This document discusses the requirements for a private investment fund to qualify as a Venture Capital Operating Company (VCOC) under ERISA regulations. Key points:
1) To qualify as a VCOC, a fund must invest at least 50% of its assets in operating companies where it has direct contractual management rights. This includes the right to appoint board members or officers.
2) The fund must also exercise active management rights over at least one operating company as part of its regular business activities.
3) It is best practice for funds to obtain a separate "management rights letter" outlining their management rights for each portfolio investment, even though only 50% require this.
4) The
How to start a private equity fund cummings finalCummings
The document discusses key considerations for setting up a private equity fund, including obtaining necessary regulatory authorization, establishing an appropriate fund structure and jurisdiction, determining eligible investors, and arranging service providers. It notes that a private equity fund typically takes around three months to establish, and requires seeking professional legal and tax advice to properly address regulatory requirements and optimize the fund's structure.
IASB finalises exemption from consolidation for investment entities
This investment company technical release is designed to give our clients and contacts in the sector short, topical updates.
This document outlines Shari'ah standards for contractual partnerships (Sharikah al-aqd) according to the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). It discusses the classification of partnerships, including traditional fiqh-nominate partnerships and modern corporations. It provides details on concluding partnership contracts, managing partnerships, profit and loss allocation, guarantees, and terminating partnerships. The document aims to establish governance and operational guidelines for Islamic financial partnerships and corporations to ensure compliance with Shari'ah principles.
- The document analyzes investment opportunities in tranches of Freddie Mac Multi Class Certificate Offering 2884.
- Two cash flow models are constructed to value the tranches, with the second utilizing a more sophisticated prepayment model.
- Based on 100 simulations, tranche ST was found to have the lowest standard deviation and risk relative to par value, making it the most suitable investment for the fund.
1. Common shareholders have six main rights: voting power on major issues, ownership in a portion of the company, the right to transfer ownership, entitlement to dividends, opportunity to inspect corporate books and records, and the right to sue for wrongful acts.
2. In addition to these six rights, corporate governance policies are also important in determining how a company treats shareholders.
3. A shareholder rights plan outlines what actions a company's board can take to protect shareholder interests, such as exercising rights if another entity acquires a certain percentage of shares in an attempt to take over the company.
ESOP Participants and Shareholder RightsSES Advisors
This chapter discusses the rights of ESOP participants as shareholders. It begins by explaining that ESOPs allow employees to feel like owners through stock ownership, but the legal ownership rests with trustees. ESOP participant rights are governed by ERISA, while shareholder rights come from state corporate law. It then summarizes some typical shareholder rights like voting, financial disclosures, dissenting from major decisions. For ESOPs, the trustee has authority over unallocated shares but must allow participants to direct voting of allocated shares, if decisions are made freely and without pressure. The trustee still has responsibility to ensure directions follow fiduciary duties.
This document provides an overview of Collective Investment Schemes (CIS) in South Africa. It defines a CIS as an investment vehicle that pools investor money to access investments individuals could not access alone. It describes the CIS landscape in South Africa, including total assets under management and number of registered portfolios. It outlines the major types of funds, portfolios, stakeholders, and legal framework for CIS. It also summarizes the typical corporate governance framework, key operational functions and processes, and common operational challenges for CIS.
This document discusses various methods that companies can use to raise capital, including issuing different types of shares and financial instruments. It provides details on:
1) Equity shares, which provide ownership rights and the ability to participate in company profits but are high risk. Preference shares provide fixed dividends but no voting rights.
2) Other methods like debentures, bonds, and long-term loans from banks that provide borrowed capital.
3) The process for rights issues of shares, which allows existing shareholders first rights to purchase new shares issued.
How to start a private equity fund cummings finalCummings
The document discusses key considerations for setting up a private equity fund, including obtaining necessary regulatory authorization, establishing an appropriate fund structure and jurisdiction, determining eligible investors, and arranging service providers. It notes that a private equity fund typically takes around three months to establish, and requires seeking professional legal and tax advice to properly address regulatory requirements and optimize the fund's structure.
IASB finalises exemption from consolidation for investment entities
This investment company technical release is designed to give our clients and contacts in the sector short, topical updates.
This document outlines Shari'ah standards for contractual partnerships (Sharikah al-aqd) according to the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). It discusses the classification of partnerships, including traditional fiqh-nominate partnerships and modern corporations. It provides details on concluding partnership contracts, managing partnerships, profit and loss allocation, guarantees, and terminating partnerships. The document aims to establish governance and operational guidelines for Islamic financial partnerships and corporations to ensure compliance with Shari'ah principles.
- The document analyzes investment opportunities in tranches of Freddie Mac Multi Class Certificate Offering 2884.
- Two cash flow models are constructed to value the tranches, with the second utilizing a more sophisticated prepayment model.
- Based on 100 simulations, tranche ST was found to have the lowest standard deviation and risk relative to par value, making it the most suitable investment for the fund.
1. Common shareholders have six main rights: voting power on major issues, ownership in a portion of the company, the right to transfer ownership, entitlement to dividends, opportunity to inspect corporate books and records, and the right to sue for wrongful acts.
2. In addition to these six rights, corporate governance policies are also important in determining how a company treats shareholders.
3. A shareholder rights plan outlines what actions a company's board can take to protect shareholder interests, such as exercising rights if another entity acquires a certain percentage of shares in an attempt to take over the company.
ESOP Participants and Shareholder RightsSES Advisors
This chapter discusses the rights of ESOP participants as shareholders. It begins by explaining that ESOPs allow employees to feel like owners through stock ownership, but the legal ownership rests with trustees. ESOP participant rights are governed by ERISA, while shareholder rights come from state corporate law. It then summarizes some typical shareholder rights like voting, financial disclosures, dissenting from major decisions. For ESOPs, the trustee has authority over unallocated shares but must allow participants to direct voting of allocated shares, if decisions are made freely and without pressure. The trustee still has responsibility to ensure directions follow fiduciary duties.
This document provides an overview of Collective Investment Schemes (CIS) in South Africa. It defines a CIS as an investment vehicle that pools investor money to access investments individuals could not access alone. It describes the CIS landscape in South Africa, including total assets under management and number of registered portfolios. It outlines the major types of funds, portfolios, stakeholders, and legal framework for CIS. It also summarizes the typical corporate governance framework, key operational functions and processes, and common operational challenges for CIS.
This document discusses various methods that companies can use to raise capital, including issuing different types of shares and financial instruments. It provides details on:
1) Equity shares, which provide ownership rights and the ability to participate in company profits but are high risk. Preference shares provide fixed dividends but no voting rights.
2) Other methods like debentures, bonds, and long-term loans from banks that provide borrowed capital.
