Offering Legal Advice & Services to Traders | Investors | Hedge Funds Start a Hedge Fund in the United States or Offshore
Starting a Hedge Fund If you know how to trade the markets, running a hedge fund is an efficient way to earn a living. Hedge funds are now for the masses and not just the elite. Wall Street continues to fail us and Main Street must fend for itself. Successful hedge funds continue to attract the wealthy, the working not-so-wealthy, and those looking for better investment options and control of their money worldwide. The United States offers one of the most favorable -- if not the most favorable --environments in the world for hedge funds as it is lightly regulated and offers low start up costs. Contact Hedge Fund Attorney Hannah Terhune for a Free Consultation We set up hedge funds in the United States and in other countries. Learn More About Our Hedge Fund Launch Process
Capital Management Service Group, Inc. is dedicated to providing the highest quality of services on a personal level and in a timely manner. We offer flat-fee engagements, which include start-to-finish legal services and counsel with all aspects of launching a domestic or offshore hedge fund. No two funds are identical. We use a client-based approach to our fund structuring and analysis. Our clients routinely comment on the excellence of our personal service and the time we take to properly understand and implement the client’s unique circumstances and objectives. Call Us at +1(307) 213-4732, Email Usand Read What Our Client Say About Us on LinkedIn
Why a U.S. Hedge Fund? Even if you are based in another country, consider forming a U.S. hedge fund. The United States offers easy and low cost access to the legal, accounting, brokerage, and regulatory services needed by a hedge fund organizer. Despite the purported "negativity" surrounding the United States, U.S. based hedge funds remain popular because of low formation costs, minimal regulation and commerce-based economy.
Minimal U.S. Legal Infrastructure Needed To start a U.S. hedge fund, you generally need to form two business entities: the hedge fund and its investment manager. In the United States, hedge funds are found chiefly in Delaware. Why you ask? Delaware’s business friendly environment is attractive to companies across the globe, not just hedge funds. Learn More About Delaware Companies Governing law matters and Delaware is the best! Contact Us for Assistance
The U.S. hedge fund is typically set up as either a Delaware Limited Partnership (LP) or Limited Liability Company (LLC). The investment manager can be set up as a LLC or as some other type of business entity in your home state, home country or offshore. We can form both entities for you quickly and for a low fee. Contact Us for Assistance Hedge fund sponsors based outside the United States can set up both a hedge fund and its management company in the United States. Learn More About U.S. Company Formations
The United States Allows Hedge Fund Advertising The United States lifted the ban on hedge fund advertising for hedge fund's operated by fund managers registered with either the SEC or a state regulator. The decades-old restriction on how hedge funds can raise money is gone! Hedge fund managers can speak publicly about their hedge fund's strategies and performance and advertise through normal channels. Learn More About Hedge Fund Marketing & Raising Capital
Rule 506(c) of Regulation D bans industry "bad actors" (i.e., certain felons) from operating or marketing a hedge fund under Regulation D in the United States. The full text of the SEC's rule adopting the Bad Actor Disqualification rule is available here. The U.S. SEC's fact sheet summarizing the Bad Actor Disqualification rule is available here and a summary of the law available here.
The United States is a Safe-Haven for Business A 2006 Government Accountability Office Report noted that most U.S. states do not require ownership information when businesses are formed; nor do they have to submit periodic reports. The U.S. GAO Report cites Delaware as the most secretive state in the United States. Read the GAO 2006 Report of U.S. Company Formations and Learn More About U.S. Company Formations Given the depth, privacy, predictability and pro-business cast of Delaware's company law, it makes good business sense to set up a hedge fund in Delaware. Contact Us for Assistance We offer company formation services, registered agent, registered office & virtual office service in Delaware and in Florida.
