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Hurdle Rates for PE/VC Funds: An Overview
A hurdle rate is a provision that requires that the partners recover their capital contributions and, often, a specified rate of return, before the general partner starts receiving its allocation and distribution of profits in respect of its carried interest. The justification for the hurdle provision is that the general partner should not earn its carried interest until the partners who provided the capital to the partnership are repaid their investment and earn a return on their investment. This article addresses commonly negotiated issues in drafting hurdle provisions, the incentives created for the general partner, and basic tax aspects of hurdle provisions.
Example Hurdle Provision
A typical hurdle rate provision is set out below ' the example requires that the partners receive their capital contributions plus an 8% return thereon before any profits are distributed to the general partner in respect of its carried interest. In some partnerships, only the limited partners make capital contributions and therefore receive distributions prior to the general partner meeting the hurdle. If the general partner makes a capital contribution, which is usually no more than 1% of all capital contributions, then the general partner may (or may not) participate in distributions prior to meeting the hurdle to the extent of such contribution. In our example, the general partner receives distributions to the extent it made capital contributions. In the example provision, once the hurdle is met, profits are thereafter allocated to the general partner on its carried interest until the overall allocation of profits, after repayment of the partners' capital contributions and return thereon, is 80% to the partners in proportion to their capital contributions and 20% to the general partner in respect of its carried interest; thereafter, profits are divided in the same 80/20 proportion between the partners contributing capital to the partnership and the general partner, respectively.
Major Differences In UK, U.S. Copyright Laws
This article highlights how copyright law in the United Kingdom differs from U.S. copyright law, and points out differences that may be crucial to entertainment and media businesses familiar with U.S law that are interested in operating in the United Kingdom or under UK law. The article also briefly addresses contrasts in UK and U.S. trademark law.
The Article 8 Opt In
The Article 8 opt-in election adds an additional layer of complexity to the already labyrinthine rules governing perfection of security interests under the UCC. A lender that is unaware of the nuances created by the opt in (may find its security interest vulnerable to being primed by another party that has taken steps to perfect in a superior manner under the circumstances.
Strategy vs. Tactics: Two Sides of a Difficult Coin
With each successive large-scale cyber attack, it is slowly becoming clear that ransomware attacks are targeting the critical infrastructure of the most powerful country on the planet. Understanding the strategy, and tactics of our opponents, as well as the strategy and the tactics we implement as a response are vital to victory.
Removing Restrictive Covenants In New York
In Rockwell v. Despart, the New York Supreme Court, Third Department, recently revisited a recurring question: When may a landowner seek judicial removal of a covenant restricting use of her land?
Legal Possession: What Does It Mean?
Possession of real property is a matter of physical fact. Having the right or legal entitlement to possession is not "possession," possession is "the fact of having or holding property in one's power." That power means having physical dominion and control over the property.