3) The process for rights issues of shares, which allows existing shareholders first rights to purchase new shares issued.
The document provides information about Inland Diversified Real Estate Trust, Inc. and its offering of securities. It discusses Inland's history sponsoring other real estate investment trusts (REITs), the types of commercial real estate and other assets Inland Diversified plans to acquire, highlights of the offering including the primary share price and distribution reinvestment plan, and suitability standards for investors. The summary also notes that property photographs will be included as Inland Diversified acquires assets.
Implications Of Erisa Exemption For Alternative Investmentsguestd508140
The document discusses the implications of ERISA exemption for alternative investments in US pension plans. It outlines that pension plan sponsors can invest in either funds subject to ERISA regulations, where responsibility is delegated, or funds exempt from ERISA, where responsibility is retained. Funds exempt from ERISA have more flexibility in operations but plan sponsors have full fiduciary liability. Recent trends show more corporate pension plans investing in alternative assets like private equity through ERISA-exempt funds.
The document discusses Special Purpose Vehicles (SPVs), how they contributed to the 2007 financial crisis, their structure and uses, benefits and risks. Some key points:
- SPVs played a role in securitizing subprime mortgages and fueled the housing bubble. When borrowers defaulted, SPVs couldn't pay investors and banks had to announce losses.
- SPVs are legal entities that hold assets and issue securities to investors. They are used for securitization, financing, risk sharing and raising capital.
- Benefits to sponsoring firms include tax benefits, isolation of risk, and meeting regulatory requirements. Risks include lack of transparency, reputational risk from SPV underperformance
CLSP - Unit 4 - Share Capital & MembershipAjay Nazarene
The document provides an overview of share capital, shares, prospectuses, and shareholder rights and responsibilities under Indian company law. It defines key terms like shares, share certificates, types of shares, and how shares are issued and transferred. It also summarizes the required contents of a prospectus, the process of share dematerialization, who qualifies as a member or shareholder, and the rights and potential liabilities of members.
The document discusses various aspects of a company's membership, shares, management, meetings, borrowings, accounts, and winding up. It defines members/shareholders as the persons who collectively form the company. Shares represent a unit of ownership and come in two types - ordinary shares and preference shares. Company management follows a hierarchy and involves planning, organizing, and other functions. Statutory meetings and annual general meetings must be held, with requirements around notice periods, quorum, and minutes. A company has implied borrowing powers but some restrictions apply, and debentures are a form of secured debt instrument that a company can issue.
The document outlines the principal terms of a Series A preferred stock financing for ICB International, Inc., including:
- The initial closing date will be February 1, 2015, with additional closings possible for up to 180 days thereafter.
- The financing will raise between $1,000,000 and $10,000,000 through the sale of Series A preferred stock priced at $5 per share.
- The preferred stock will have rights such as liquidation preference, anti-dilution protection, registration rights, and preemptive rights.
In this web conference we will learn about mutual funds as a tool for long-term savings for families.
We will discuss the elements of a fund and costs associated with funds. We will discuss ways in which mutual funds fit into a military families’ financial plan. We will also learn about performance measures and important characteristics of mutual funds highlighted in the prospectus. Finally we will learn about ways in which we can make decisions using fund screeners. We will use several case studies to illustrate.
This document discusses key terms in negotiating a Series A term sheet. It covers control terms such as board composition, investor protective provisions, information rights, vesting of founders' equity, rights of first refusal and co-sale, and drag-along rights. It also discusses economic terms that will be covered in the next part, including valuation, dividends, liquidation preference, anti-dilution, and registration rights. The document provides explanations of common approaches to these various terms and highlights important issues to consider in negotiating them.
Share capital refers to the portion of a company's equity obtained by issuing shares to shareholders in exchange for cash or assets. There are several types of shares including preference shares, which give shareholders preferential rights over equity shares. Preference shares can be cumulative, participating, convertible, or redeemable. Equity shares do not carry preferential rights and shareholders have voting rights. A company's share capital is divided into the authorized capital stated in its memorandum, the issued capital that has been subscribed for, and the subscribed capital representing amounts called and paid.
The document provides an overview of key considerations for structuring a startup business and obtaining external investment. It discusses factors for deciding an appropriate legal structure based on location of business, management team, and regulatory environment. When seeking external investment, it recommends having documents like a term sheet, shareholders' agreement, and share subscription agreement in place. The document also outlines structuring considerations for Indian promoters investing overseas and foreign investment in Indian startups. It concludes with discussing other important legal agreements like confidentiality agreements and employment contracts.
Sources of finance (Institute of chartered accountancy of India notes)mehar kaur
This document discusses different types and sources of business financing. It begins by describing the long-term, medium-term, and short-term financial needs of businesses. It then outlines various internal and external sources of financing categorized by their maturity, including equity shares, preference shares, retained earnings, debentures, bank loans, trade credit, and more. The document focuses on long-term sources of financing in detail, explaining equity share capital, preference share capital, their advantages and disadvantages. It provides characteristics and details of equity shares and preference shares as major long-term financing sources.
The document discusses the formation of a company, including the stages of formation and key documents involved. It provides details on:
- The four main stages of company formation: promotion, incorporation, raising share capital, and obtaining a certificate of commencement.
- Key documents in the formation process, including the memorandum of association, articles of association, and prospectus.
- Types of share capital a company can issue, such as preference shares and ordinary shares, and their different characteristics.
- Other topics covered include sources of company finance, underwriting commissions, and distinctions between the memorandum and articles of association.
This document discusses special purpose vehicles (SPVs) used in securitization. It provides details on:
1) The concept and purpose of SPVs, which are established to hold securitized assets separately from the originator in order to provide bankruptcy protection to investors.
2) Examples of SPVs used in different countries, including the roles of Fannie Mae, Freddie Mac, and Ginnie Mae in the US mortgage market, as well as structures used in Argentina and Morocco.
3) The use of SPVs in India and desired characteristics such as bankruptcy remoteness, independent corporate existence, and tax neutrality. It evaluates companies, trusts, and mutual funds as potential SPV structures.
International Journal of Business and Management Invention (IJBMI) is an international journal intended for professionals and researchers in all fields of Business and Management. IJBMI publishes research articles and reviews within the whole field Business and Management, new teaching methods, assessment, validation and the impact of new technologies and it will continue to provide information on the latest trends and developments in this ever-expanding subject. The publications of papers are selected through double peer reviewed to ensure originality, relevance, and readability. The articles published in our journal can be accessed online
17 rights and_privileges_of_shareholdersMark Anders
The document discusses the rights and privileges of shareholders in a company. It outlines several key rights including the right to obtain company documents, transfer shares, attend general meetings, vote, receive dividends, inspect meeting minutes, and participate in director elections. It also discusses how strong investor protections are important for effective corporate governance and can help reduce agency costs by aligning manager and shareholder objectives.