How long does it take to start a hedge fund? It really depends on your circumstances because no two funds are completely alike. In the United States, hedge fund companies can be formed in a matter of just a few minutes. In general, the average U.S. hedge fund takes about four (4) weeks to organize including the time needed to prepare offering documents and to arrange for the hedge fund's bank and brokerage accounts. Learn More About Hedge Fund Offering Documents Starting a hedge fund? Contact Us for a Free Fee Quote & Consultation
How many investors can invest in a U.S. hedge fund? The Investment Company Act of 1940 generally requires investment companies to register with the SEC. Hedge funds can operate under one of two exemptions from registration under the Investment Company Act of 1940. Section 3(c)(1) allows a fund to have up to 100 investors. Section 3(c)(7) allows a fund to have up to 2,000 investors, but requires a significantly higher net worth suitability requirement for each investor. A 3(c)(1) fund is limited to 100 investors, all of which should be “accredited investors” pursuant to Regulation D.
An Accredited investor (if an individual) must have either (i) a minimum of $1 million net worth or (ii) $200,000 annual income/$300,000 if combined with spouse, or (if an entity or trust) a minimum of $5 million net worth. Most startup hedge funds are structured as 3(c)(1) funds because of the lower investor suitability requirements. Learn More About Accredited Investors
A 3(c)(7) fund must be owned by “qualified purchasers.” A qualified purchaser (if an individual) must have a minimum of $5 million in net investments, or (if an entity or trust) a minimum of $25 million in net investments. Section 3(c)(7) funds may technically have unlimited investors but typically limit the number of investors to 2,000 to avoid registration under the Securities Exchange Act of 1934 as a publicly traded partnership. In our experience the 3(c)(7) exemption is typically used only by established funds backed by institutional investors. Learn More About Hedge Fund Regulations and Contact Hedge Fund Attorney Hannah Terhune for a Consultation
File SEC Form D & State Regulation D Notice Filings Rule 506 of Regulation D is governed by Section 4(a)(2) of the Securities Act of 1933. It allows a fund to offer securities to accredited investors and up to 35 unaccredited investors. Contact Us for Help Filing SEC Form D and State Regulation D Filings Form D is a federal notice of an exempt securities offering that is filed with the SEC when relying on Regulation D for an exempt offering. This document discloses biographical information about the fund and the managers. Form D is not subject to a review or approval by the SEC, but is a required notification document, and must be filed within 15 days of the first sale to investors and if the offering is ongoing, the Form D must be filed again annually.
Hedge Fund Performance and Management Fees Hedge fund managers typically charge a management fee based on assets under management (AUM), and a performance fee (also called an incentive allocation, carried interest, performance share, etc.) based on the hedge fund's success. Some U.S. states regulate performance-based fees. For example, in some U.S. states, performance compensation can only be paid when the profits of the fund exceed a hurdle rate or on an annual basis. A good hedge fund lawyer will help you keep track of the proper fee arrangements. Contact Hedge Fund Attorney Hannah Terhune Be certain that your expectations about charging performance fees are correct. On the other hand, management fees can be charged to all investors. Learn More About Hedge Fund Performance and Management Fees and Contact Us for Assistance
Should I Avoid Non-Accredited Investors? Not necessarily. However, if you allow non-accredited investors to invest in the fund, you need to have an initial financial statement prepared (i.e., an initial audit). Learn More About Hedge Fund Audits Your offering will proceed much smoother when you allow only accredited investors in your fund. If you allow non-accredited investors, you must prepare your hedge fund offering documents to a higher standard (i.e., as if you were offering the securities publicly). Learn More About Hedge Fund Offering Documents In addition your non-accredited investors must (alone or together with his purchaser representative) be sophisticated; they must have sufficient knowledge and experience in financial to evaluate the merits and risks of investing in your hedge fund.
