Tax structuring checklist for every stage of the investment lifecycle

Investment success, whether you’re a private equity firm, venture capital group, family office, or independent sponsor, can hinge on how you structure, operate, and exit investments. From the moment you begin fundraising to the final negotiations at exit, tax considerations can either enhance value or erode it.

We break down the top five tax factors that you should consider during each investment stage, revealing where opportunities lie, where value may be lost, and how tax and structuring decisions can directly impact your returns. In our next article, we will cover our strategic approach to tackling these challenges.

To get started, it’s important to ask the right questions.

Top 5 Fundraising and Initial Investment Questions

A clear investment strategy aligns decisions with investor goals, risk tolerance, and future capital needs. Here are the foundational questions to consider:

1. Where are we sourcing funds for investments and what are investor expectations?
2. What type of investment structure best aligns with our fund’s strategy and investor expectations?
3. Is the target’s tax classification aligned with our fund and investor goals, or will a pre-closing tax restructure be required?
4. Do we understand how the target’s purchase price will impact the tax outcome?
   • How does rollover equity, earnouts, and seller notes impact the purchase price?
   • How can third party debt be incorporated into the purchase price?
   • How does purchase price allocation impact the purchase price?
5. Is the tax structure flexible for future growth, acquisitions, and retention of key employees?

Top 5 Operational and Value Creation Questions

Once the deal closes, tax strategy shifts focus to reducing liabilities, supporting growth, and managing complexity. As you scale, thoughtful tax planning can help protect margins and reduce friction. The following questions can reveal opportunities for cost savings and strategic planning:

1. What are all the types of tax liabilities in our current structure?  
2. What are effective tax strategies to reduce annual tax liabilities?
3. How do future acquisitions impact our business?  
4. How do expansions across jurisdictions affect our tax position?
5. How could tax policy impact our current business, growth, and future exit?

Top 5 Exit Optimization Strategy Questions

Tax planning for exit starts long before a sale is imminent. Structuring for tax efficiency, identifying hidden value, and preparing the entity for due diligence can drive better outcomes. Consider the following questions when planning for an exit:

1. What tax structure is optimal to maximize a potential buyer’s value in our business?
2. How can tax-related gross-ups and hidden tax attributes increase the purchase price?
3. In what ways do transaction costs impact the gain on sale?
4. Could the sale qualify for full or partial gain deferral or exclusion?  
5. As a fund manager, what does a capital event mean for me?

We Can Help

At Elliott Davis, we work with investors at every stage of the investment lifecycle, from deal structuring through due diligence to operational optimization and exit planning. Our professionals help uncover tax efficiencies, reduce tax liabilities, and build flexible strategies that support growth, deal execution, and value creation.

Let’s talk about what comes next for your business. Reach out today to get started.

The information provided in this communication is of a general nature and should not be considered professional advice. You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change.