JP Morgan Prime Brokerage Perspectives 4Q 2013Brian Shapiro
The document discusses property and casualty reinsurance structures as potential permanent capital solutions for hedge fund managers. It outlines the incentives for both managers and investors, including a perpetual capital source, tax efficiencies, access to broader investor bases, and liquidity. The economics of reinsurance vehicles are then examined, including how they generate revenue from underwriting premiums and investing the float. Several existing publicly-listed alternative reinsurers, such as Greenlight Re and Third Point Re, are overviewed as examples.
This document discusses share capital and loan capital (borrowing powers) of companies under Indian company law.
It defines various types of share capital including authorized capital, issued capital, subscribed capital, called-up capital, paid-up capital, and reserve capital. It also discusses alteration and reduction of share capital, duties of the court in reduction of capital, and liability of members after reduction.
It then discusses a company's borrowing powers, including implied powers to borrow for trading companies and express powers required for non-trading companies. It discusses limitations on director's borrowing powers and consequences of ultra vires borrowing by a company or directors. Key points covered are rights of lenders in case of ultra vires borrowing, and
This document summarizes private placements, which are a type of private funding where securities are sold to a small number of chosen investors rather than through a public offering. It describes the types of private placements including traditional long-term loans, structured placements with stock price protections, stock options, bonds, and promissory notes. The advantages are choosing investors, less regulatory requirements than public offerings, and more flexibility. Drawbacks include difficulty raising large amounts, investors requiring lower share prices, and structured placements reducing future shares available. It also describes Qualified Institutional Placements in India which allow listed companies to issue securities privately to qualified institutional buyers through a faster process than other private placement methods.
Term Sheets – Legal Issues By Ms. Neela Badami of Samvaad VenturesKesava Reddy
Sources of equity funding for startups are becoming more numerous and more diverse in character. And so are the terms on which the funds are made available. It is important for a startup to understand the terms on which it raises funds. These are captured in a term sheet. The term sheet is a critical document because it captures the investor’s commercial expectation from the investment. Learn all about term sheets from a panel of experts comprising a leading lawyer, an investment banker, investment professionals and entrepreneurs at NSRCEL’s ForStartups.
The document discusses the Rye Select Broad Market Portfolio Limited fund. It provides key details about the fund including its investment objective of long term capital appreciation through a hedged option trading strategy. The minimum investment is $500,000 and redemptions require 36 days notice. The administrator is The Bank of New York Mellon and the assets under management as of September 30, 2008 were $1.2 billion. The document also summarizes the fund's investment strategy, administration, value-added services, and historical monthly returns.
IBM X-Force 2010 Trend and Risk Report-March 2011HyTrust
The key threats observed in 2010 included increased Trojan botnet activity, continued evolution of the Zeus/Zbot malware family, and SQL injection attacks remaining a leading attack vector. Operating secure infrastructure was challenging due to a record number of vulnerability disclosures requiring patching. Regarding web content, spam focused more on content than volume, and India was the top source of phishing emails targeting financial institutions.
The document provides information about Inland Diversified Real Estate Trust, Inc. and its offering of securities. It discusses Inland's history sponsoring other real estate investment trusts (REITs), the types of commercial real estate and other assets Inland Diversified plans to acquire, highlights of the offering including the primary share price and distribution reinvestment plan, and suitability standards for investors. The summary also notes that property photographs will be included as Inland Diversified acquires assets.
Implications Of Erisa Exemption For Alternative Investmentsguestd508140
The document discusses the implications of ERISA exemption for alternative investments in US pension plans. It outlines that pension plan sponsors can invest in either funds subject to ERISA regulations, where responsibility is delegated, or funds exempt from ERISA, where responsibility is retained. Funds exempt from ERISA have more flexibility in operations but plan sponsors have full fiduciary liability. Recent trends show more corporate pension plans investing in alternative assets like private equity through ERISA-exempt funds.
The document discusses Special Purpose Vehicles (SPVs), how they contributed to the 2007 financial crisis, their structure and uses, benefits and risks. Some key points:
- SPVs played a role in securitizing subprime mortgages and fueled the housing bubble. When borrowers defaulted, SPVs couldn't pay investors and banks had to announce losses.
- SPVs are legal entities that hold assets and issue securities to investors. They are used for securitization, financing, risk sharing and raising capital.
- Benefits to sponsoring firms include tax benefits, isolation of risk, and meeting regulatory requirements. Risks include lack of transparency, reputational risk from SPV underperformance
CLSP - Unit 4 - Share Capital & MembershipAjay Nazarene
The document provides an overview of share capital, shares, prospectuses, and shareholder rights and responsibilities under Indian company law. It defines key terms like shares, share certificates, types of shares, and how shares are issued and transferred. It also summarizes the required contents of a prospectus, the process of share dematerialization, who qualifies as a member or shareholder, and the rights and potential liabilities of members.
The document discusses various aspects of a company's membership, shares, management, meetings, borrowings, accounts, and winding up. It defines members/shareholders as the persons who collectively form the company. Shares represent a unit of ownership and come in two types - ordinary shares and preference shares. Company management follows a hierarchy and involves planning, organizing, and other functions. Statutory meetings and annual general meetings must be held, with requirements around notice periods, quorum, and minutes. A company has implied borrowing powers but some restrictions apply, and debentures are a form of secured debt instrument that a company can issue.
The document outlines the principal terms of a Series A preferred stock financing for ICB International, Inc., including:
- The initial closing date will be February 1, 2015, with additional closings possible for up to 180 days thereafter.
- The financing will raise between $1,000,000 and $10,000,000 through the sale of Series A preferred stock priced at $5 per share.
- The preferred stock will have rights such as liquidation preference, anti-dilution protection, registration rights, and preemptive rights.
In this web conference we will learn about mutual funds as a tool for long-term savings for families.
We will discuss the elements of a fund and costs associated with funds. We will discuss ways in which mutual funds fit into a military families’ financial plan. We will also learn about performance measures and important characteristics of mutual funds highlighted in the prospectus. Finally we will learn about ways in which we can make decisions using fund screeners. We will use several case studies to illustrate.
This document discusses key terms in negotiating a Series A term sheet. It covers control terms such as board composition, investor protective provisions, information rights, vesting of founders' equity, rights of first refusal and co-sale, and drag-along rights. It also discusses economic terms that will be covered in the next part, including valuation, dividends, liquidation preference, anti-dilution, and registration rights. The document provides explanations of common approaches to these various terms and highlights important issues to consider in negotiating them.
