As investors more commonly rely on SPVs to facilitate investment into startups it is important to properly structure your SPV to receive the same tax treatments as are present in the partnership structure of a traditional fund.
Similar to most of the startups that SPV investors will be deploying capital into, at Syndicately we structure your SPV as a Delaware LLC. LLCs incorporated in the state of Delaware receive the same favorable business treatment as do the many corporations that incorporate there. As part of your payment to use the Syndicately platform to create and organize an SPV, we have operating documents pre-built defining the LLC as a partnership structure meaning that the LLC itself isn’t taxed. For participants in the SPV, all contributions and distributions are reflected on your personal (or business if investing through an entity) taxes.
This structure helps keep the finances and tax filings for the SPV clean and simple since outside of the investment purchase, the SPV does not operate as a business in any other capacity. This pre-built structure on the Syndicately platform is easy to use and built for investors who are looking for minimal overhead once an investment purchase is complete.
Outside of the formation and execution of the purchase, the Syndicately platform will file annual certificates of good standing with the state of Delaware as well as file and distribute K-1’s through to the SPV owners (your co-investors) when appropriate. The K-1 is for an individual’s or business’s tax purposes and records the share of income or loss that the LLC owner has incurred. Through the Syndicately platform, both SPV managers/organizers and their investors can easily access and receive relevant documents making the monitoring and tax report of your investments simple and hassle-free.
Private placements into startups are both a tremendous investment opportunity as well as a healthy part of the innovation cycle in private markets. For professional investors and those looking to build a portfolio, ensuring proper SPV structure and tax reporting is an important part of the process and helps avoid any headaches downstream.