AUSTRALIA Law and Practice Contributed by: Michael Lawson, Nicole Brown, Lizzie White and Tamaryn Leach, MinterEllison
Overview of VCLPs and ESVCLPs An incorporated limited partnership must meet specific requirements before it can be registered as a VCLP or an ESVCLP with Industry Innova - tion and Science Australia, an Australian gov - ernment department. There are specific require - ments for a VCLP and an ESVCLP set out in the VC Act, with many consistencies between the two, including the following: • the term of the partnership must be more than five years and less than 15 years; • the minimum committed capital must be at least AUD10 million; • the partnership must only carry on activities that are related to making eligible venture capital investments (EVCIs), as defined by relevant Australian tax legislation; • regarding ESVCLPs, the investments must be in the “early stage”. An EVCI is an equity investment in an unlisted company or unlisted trust that: • is located in Australia; • does not exceed more than 30% of the part - nership’s committed capital; and • has a predominant activity that is not an ineli - gible activity. An ineligible activity includes: • property development or land ownership; • banking; • providing capital to others; • leasing; • factoring; • securitisation; • insurance; • construction or acquisition of infrastructure facilities and/or related facilities; and
allocation for private equity and private debt funds. Venture capital investment in Australia is primarily high net worth and/or family office-led, though some institutions have a venture capital allocation. 2.2.2 Legal Structures Used by Fund In Australia, unit trusts can be structured as open- or closed-end vehicles. Performance fees can be based on a traditional performance fee tied to net asset value increases or follow a pri - vate equity-style “carry waterfall”. Managers Unit Trusts There are very few legal requirements that apply to Australian unit trusts, which are simple to establish and, provided they are only offered to wholesale investors, often have no regulatory or other registration or approval requirements (note that there would typically be regulatory require - ments for the manager or trustee; see 2.3 Regu- latory Environment ). A unit trust is managed by its trustee, who may, in practice, appoint an investment manager to provide investment management services in respect of the trust. The use of corporate trus - tees is common by fund managers who do not wish to manage the day-to-day administration of their own trust or who may lack the necessary regulatory licence to act as a trustee. Partnerships The common partnership structures used by a private equity or venture capital fund to invest primarily in Australian businesses are known as VCLPs for private equity and venture capital funds or ESVCLPs for early-stage venture capital funds.
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