Share capital refers to the portion of a company's equity obtained by issuing shares to shareholders in exchange for cash or assets. There are several types of shares including preference shares, which give shareholders preferential rights over equity shares. Preference shares can be cumulative, participating, convertible, or redeemable. Equity shares do not carry preferential rights and shareholders have voting rights. A company's share capital is divided into the authorized capital stated in its memorandum, the issued capital that has been subscribed for, and the subscribed capital representing amounts called and paid.
The document provides an overview of key considerations for structuring a startup business and obtaining external investment. It discusses factors for deciding an appropriate legal structure based on location of business, management team, and regulatory environment. When seeking external investment, it recommends having documents like a term sheet, shareholders' agreement, and share subscription agreement in place. The document also outlines structuring considerations for Indian promoters investing overseas and foreign investment in Indian startups. It concludes with discussing other important legal agreements like confidentiality agreements and employment contracts.
Sources of finance (Institute of chartered accountancy of India notes)mehar kaur
This document discusses different types and sources of business financing. It begins by describing the long-term, medium-term, and short-term financial needs of businesses. It then outlines various internal and external sources of financing categorized by their maturity, including equity shares, preference shares, retained earnings, debentures, bank loans, trade credit, and more. The document focuses on long-term sources of financing in detail, explaining equity share capital, preference share capital, their advantages and disadvantages. It provides characteristics and details of equity shares and preference shares as major long-term financing sources.
The document discusses the formation of a company, including the stages of formation and key documents involved. It provides details on:
- The four main stages of company formation: promotion, incorporation, raising share capital, and obtaining a certificate of commencement.
- Key documents in the formation process, including the memorandum of association, articles of association, and prospectus.
- Types of share capital a company can issue, such as preference shares and ordinary shares, and their different characteristics.
- Other topics covered include sources of company finance, underwriting commissions, and distinctions between the memorandum and articles of association.
This document discusses special purpose vehicles (SPVs) used in securitization. It provides details on:
1) The concept and purpose of SPVs, which are established to hold securitized assets separately from the originator in order to provide bankruptcy protection to investors.
2) Examples of SPVs used in different countries, including the roles of Fannie Mae, Freddie Mac, and Ginnie Mae in the US mortgage market, as well as structures used in Argentina and Morocco.
3) The use of SPVs in India and desired characteristics such as bankruptcy remoteness, independent corporate existence, and tax neutrality. It evaluates companies, trusts, and mutual funds as potential SPV structures.
International Journal of Business and Management Invention (IJBMI) is an international journal intended for professionals and researchers in all fields of Business and Management. IJBMI publishes research articles and reviews within the whole field Business and Management, new teaching methods, assessment, validation and the impact of new technologies and it will continue to provide information on the latest trends and developments in this ever-expanding subject. The publications of papers are selected through double peer reviewed to ensure originality, relevance, and readability. The articles published in our journal can be accessed online
17 rights and_privileges_of_shareholdersMark Anders
The document discusses the rights and privileges of shareholders in a company. It outlines several key rights including the right to obtain company documents, transfer shares, attend general meetings, vote, receive dividends, inspect meeting minutes, and participate in director elections. It also discusses how strong investor protections are important for effective corporate governance and can help reduce agency costs by aligning manager and shareholder objectives.
JP Morgan Prime Brokerage Perspectives 4Q 2013Brian Shapiro
The document discusses property and casualty reinsurance structures as potential permanent capital solutions for hedge fund managers. It outlines the incentives for both managers and investors, including a perpetual capital source, tax efficiencies, access to broader investor bases, and liquidity. The economics of reinsurance vehicles are then examined, including how they generate revenue from underwriting premiums and investing the float. Several existing publicly-listed alternative reinsurers, such as Greenlight Re and Third Point Re, are overviewed as examples.
This document discusses share capital and loan capital (borrowing powers) of companies under Indian company law.
It defines various types of share capital including authorized capital, issued capital, subscribed capital, called-up capital, paid-up capital, and reserve capital. It also discusses alteration and reduction of share capital, duties of the court in reduction of capital, and liability of members after reduction.
It then discusses a company's borrowing powers, including implied powers to borrow for trading companies and express powers required for non-trading companies. It discusses limitations on director's borrowing powers and consequences of ultra vires borrowing by a company or directors. Key points covered are rights of lenders in case of ultra vires borrowing, and
This document summarizes private placements, which are a type of private funding where securities are sold to a small number of chosen investors rather than through a public offering. It describes the types of private placements including traditional long-term loans, structured placements with stock price protections, stock options, bonds, and promissory notes. The advantages are choosing investors, less regulatory requirements than public offerings, and more flexibility. Drawbacks include difficulty raising large amounts, investors requiring lower share prices, and structured placements reducing future shares available. It also describes Qualified Institutional Placements in India which allow listed companies to issue securities privately to qualified institutional buyers through a faster process than other private placement methods.
Term Sheets – Legal Issues By Ms. Neela Badami of Samvaad VenturesKesava Reddy
Sources of equity funding for startups are becoming more numerous and more diverse in character. And so are the terms on which the funds are made available. It is important for a startup to understand the terms on which it raises funds. These are captured in a term sheet. The term sheet is a critical document because it captures the investor’s commercial expectation from the investment. Learn all about term sheets from a panel of experts comprising a leading lawyer, an investment banker, investment professionals and entrepreneurs at NSRCEL’s ForStartups.
The document discusses the Rye Select Broad Market Portfolio Limited fund. It provides key details about the fund including its investment objective of long term capital appreciation through a hedged option trading strategy. The minimum investment is $500,000 and redemptions require 36 days notice. The administrator is The Bank of New York Mellon and the assets under management as of September 30, 2008 were $1.2 billion. The document also summarizes the fund's investment strategy, administration, value-added services, and historical monthly returns.
IBM X-Force 2010 Trend and Risk Report-March 2011HyTrust
The key threats observed in 2010 included increased Trojan botnet activity, continued evolution of the Zeus/Zbot malware family, and SQL injection attacks remaining a leading attack vector. Operating secure infrastructure was challenging due to a record number of vulnerability disclosures requiring patching. Regarding web content, spam focused more on content than volume, and India was the top source of phishing emails targeting financial institutions.
A empresa de tecnologia anunciou um novo smartphone com câmera aprimorada, maior tela e melhor processador. O novo dispositivo também possui maior capacidade de armazenamento e bateria de longa duração. O lançamento do novo smartphone está programado para o próximo mês.
Increasing Security while Decreasing Costs when Virtualizing In-Scope Servers:HyTrust
This document discusses increasing security when virtualizing servers. It outlines key drivers for building a security framework including virtualizing more securely and with less resources. The document recommends scoping projects carefully, using governance, risk and compliance tools, and following best practices like applying a "zero trust" model. Experts from HyTrust, Qualys, and SANS provide strategies and take questions on virtualization security.