Qualified Clients and Performance Fees Hedge fund managers that are subject to federal or state investment adviser registration may only receive performance based compensation from “qualified clients” which generally includes: (i) an individual that has a net worth (together, in the case of a natural person, with assets held jointly with a spouse) of more than $2 million at the time the contract is entered into, exclusive of primary residence; or (ii) an individual with at least $1 million under management of the investment adviser.SEC registered (and many state registered hedge fund managers) hedge fund managers can charge a performance fee (also referred to as an incentive allocation or performance allocation) only to qualified clients. Learn More About Qualified Clients
Capital Management Service Group, Inc. is dedicated to providing the highest quality of services on a personal level and in a timely manner. We offer flat-fee engagements, which include start-to-finish legal services and counsel with all aspects of launching a domestic or offshore hedge fund. No two funds are identical. We use a client-based approach to our fund structuring and analysis. Our clients routinely comment on the excellence of our personal service and the time we take to properly understand and implement the client’s unique circumstances and objectives. Call Us at +1(307) 413-2212, Email Usand Read What Our Client Say About Us on LinkedIn
Foreign Fund Managers Can U.S. Register Many hedge fund sponsors based in other parts of the world choose to set up a U.S. investment manager to avoid home country licensing issues and to make the hedge fund more attractive to U.S. investors. Another reason for considering U.S. investment adviser registration is to satisfy a brokerage and/or bank’s requirement that a hedge fund’s manager be licensed somewhere before it is willing to supply bank and/or brokerages services to a new hedge fund.
Set Up a U.S. Investment Manager If your home country’s licensing requirements put investment manager registration out of reach, consider getting licensed in the United States. Fortunately, any foreign based investment manager is eligible to register with the U.S. Securities and Exchange Commission (SEC) without regard to the amount of assets under management. The SEC registration process is very simple and relatively streamlined. The SEC, it is a very light regulator of foreign-based hedge fund managers. Learn More About U.S. SEC Registration and Contact Us for Assistance
Use of Offshore Hedge Fund Manager to Avoid Home Country (or State) Hurdles A U.S. hedge fund’s investment manager can be set up in your home country, offshore, or in the United States. Unfortunately, many potential hedge fund managers live in countries where the capital formation, tax and regulatory hurdles to become a hedge fund manager are insurmountable. Many countries require a working background in finance, substantial education, and other credentials to be licensed as a hedge fund manager. Even if you have the necessary background and experience, you may not be able to obtain licensing in your home country simply because the regulators do not favor smaller one-man operations. If you are based in a country like that, consider setting yourself up an investment manager, either in the United States or elsewhere.
Operating a US CompanyIn the United States, companies can be formed in minutes and a U.S. visit is not required. Learn More About U.S. Company Formations Note that you can use the hedge fund management company not only to serve as the fund’s investment manager, but also to operate a managed account business (i.e., unlike a hedge fund, managed account customer money is not pooled). When setting up a hedge fund manager outside of your home country (or state), you can arrange for a “virtual office” so that you have a working address outside your home country (or state). These arrangements allow you have to a hedge fund manager based in another part of the world with few, if any, regulatory barriers to hedge fund management. We offer expedited company formation services in the United States. Contact Us for Assistance
Why Speak With Us? When you speak to us, you gain access to a unique combination of securities, tax, and international experience. We have established a leadership position. We think we have the best set of hedge fund offering documents (and related documents) based on the current and ever changing federal, state and offshore securities, commodities, and tax laws. We have quick turnaround times because we understand that our customers want to begin business as soon as possible. We are one destination for all your legal, tax, accounting and audit needs. Our customers value this one-stop relationship. We will help you start your business and continue to assist you. Only one thing counts with us and that's our customer relationships!
