Entity Management for Private Equity
Nov 8, 2022
Private Equity Firms have picked up momentum in recent years by pocketing tremendous money while stalking ever-larger acquisition targets. Their reputation for dramatically increasing the value of their acquisitions has helped fuel this development. However, their ability to achieve high returns is typically attributed to several factors.
Private equity portfolio managers are offered high-powered incentives to ensure their utmost commitment to the success of the businesses within their portfolios. Similarly, operating managers of said businesses are also incentivized to perform optimally. Aggressive use of debt is employed to provide financing and tax advantages. The entire portfolio is managed with a determined focus on cash flow and margin improvement. One of the benefits of working in this capacity is freedom from restrictive public company regulations.
The portfolio enterprises within the fund sponsor's purview are intrinsically linked to the sponsor. This implies that the fund sponsor handles each enterprise's compliance obligations and filings under its management. Conversely, limited partners are not linked and are independent entities. This implies that the fund sponsor cannot be held responsible for the compliance obligations of limited partner individuals or businesses.
As investments happen and legal entities proliferate, the risks and resource consumption increases. To simplify entity management for Legal and help them streamline inter-company agreements, organization documents, and agreements, an Entity Management Software enables the team to organize documents for:
The general partner limited liability company
The limited partnership fund
The investment management LLC
The software provides valuable support in organizing and maintaining crucial documents, such as the investment management agreement between the fund manager and the limited partnership. It also facilitates the handling of deal documents that go beyond mere record-keeping. These documents may refer to the fund LP, including investment agreements and any follow-up capital call documentation for limited partners. Furthermore, the LP will receive formation records related to the investment from the perspective of each portfolio company.
Traact helps smoothen entity management for private equity funds by offering an array of solutions. Bringing compliance obligations under one SaaS-based platform like Traact reduces the cost of compliance and legal risk associated with non-compliance.
Concerning governance, Private equity firms allocate people to multiple governance roles across their legal entities. For example, the same people may sit on various boards or serve as officers.
Entity management software simplifies the assignment and tracking of the involved people in various roles. Combining that role tracking with governance terms of service allows the private equity firm to examine who was in charge during any period in the past.
Private equity ownership structures are intricate. Therefore, creating a clear visualization of the ownership structure is time-consuming and prone to errors. Organization charts are necessary for different purposes, such as internal legal restructuring, financing diligence requirements, or regulatory filings.
Entity management software should generate an organization chart automatically, handle any ownership structure regardless of complexity, support charts from the perspective of any subsidiary, not just an ultimate parent, and Illustrate the ownership hierarchy.
The ownership information is ever-changing. Hence. The organization chart should be able to automatically update the latest information. At Traact, our ultimate goal is to help Legal simplify their operations, save time and resources, and manage entities accurately. You can learn more about our platform by booking a free demo.
What is entity management?
Entity management is the process of organizing and maintaining legal entities within a business or organization. This involves overseeing and administering various legal entities like corporations, limited liability companies (LLCs), partnerships, and other entities to ensure compliance with relevant laws and regulations.
What are the four main areas within private equity?
Private equity encompasses various investment forms, including venture capital, growth capital, leveraged buyouts (LBO), and private equity real estate. Venture capital supports early-stage companies, while growth capital assists with expansion. LBO involves acquiring companies with debt and private equity real estate deals, specifically with real estate investments. Each area involves its own investment strategies and target assets, with private equity firms specializing in these areas to provide funding and expertise, ultimately aiming to enhance company value and generate returns.
What are the legal entities in private equity?
Private equity firms usually function as limited partnerships or limited liability companies (LLCs). General partners manage the fund in a limited partnership, and limited partners invest capital but have restricted liability. The general partners are accountable for the fund's everyday operations and investment choices. Limited liability companies operate similarly, with managers overseeing the fund's activities and members investing capital. These legal entities offer organization, regulation, and liability protection for private equity activities. Private equity firms may also establish separate special purpose vehicles (SPVs) or holding companies for specific investments to provide flexibility and manage risk.