PCI Compliance and Cloud Reference ArchitectureHyTrust
This document summarizes a discussion panel on PCI compliance in virtualized and cloud environments. The panelists represented companies including HyTrust, VMware, Cisco, Trend Micro, Coalfire, and Savvis. They discussed the challenges of achieving PCI compliance in shared cloud environments and how to determine responsibilities between merchants and cloud providers. The panel provided guidance on involving QSAs, using existing virtualized infrastructures as a starting point, and resources for planning a PCI-compliant cloud strategy.
A empresa de tecnologia anunciou um novo smartphone com câmera aprimorada, maior tela e bateria de longa duração. O dispositivo também possui processador mais rápido e armazenamento expansível. O novo modelo será lançado em outubro por um preço inicial de US$799.
PCI-DSS Compliant Cloud - Design & Architecture Best PracticesHyTrust
This document summarizes a panel discussion on achieving PCI compliance in virtualized and cloud computing environments. The panelists discussed key challenges of PCI compliance in these environments, including increased risks from information leakage and lack of visibility. They emphasized the shared responsibility model between merchants and cloud providers, and advised merchants to understand the scope of their provider's PCI certification. The panel provided guidance on engaging a QSA early, adopting a virtualization by default approach, and starting with dedicated hosting before moving to public clouds. Resources for PCI compliance in virtualization and cloud were also listed.
This document provides an overview of IFRS 10, which establishes principles for preparing consolidated financial statements when an entity controls one or more subsidiaries. Key points include:
- Control exists when an entity has power over and exposure to variable returns from a subsidiary, and can use its power to affect those returns.
- A parent must present consolidated financial statements including all subsidiaries under its control.
- Control is assessed based on an entity's ability to direct the relevant activities of a subsidiary that significantly impact the subsidiary's returns.
- Control exists even if other entities have protective rights over a subsidiary's activities. Only one entity can control a subsidiary.
The document discusses key considerations for setting up a private equity fund, including obtaining necessary regulatory authorization, determining an appropriate fund structure and jurisdiction, defining eligible investors, and establishing carry arrangements and service providers. Setting up a private equity fund generally takes around three months and requires seeking professional legal advice to properly address these various issues.
This document provides an overview of typical terms included in a venture capital term sheet and how they are commonly negotiated between investors and founders. It discusses key terms such as pre-emptive rights, board representation, transfer restrictions, indemnity provisions, exit rights, liquidation preferences, and when investor and founder rights/obligations cease. The document emphasizes the importance of clearly outlining these terms in the initial term sheet to avoid prolonged negotiations later during definitive agreement drafting.
This document summarizes key concepts in corporate law. It discusses how corporations are classified as stock or non-stock. It also covers the separate legal personality of corporations, corporate tort liability, piercing the corporate veil, determining corporate nationality, and the retroactive effect of amending corporate documents. Additionally, it addresses topics such as share classifications, redeemable shares, treasury shares, and the rules regarding non-voting shares.
Basics of Private Equity Funds PEFs in Colombian LegislationGabriel Amorocho
PEFs are closed mutual investment funds in Colombia that must allocate at least two thirds of investor contributions to assets other than securities. PEFs have a management company, professional manager, investment committee, monitoring committee, and general investor meeting. PEFs are regulated by Decree 2555 and the Financial Superintendence oversees management companies. PEFs must meet requirements regarding their bylaws, investment policy, and management companies' qualifications. As transparent entities, PEFs are not taxpayers but distribute income to investors with the same tax treatment as if received directly.
Introduction to corporate law_lesson 1.pptAmanKhan447588
The document provides an introduction to the common structure of corporate law. It identifies five key characteristics shared by business corporations across jurisdictions: 1) legal personality, 2) limited liability, 3) transferable shares, 4) delegated management under a board structure, and 5) investor ownership. The document explains each of these characteristics in detail and how they enable corporations to organize productive activity while also generating agency problems that corporate law addresses. Corporate law statutes provide default rules for many elements of corporate governance but also include some mandatory provisions.
Private equity funds (PEFs) in Colombia are closed mutual investment funds that must allocate at least two-thirds of investor contributions to assets other than securities. PEFs are formed by a management company, professional manager, investment committee, monitoring committee, and general investor meeting. The financial superintendence office of Colombia regulates and monitors PEF management companies. PEFs must meet requirements like having an investment policy and bylaws covering aspects like the investment plan, roles of parties, and reporting requirements. PEFs have a transparent tax regime where income is distributed to investors with the same tax treatment as if received directly.
Published Spring 2008 in the Journal of Employee Ownership Law and Finance
Jim Steiker describes how warrants are used as part of the financing structure of leveraged ESOP transactions and discusses key corporate finance and federal tax considerations in structuring ESOP financing arrangements involving warrants.
The document discusses the implications of the Alternative Investment Fund Managers Directive (AIFMD) for private equity fund managers. Some key points:
1) The AIFMD applies to EU-based fund managers and non-EU managers who market funds in the EU. It affects private equity fund managers who manage over €500M in assets.
2) The AIFMD aims to regulate Alternative Investment Fund Managers (AIFMs) and provide investor protection. It establishes rules around calculating assets, capital requirements, operating conditions, and delegation.
3) Private equity fund managers caught by the AIFMD must comply with rules relating to risk management, liquidity, valuation, and more. They will also need a
This document provides information on how to start a hedge fund, including considerations around jurisdiction, fund structure, eligible investors, authorization and regulation, directors and service providers, share classes, fees, and redemption periods. Some key points covered are:
- Hedge funds are typically based in offshore jurisdictions like the Cayman Islands for tax purposes. Common fund structures include stand-alone, master/feeder, umbrella, and segregated portfolio companies.
- Hedge funds can only be promoted to institutional investors and high net worth individuals. Managers must ensure only eligible investors purchase shares.
- Funds require authorization from the relevant regulator and investment managers typically need authorization from regulators like the FCA. The AIFMD
Mudarabah is an Islamic equity-based contract where the rabbul-maal provides capital to the mudarib for a business venture. Profits are shared according to a predetermined ratio, while losses are borne by the rabbul-maal. There are issues with using mudarabah as the basis for deposit instruments or financing facilities, as some structures violate risk-sharing principles. Bay' Bithaman Ajil (BBA) is an Islamic contract where payment for an asset is deferred through installments. It is commonly used for home financing in Malaysia, though some consider it controversial as the profit rate tracks market interest rates. Legal documentation for BBA financing includes sale and purchase agreements and security documents like charges over
It is an endeavour to provide literature to UGC NET aspirants in commerce. This pdf contains the notes of Sources of Finance from the Unit 4 - Business Finance.
