Seeding agreements: tax, legal and regulatory issues to consider when structuring seeding agreements

Seeding agreements: tax, legal and regulatory issues to consider when structuring seeding agreements
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Initial considerations

– Great variety of terms
– Seeding into fund/managed account or fund manager or both – what documents will be needed
– Companies House and FCA filings
– Be clear who the parties are
– Include detail on what will happen if terms are not met

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Documentation

– Seeding Agreement
– Shareholders Agreement plus amended articles of association
– LLP Agreement
– Offering Memorandum
– Managed Account documents
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Fees and Revenue  

– Discount at fund level
– Shares of revenue at fund manager level
– Ratcheting up of fees
– Potential inclusion of new products 
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Equity share in fund manager 

– Investment manager’s freedom to run the strategy
– Seeder’s input into running the business e.g: (a) corporate actions; (b) business advice; (c) office space; (d) marketing.  
– Launch of additional products
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Reduced fees from fund

– Separate share class
– Side letters
– Most Favoured Nations
– Treating customers fairly
– Any additional transparency issues
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Non-compete and non-solicitation

– Prohibition on creating or joining a competing business
– Time period 
– Other relevant staff
– Other capital
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Control and the team

– Change of control
– Sale of investment manager
– Team loyal to investment manager
– Key personnel
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Invested amount and capacity

– Where – fund or fund manager
– When – in tranches or at once
– Time period
– How much – agreed capacity, including in other products
– Capacity as a set figure or percentage of AUMCapacity withdrawals and re-availability
– Diversification of investors and redemption risks 
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Lock-up

– Length of time
– Breach events e.g.: (a) poor performance; (b) failure of investment manager to participate; (c) criminal or regulatory violations; (d)material breach of agreement.
– Notice period
– Total investment or percentage of AUM 
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Transparency and confidentiality 

– Disclosure to other investors
– IP and strategy confidentiality and ownership
– FCA and side letters
– AIFMD
– Share classes
– Publically available information in the UK e.g.: (a) Companies House; (b) FCA register.

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