Management Company vs GP Entity
The general partner entity controls the fund and receives the sponsor's share of profits, the carried interest. The management company is a separate entity that employs staff, signs service contracts and collects the management fee. Splitting them isolates operating liabilities from the fund's governance, keeps employment and overhead apart from investment returns, and gives flexibility for taxes and for bringing in partners. Smaller funds sometimes use just one entity.
What each entity does
| GP entity | Management company | |
|---|---|---|
| Role | Legal control of the fund, signs fund documents | Runs operations, employs staff, provides services to the fund |
| Income | Carried interest or promote, GP commitment returns | Management fee and any other service fees |
| Liability | Fund obligations as GP | Employment, leases, vendor contracts and operating claims |
| Ownership | Sponsor principals and partners | Often the same people, sometimes with different splits |
Why separate them
- Liability separation. An employee claim or lease dispute against the management company does not land on the GP, which holds the fund's governance and carried interest.
- Different owners. Principals may share carry differently from fees, for example giving team members carry participation but not equity in the management company.
- Multiple funds. One management company can serve several funds, each with its own GP entity.
- Tax planning. Fees and carry are taxed differently, so separate entities give clarity and flexibility.
The management agreement
The fund and the management company sign an agreement stating the services and the fee. The agreement should match what the PPM tells investors about fees and expenses, since inconsistencies between the documents are a common source of disputes. Fee offsets, expense allocations and termination terms should also be stated clearly. See what a PPM contains.
When one entity is enough
A small first fund with one sponsor and no employees can sometimes run through a single manager entity that serves as both GP and manager. As the fund grows, hires staff or adds funds, splitting the entities becomes more valuable. It is easier to design the split at formation than to add it later. See GP and LP structure.
Compliance links
The management company may be the legal entity that acts as the fund's investment adviser, which affects whether it must register or can file as an exempt reporting adviser. See exempt reporting adviser vs registered adviser.
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Book Free ConsultationFrequently asked questions
Do I need both entities?
Not for every fund. Many small funds start with one. Larger or multi-fund sponsors usually separate them.
Who gets the management fee?
The management company, as stated in the management agreement and fund documents.
Who gets the carried interest?
The GP entity, or an affiliated entity designated in the fund documents.
Can the same people own both?
Yes, and often do, though ownership percentages can differ to reflect fee and carry splits.