The Department of Labor is adopting a final rule that expands the definition of a fiduciary under ERISA and the Internal Revenue Code as a result of giving investment advice. The final rule treats those who provide investment advice or recommendations for a fee as fiduciaries in a wider array of advice relationships. The rule aims to require advisers and their firms to give advice that is in the best interest of their customers without prohibiting common compensation arrangements by allowing such arrangements under conditions designed to ensure the adviser is acting in accordance with fiduciary norms and basic standards of fair dealing. The rule is effective on April 10, 2017, with the Department providing compliance assistance to help affected parties transition to the new regulatory regime.
The document discusses consolidation under IFRS. There are two main methods for consolidation under IFRS - the equity method and proportionate consolidation. The equity method involves initially recognizing investments at cost and subsequently adjusting the carrying amount to reflect the investor's share of profits or losses after acquisition. Proportionate consolidation involves including the venturer's share of assets, liabilities, income and expenses of the jointly controlled entity in its financial statements. IFRS 10 addresses consolidation and defines control as having power over an investee along with exposure or rights to variable returns and the ability to use power to affect returns. Control is the basis for consolidation under IFRS 10.
The document discusses India's financial system regulatory framework, specifically SEBI. It was established in 1988 and upgraded in 1992 to regulate securities markets and protect investors. The document also summarizes regulations around IPOs, rights issues, and bonus issues in India set by SEBI, including rules around promoter contribution, collection centers, allotment of shares, and underwriting.
This document summarizes how proposed legislation could change real estate investing by changing the tax treatment of carried interests. Currently, income from carried interests is often taxed at capital gains rates rather than ordinary income rates. The proposed legislation would tax this income as ordinary compensation income. This could significantly impact the structures and economics of real estate and other investment funds. It discusses how carried interests currently work, the tax benefits they provide, and how the proposed changes could impact real estate partnerships in particular.
This document summarizes the key aspects of IFRS 10 regarding consolidated financial statements. IFRS 10 establishes the principles for determining when an entity controls another entity and requires their financial statements to be consolidated. Control is defined as having power over an investee, exposure or rights to variable returns, and the ability to use power to affect returns. Control is determined based on relevant activities like operating and financing decisions that significantly impact returns. The consolidated financial statements combine like items from the parent and subsidiaries, eliminate intragroup balances and transactions, and apply uniform accounting policies. Non-controlling interests are presented separately in equity and net income is attributed to the parent and non-controlling interests.
The document discusses the key aspects and requirements of the Alternative Investment Fund Managers Directive (AIFMD), an EU directive that introduces a regulatory framework for managers of alternative investment funds. It covers topics such as what an alternative investment fund (AIF) and its manager (AIFM) are, the authorization process for AIFMs, capital requirements, conduct standards, transparency and reporting obligations, and the impact on areas like documentation, service providers, and marketing. Managers have until July 2014 to comply with the new rules by becoming authorized or ensuring any entities managing AIFs meet the regulatory standards.
The document defines key terms related to group accounts and consolidated financial statements. It discusses how a group is defined as a set of companies controlled by the same parent company. Control is defined as having over 50% of voting rights or the power to govern financial/operating policies. The document outlines the accounting treatment for subsidiaries, associates, joint ventures, and different group structures. It discusses the legal requirements for consolidated financial statements and the consolidation process according to IFRS standards.
Primary markets involve the issuance of new securities. There are various types of issues like public issues, rights issues, and private placements. Public issues can be initial public offerings (IPOs) of unlisted companies or further public offerings (FPOs) of listed companies. Rights issues allot new shares to existing shareholders. Private placements issue new shares to select investors. SEBI sets eligibility norms for public issues but not rights or private placements. Eligible companies must meet requirements related to net assets, profits, and net worth. SEBI can provide exemptions from norms. Issuers must follow lock-in periods for promoter shares after IPOs. SEBI reviews public offer documents but not for private placements. Its role is
How to Invest in Cryptocurrency for Beginners: A Complete GuideDaniel
Cryptocurrency is digital money that operates independently of a central authority, utilizing cryptography for security. Unlike traditional currencies issued by governments (fiat currencies), cryptocurrencies are decentralized and typically operate on a technology called blockchain. Each cryptocurrency transaction is recorded on a public ledger, ensuring transparency and security.
Cryptocurrencies can be used for various purposes, including online purchases, investment opportunities, and as a means of transferring value globally without the need for intermediaries like banks.
University of North Carolina at Charlotte degree offer diploma Transcripttscdzuip
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What Lessons Can New Investors Learn from Newman Leech’s Success?Newman Leech
Newman Leech's success in the real estate industry is based on key lessons and principles, offering practical advice for new investors and serving as a blueprint for building a successful career.
Every business, big or small, deals with outgoing payments. Whether it’s to suppliers for inventory, to employees for salaries, or to vendors for services rendered, keeping track of these expenses is crucial. This is where payment vouchers come in – the unsung heroes of the accounting world.
Confirmation of Payee (CoP) is a vital security measure adopted by financial institutions and payment service providers. Its core purpose is to confirm that the recipient’s name matches the information provided by the sender during a banking transaction, ensuring that funds are transferred to the correct payment account.
Confirmation of Payee was built to tackle the increasing numbers of APP Fraud and in the landscape of UK banking, the spectre of APP fraud looms large. In 2022, over £1.2 billion was stolen by fraudsters through authorised and unauthorised fraud, equivalent to more than £2,300 every minute. This statistic emphasises the urgent need for robust security measures like CoP. While over £1.2 billion was stolen through fraud in 2022, there was an eight per cent reduction compared to 2021 which highlights the positive outcomes obtained from the implementation of Confirmation of Payee. The number of fraud cases across the UK also decreased by four per cent to nearly three million cases during the same period; latest statistics from UK Finance.
In essence, Confirmation of Payee plays a pivotal role in digital banking, guaranteeing the flawless execution of banking transactions. It stands as a guardian against fraud and misallocation, demonstrating the commitment of financial institutions to safeguard their clients’ assets. The next time you engage in a banking transaction, remember the invaluable role of CoP in ensuring the security of your financial interests.
For more details, you can visit https://technoxander.com.
Monthly Market Risk Update: June 2024 [SlideShare]Commonwealth
Markets rallied in May, with all three major U.S. equity indices up for the month, said Sam Millette, director of fixed income, in his latest Market Risk Update.
For more market updates, subscribe to The Independent Market Observer at https://blog.commonwealth.com/independent-market-observer.
The Rise and Fall of Ponzi Schemes in America.pptxDiana Rose
Ponzi schemes, a notorious form of financial fraud, have plagued America’s investment landscape for decades. Named after Charles Ponzi, who orchestrated one of the most infamous schemes in the early 20th century, these fraudulent operations promise high returns with little or no risk, only to collapse and leave investors with significant losses. This article explores the nature of Ponzi schemes, notable cases in American history, their impact on victims, and measures to prevent falling prey to such scams.