Use of Investment Adviser Sub-Contracts Many hedge fund sponsors opt to set up a hedge fund management company outside of their home country or home state, whether for tax, commercial, or regulatory reasons. If you (as the hedge fund sponsor) set up the hedge fund management company outside of your home country or home state, you should have a sub-agreement for "consultancy" or "advisory" services between yourself and the offshore (or out of state) hedge fund management company. In the United States, an investment adviser is an investment manager. However, there is legal distinction between “investment manager” and “investment adviser” in most other countries. If you live in a country where a such a distinction exists and if you set up the hedge fund's manager in such a country, you should position yourself through contracts as a consultant to the offshore investment manager. Such "advisory" or "consultancy" services (i.e., an independent research analyst) is not a regulated business activity. To do this, you need an agreement between the offshore investment manager and a sub-agreement between the investment manager and the investment adviser. The goal of the agreements is to allow you to offer research services to the offshore investment manager for a fee. There are other approaches to consider as well. When the investment advisory agreement is drafted properly and timely executed, you will be able to control the timing, tax character and amount of taxable income reportable in your home country. In addition, if the investment management agreement between the fund and the investment manager are drafted correctly and timely executed, further income deferral is possible. A hedge fund manager seeking to defer substantial amounts of management and performance fees should use third-party (i.e., “outside”) directors to ensure that the deferral mechanisms are respected for home country tax purposes. Contact Us for Assistance
Hedge Fund Administration Unlike most other countries, there is no legal requirement in the United States to appoint a hedge fund administrator. Hedge fund administrators provide detailed NAVs, performance records, brokerage statement reconciliation, tear sheets, and much more. Investors and regulators see value in the appointment of a third-party administrator because an independent party performs due diligence on new subscribers, calculates the share price and reports hedge fund results to investors. Learn More About Hedge Fund Administration and Costs and Contact Us for Assistance
Hedge Fund Banking and Brokerage Services For either banking or brokerage services, you cannot use your personal account as the hedge fund’s account. The hedge fund needs its own bank and brokerage account. In the United States, bank accounts can be opened over the Internet in some cases with very modest initial deposits. In addition, operating costs—such as monthly bank maintenance fees - are relatively low in the United States when compared to most other countries. Banking in the United States presents a lesser burden to a hedge fund sponsor than banking in most other parts of the world. U.S. banks and brokers generally do not require a hedge fund’s investment manager to be licensed by a regulator in order to open accounts unless the investment manager is based in a jurisdiction that requires such licensing. For these reasons, the United States presents an extremely attractive option for sponsors of smaller hedge funds. Need help with banking and brokerage arrangements? We have solutions! Contact Us for Assistance
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Capital Management Services Group, Inc. is recognized by discriminating business owners as being the foremost tax and legal authority in the hedge fund industry. Attorney Hannah Terhune's education and experience are unsurpassed in the area of hedge fund creation, development and launch. Ms. Terhune's extensive international tax knowledge and hedge fund experience have made her an indispensable resource for serious hedge fund and business professionals. Ms. Terhune's numerous articles on the subjects have appeared in over 100 publications worldwide. Chances are, if you have read anything related to the hedge fund business, Ms. Terhune wrote it.
Why Hire Us? When you engage us you get a unique combination of securities, tax, and global business experience. We think we have the best set of offering documents in the industry for hedge funds based on current and ever changing laws. We aim to deliver quick turnaround times because we understand that our customers want to begin their money management business as soon as possible. We conceive, structure and deploy the best tax saving strategies for your hedge fund business. We will help you start your business as soon as possible and continue to assist you.
Give us the opportunity to use that knowledge and experience for you. Each client receives personalized attention from our attorneys and staff. No client is too large or small for us. We pride ourselves in providing personal attention to each client. We provide the best services and support needed for hedge funds and business projects. No need to coordinate work between accounting, administrative and law firms--we handle the entire hedge fund business process from start to finish. We offer legal services, accounting services, tax planning services, tax return preparation services, business consulting services, and U.S. and offshore company formation services. We provide high quality services at competitive rates. But don't take our word for it, give us a call and let us prove what we can do for you.
Personal Consultations You get answers to your specific questions by speaking directly to Hannah Terhune, an experienced hedge fund and international tax attorney. Ms. Terhune's hard-earned knowledge and experience can be put to work to save you unnecessary steps and costly wasted effort. The consult is an invaluable opportunity to speak to Hannah one-on-one and learn how to achieve more in less time. Ms. Terhune's credentials and experience gives you access to a well-informed professional practitioner with sound ethical judgment. The availability of such expertise required to recommend the best solutions to you and provide sound ethical advice should never be taken lightly. We are confident that when you are finished with your consultation you will be impressed and more informed about your business plans than ever before. Call +1 (307) 213-4732 or Click Here to Request Services.
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