. If the carry sits in its own entity, the sponsor can issue interests in the GP entity, often as profits interests, with vesting by deal or by year and clear terms for what happens when someone leaves. The management company's ownership stays with the founders. Doing the same thing inside a single entity is possible, but the operating agreement gets complicated quickly: separate classes, tracking allocations, and departure terms that have to treat fee income and carry differently.

Isolating Liability by Function

The management company carries operating risk: employment claims, lease obligations, vendor disputes, and regulatory exposure as the adviser. The GP entity carries the control positions in the SPVs and the duties that come with managing them. Keeping those in separate entities means a claim that arises from one function is less likely to reach the assets of the other, including the carry the GP entity has earned. The separation is only as good as the way the entities are run. Each needs its own bank account, its own agreements, and its own books. An entity that pays the other's bills or signs the other's contracts gives a claimant an argument that the line doesn't matter.

What Institutional Investors Expect

In a private fund, the standard structure is a GP entity that serves as general partner and a separate management company that serves as the investment adviser. That is described in The GP/LP Fund Structure. Institutional due diligence questionnaires, side letter requests, and fund counsel all assume it. A sponsor who starts with the same split on its SPVs can raise a fund later without reorganizing who owns the carry or which entity is the adviser. The track record, the Form ADV, and the team's carry terms continue as they are. Deal-by-Deal SPVs Before a Blind-Pool Fund covers what carries over.

When One Entity Is Enough

The added cost of a second entity is modest, but it is real. Each Delaware LLC pays an annual tax, which is $400 per LLC starting with the 2026 tax year under 6 Del. C. § 18-1107. Each also needs a registered agent, its own tax return, and its own bookkeeping. If the SPVs will charge no management fee and the carry is the only economics, one entity can be the managing member of every SPV and the adviser, and the sponsor can add a management company when a fee starts or the team grows.

If you start with one entity, draft for the split you expect later. The SPV operating agreements should let the managing member delegate or assign the advisory role to an affiliate, with any consent mechanics already built in, so adding a management company doesn't mean going back to every investor in every deal. The manager's own operating agreement should also anticipate carry participants, even if there are none yet. A management-heavy LLC is a related approach for sponsors who want a simpler structure for a pooled vehicle.

What Forming Them Involves

The information needed to form the GP entity and the management company is mostly practical:

  • The names of both entities.
  • Each principal's name, address, and ownership percentage in each entity.
  • Who signs, and who makes which decisions.
  • The economics: the carry percentage, any management fee, and any GP commitment to the deals.

From there, the work is the Delaware filings, the EINs, and the two operating agreements. The operating agreements should cover how decisions are made, who owns the carry and in what shares, vesting, and what happens when a principal leaves, dies, or becomes disabled. If a principal is outside the United States, plan for EIN timing. The IRS online application is not available when the entity's principal place of business is outside the U.S., or when the responsible party doesn't have a Social Security number or ITIN. Those applications go by phone, fax, or mail, which adds time before the bank account can be opened.

Where the investors, the principals, and the investments are located drives much of the rest: which securities filings apply, which state adviser rules apply, and whether an offshore vehicle should sit beside the Delaware structure for non-U.S. or tax-exempt investors. The comparison of Cayman, BVI, and Delaware structures covers that last question. It is worth answering those questions before the entities are filed, because they affect how the entities are drafted.

If you are setting up a sponsor platform and want to talk through whether two entities make sense for your deals, we're glad to walk through it with you. More on how we approach these structures is on our fund formation and SPV formation pages.