Understanding Ponzi Schemes
A Ponzi scheme is an investment scam where returns are paid to earlier investors using the capital from newer investors, rather than from legitimate profit earned. The scheme relies on a constant influx of new investments to continue paying the promised returns. Eventually, when the flow of new money slows down or stops, the scheme collapses, leaving the majority of investors with substantial financial losses.
Historical Context: Charles Ponzi and His Legacy
Charles Ponzi is the namesake of this deceptive practice. In the 1920s, Ponzi promised investors in Boston a 50% return within 45 days or 100% return in 90 days through arbitrage of international reply coupons. Initially, he paid returns as promised, not from profits, but from the investments of new participants. When his scheme unraveled, it resulted in losses exceeding $20 million (equivalent to about $270 million today).
Notable American Ponzi Schemes
1. Bernie Madoff: Perhaps the most notorious Ponzi scheme in recent history, Bernie Madoff’s fraud involved $65 billion. Madoff, a well-respected figure in the financial industry, promised steady, high returns through a secretive investment strategy. His scheme lasted for decades before collapsing in 2008, devastating thousands of investors, including individuals, charities, and institutional clients.
2. Allen Stanford: Through his company, Stanford Financial Group, Allen Stanford orchestrated a $7 billion Ponzi scheme, luring investors with fraudulent certificates of deposit issued by his offshore bank. Stanford promised high returns and lavish lifestyle benefits to his investors, which ultimately led to a 110-year prison sentence for the financier in 2012.
3. Tom Petters: In a scheme that lasted more than a decade, Tom Petters ran a $3.65 billion Ponzi scheme, using his company, Petters Group Worldwide. He claimed to buy and sell consumer electronics, but in reality, he used new investments to pay off old debts and fund his extravagant lifestyle. Petters was convicted in 2009 and sentenced to 50 years in prison.
4. Eric Dalius and Saivian: Eric Dalius, a prominent figure behind Saivian, a cashback program promising high returns, is under scrutiny for allegedly orchestrating a Ponzi scheme. Saivian enticed investors with promises of up to 20% cash back on everyday purchases. However, investigations suggest that the returns were paid using new investments rather than legitimate profits. The collapse of Saivian l
KYC Compliance: A Cornerstone of Global Crypto Regulatory FrameworksAny kyc Account
This presentation explores the pivotal role of KYC compliance in shaping and enforcing global regulations within the dynamic landscape of cryptocurrencies. Dive into the intricate connection between KYC practices and the evolving legal frameworks governing the crypto industry.
Fabular Frames and the Four Ratio ProblemMajid Iqbal
Digital, interactive art showing the struggle of a society in providing for its present population while also saving planetary resources for future generations. Spread across several frames, the art is actually the rendering of real and speculative data. The stereographic projections change shape in response to prompts and provocations. Visitors interact with the model through speculative statements about how to increase savings across communities, regions, ecosystems and environments. Their fabulations combined with random noise, i.e. factors beyond control, have a dramatic effect on the societal transition. Things get better. Things get worse. The aim is to give visitors a new grasp and feel of the ongoing struggles in democracies around the world.
Stunning art in the small multiples format brings out the spatiotemporal nature of societal transitions, against backdrop issues such as energy, housing, waste, farmland and forest. In each frame we see hopeful and frightful interplays between spending and saving. Problems emerge when one of the two parts of the existential anaglyph rapidly shrinks like Arctic ice, as factors cross thresholds. Ecological wealth and intergenerational equity areFour at stake. Not enough spending could mean economic stress, social unrest and political conflict. Not enough saving and there will be climate breakdown and ‘bankruptcy’. So where does speculative design start and the gambling and betting end? Behind each fabular frame is a four ratio problem. Each ratio reflects the level of sacrifice and self-restraint a society is willing to accept, against promises of prosperity and freedom. Some values seem to stabilise a frame while others cause collapse. Get the ratios right and we can have it all. Get them wrong and things get more desperate.
1. Operating as a VCOC and the Management Rights Letter
A significant segment of institutional investors are U.S. corporate pension plans that are subject
to the provisions of the Employee Retirement Income Security Act of 1974, as amended
(ERISA). ERISA imposes numerous and cumbersome requirements, limitations, and fiduciary
duties on the managers of the pension plan’s assets (a.k.a. plan asset managers) governed by it
and if the investments such assets are engaged in are not structured carefully, ERISA could apply
to the fund sponsors themselves.
Background
Pension plans are generally able to invest in operating companies (i.e., companies not engaged in
providing investment management services) without any regulatory impact on the portfolio
companies in which they invest. Until the passage in 1986 of the Final Regulation Relating to the
Definition of Plan Assets (the Plan Asset Regulation) by the U.S. Department of Labor (DOL), it
was unclear whether a venture capital fund or private equity fund fell within the definition of an
operating company and whether the fund’s assets would be considered plan assets subject to
ERISA. Fund sponsors argued that unlike typical investment managers, they were engaged in a
more entrepreneurial activity of building business and actively engaging in the management of
these businesses, and should therefore be considered as operating companies and not as
providing investment management services.
As a concession, the DOL adopted the Plan Asset Regulation, in which it developed the concept
of the “Venture Capital Operating Company” or “VCOC” to make sure fund sponsors lived up to
their claims of active engagement with their portfolio companies. Accordingly, when an
employee benefit plan subject to ERISA or the prohibited transaction rules of the Internal
Revenue Code (generally a private pension plan or an IRA) acquires an equity interest in an
investment fund that is not publicly traded1 or is an interest in a mutual fund (an investment
company under the Investment Company Act of 1940), the plan’s assets are deemed to include
both that equity interest and the underlying assets of the fund unless either:
The fund qualifies as an operating company, including a VCOC; or
Investment by plans that are subject to ERISA is limited to less than 25% of each class
of equity interests in the fund (a.k.a. the 25% test)
1. A security is generally deemed to be publicly traded if it is a security of a Securities Exchange Act of 1934
company that is widely held (by at least 100 unaffiliated, disinterested holders) and freely transferable.
2. If neither exemption is available, the fund’s assets would be considered plan assets and the fund
manager would become a fiduciary under ERISA and be subject to the extensive prohibited
transaction rules of ERISA and the Internal Revenue Code (in which case a fund manager’s
carried interest would probably constitute a prohibited transaction). ERISA coverage is generally
untenable in the private equity arena and, therefore, most plans will not consider investing in a
private venture fund that does not satisfy one of ERISA’s exemptions. While conducting the
25% test can itself be quite complicated, we focus our attention in this article on the VCOC
exemption, as it is commonly used in the context of venture capital and private equity funds.
Requirements to Qualify as a Venture Capital Operating Company
To be considered a VCOC, a fund must generally comply with the following:
Beginning on the date that the fund first makes an investment (other than a short-term
investment pending a long-term commitment), at least 50% of fund assets (valued at
cost) must be invested in operating companies2 or derivative investments3 in which the
fund has direct contractual “management rights” (the so-called “50% test”)4
The fund must, in the ordinary course of its business after its initial long-term
investment, actually exercise “management rights” with respect to at least one
operating company
Management Rights Defined
“Management rights” are defined as contractual rights (running directly between the investor and
the operating company) to “substantially participate in, or substantially influence the conduct of,
the management” of an operating company. The fund must have its own direct contractual rights.
Rights shared with other investors do not qualify as acceptable management rights. The fact that
the entity or individual who is the fund’s general partner happens to have certain rights in an
operating company will not be sufficient unless such rights are specifically named as rights given
to the investment fund.
2. An operating company is a company that is primarily engaged, directly or through a majority-owned
subsidiary or subsidiaries, in the production or sale of a product or service other than the investment of capital. An
investment in another investment fund does not qualify as an operating company and, as such, funds of funds
generally cannot qualify as VCOCs.
3. Derivative investments include companies in which the fund has lost its management rights due to an IPO,
as well as companies whose securities the fund obtained in exchange for an operating company in which it had
management rights. Derivative investments cannot be counted toward the 50% test for longer than 30 months after
management rights are lost and not longer than 10 years after the initial private company investment.
4. The 50% test need not be satisfied during a fund’s so-called “distribution period.” The distribution period
begins when the fund has distributed to investors at least 50% of the highest amount of its investments (based on
cost) outstanding at any time from the date it commenced business (excluding short-term investments pending long-
term commitments) and ends 10 years later. Thus, a VCOC must distribute all of its assets to investors within 10
years of the beginning of this period. During this distribution period, the fund cannot make a new portfolio
investment.
2
3. The DOL in Advisory Opinion 95-04A confirmed that the contractual right to appoint one or
more directors to the board of the operating company constitutes “management rights” for
purposes of the definition of a VCOC. Additionally, the DOL has indicated that the following
rights may also constitute management rights depending on the particular facts and
circumstances:
The right to appoint a representative who serves as a corporate officer of the operating
company (see preamble to the proposed Plan Asset Regulation and DOL Advisory
Opinion 89-04A)
The right to routinely consult informally with, and advise, the management of the
operating company (see Example (5) of the Plan Asset Regulation and DOL Advisory
Opinion 95-04A)
The right to examine the books and records of a nonpublic operating company (see
preamble to the proposed Plan Asset Regulation and DOL Advisory Opinion 89-04A)
The Management Rights Letter
As discussed above, the “management rights” must be contractual and in writing. Despite the
prevalence of such rights in typical investor rights agreements obtained in venture capital
transactions, it has become a best practice for funds operating as VCOCs to obtain management
rights in a separate one- or two-page letter agreement, commonly known as the “management
rights letter,” in connection with all of their portfolio investments, even though the DOL only
requires this with regard to 50% of their investments. The typical management rights letter
provides the fund with the minimum of direct contractual rights (e.g., to appoint a board
observer, examine company records, consult with management from time to time) generally
considered necessary for the investment to qualify for the VCOC exemption. As obtaining a
management rights letter has become a common practice in the United States and the rights are
not intrusive, portfolio companies have limited leverage in objecting to the request for a typical
management rights letter, and the letters are rarely controversial or the subject of negotiation. In
non-U.S. portfolio companies, management rights letters may be more difficult to obtain or
structure due to differing business practices. However, many non-U.S. funds have been
successful in obtaining the necessary management rights.
Qualifying with the First Investment
Two positions taken by the DOL complicate the initial formation of a fund operating as a VCOC.
First, the DOL takes the position that a fund cannot qualify as a VCOC before it makes its first
qualifying operating company investment, i.e., a long-term investment in an operating company
in which it acquires management rights. Second, the DOL takes the position that if a fund makes
any investment, other than a short-term investment pending long-term commitment, before
making its first qualifying operating company investment, it can never qualify as a VCOC. As a
result, a fund must make sure that its first long-term investment is a qualifying operating
company investment and that it does not take plan money before that investment is made. This
may require a paper closing of the first portfolio company investment or an escrow arrangement
involving plans’ initial capital contributions.
3
4. Common Pitfalls in Qualifying as a VCOC
Special Purpose or Acquisition Vehicles
A common pitfall arises where a fund invests in a holding company alongside one or more co-
investors. If a fund contributes less than 100% into the holding company with the co-investors
making the remaining contributions, issues arise if the holding company takes a minority
position in the portfolio company. This investment will not qualify as a good venture capital
investment even if the fund obtains management rights at both the holding company and the
underlying portfolio company levels. The holding company cannot be considered an “operating
company” because it is not primarily engaged, directly or through a majority-owned subsidiary
or subsidiaries, in the production or sale of a product or service other than the investment of
capital. This problem can be avoided if the fund owns 100% of the holding company, which
would result in the holding company’s being disregarded for VCOC purposes and the fund’s
being treated as if it invested directly in the operating company.
Umbrella Holding Companies
A variation of the above pitfall may arise if the fund invests in an umbrella holding company that
owns multiple chains of majority- and minority-owned operating subsidiaries. It is not clear
under the DOL’s guidance whether the umbrella holding company would meet the definition of
an “operating company.” If most of the umbrella company’s value is attributable to its majority-
owned operating subsidiaries, a reasonable argument can be made that the umbrella company is
“primarily” engaged through its majority-owned subsidiaries in operating activities; however, if
the umbrella company includes substantial nonminority interest holdings, this may not be viewed
as an operating company for VCOC purposes.
Shared Management Rights Among Co-investors
Another pitfall may arise where a fund obtains management rights as part of a group (e.g.,
investment with a parallel fund). Contractual rights shared with other investors do not count as
management rights. This may occur where the fund and its affiliated co-investor are collectively
defined in a shareholders agreement as the “Investor” and the agreement then conveys the
management rights to the Investor, rather than to the fund alone. To avoid this pitfall, each fund
that is intended to qualify as a VCOC should obtain its own unilaterally exercisable management
rights; this can be easily accomplished through the use of the management rights letter discussed
above.
Warehousing
Occasionally, portfolio investments are “warehoused” by fund sponsors or an affiliated
management company and subsequently transferred to a fund. When this occurs, an
acknowledgment in the transfer documents should make it clear that the management rights
obtained in the warehoused investment will be transferred to the transferee fund following the
transfer. In addition, if such transfer will constitute the first investment by the fund, it must be
absolutely clear that the fund has such management rights directly as discussed above.
4