Early Stage Venture Capital Limited Partnerships (ESVCLP)

Tell me about the assistance

Fund managers planning to raise an early stage venture capital fund can apply to register the partnership as an Early Stage Venture Capital Limited Partnership (ESVCLP). To achieve full registration, the partnership must have committed capital of between $10 million and $200 million. Partnerships may also request conditional registration.

  • Status: Open
  • Applications close: Ongoing
  • Delivered by: AusIndustry

Overview

The ESVCLP programme aims to stimulate the Australian early stage venture capital sector. It provides the fund manager, flow-through tax treatment and for investors, tax exemptions on their share of returns.

Innovation Australia’s Innovation Investment Committee (the Committee) registers ESVCLPs under the Venture Capital Act 2002.

Generally, ESVCLPs will make early stage venture capital investments in companies or unit trusts where the investment:

  • complies with the ESVCLPs approved investment plan
  • does not represent more than 30 per cent of the ESVCLP's committed capital
  • is an acquisition of new shares or units (limited provision to acquire pre-owned).
  • is at-risk and the investee company must meet the following requirements:
    • the total value of its assets is not more than $50 million
    • at least 50 per cent of employees and at least 50 per cent of assets are located in Australia
    • its predominant activity is not in property or land development, finance, insurance, construction or infrastructure or making investments.

The ESVCLP must hold the investment for a minimum of 12 months.

The taxation benefits for ESVCLPs are:

  • flow-through taxation treatment for registered venture capital partnerships
  • exemption to investors (limited partners) from capital gains tax on their share of profits made by the partnership
  • the fund manager can claim their carried interest in the partnership on the capital account, rather than revenue.
  • Limited partners receive a non-refundable carry forward tax offset of up to 10 per cent of their eligible contributions.

The extent of the tax benefit depends on a number of factors. Fund managers seeking to register a partnership should seek professional tax advice.

ESVCLPs must establish a new partnership. It is not possible to restructure an existing partnership.

The ESVCLP programme is jointly managed by the Committee with the support of AusIndustry and the Australian Taxation Office.

If you are an investor seeking access to a portfolio of early stage companies, see the list of ESVCLPs

If you are a business seeking venture capital see the list of Venture Capital Limited Partnerships.

What support or funding is available?

For registered ESVCLPs, the programme offers:

  • flow-through taxation treatment
  • tax exemption for investors for their share of returns. A loss is not deductible and
  • the fund manager can claim their carried interest in the partnership on the capital account, rather than revenue.

Who can apply?

You can apply for an ESVCLP if you:

  • are an incorporated limited partnership
  • are established in  Australia or a foreign country that has a double tax agreement with Australia
  • have a general partner who is a resident of either Australia, or a foreign country that has a double tax agreement with Australia
  • have at least $10 million and not more than $200 million committed capital and
  • no investor contributes more than 30 per cent of the partnership’s committed capital.

What are the eligibility criteria?

To register an ESVCLP, a partnership must:

  • be structured as an incorporated limited partnership
  • be established in Australia or a country with which Australia has a double tax agreement
  • have a qualifying partnership agreement that:
    • remains in existence for not less than five years and not more than 15 years
    • requires partners to contribute capital when required
    • prohibits the addition of new partners except as provided for in the agreement
    • prohibits increases in committed capital except as provided for in the agreement
    • confers on a general partner the right to require partners to contribute their committed capital to the partnership
    • includes a plan which outlines its intended investment activities.
  • have a general partner that is a resident of either Australia, or a foreign country that has a double tax agreement with Australia
  • have a plan to make eligible venture capital investments in early stage venture capital businesses
  • have access to the skills and resources to implement its approved investment plan
  • have capital of at least $10 million (a partnership that does not satisfy this requirement may be eligible for conditional registration) and not more than $200 million
  • not have any partner that contributes more than 30 per cent of the partnership’s committed capital
  • not form part of a bigger fund (or attached to a unit trust), is stand-alone
  • not hold any investments.

The partnership must invest in:

  • new shares, options or units, or convertible notes that have an equity characteristic, in Australian businesses (companies or trusts):
    • where the total value of its assets is no more than $50 million
    • that does not have property development, land ownership, finance or construction as their predominant activity and
    • that is unlisted.

More information about the eligibility criteria is available in the ESVCLP Customer Information Guide.

All information should be read in conjunction with the relevant legislation: Venture Capital Act 2002, Income Tax Assessment Act 1997 and Income Tax Assessment Act 1936 which can be found at the Federal Register of Legislation.

How do I apply?

Potential venture capital fund managers are required to submit a complete application to the Committee for registration that includes the following:

  • An ESVCLP application form (for a copy of the application form, please email venturecapital@industry.gov.au.
  • An Investment Plan (this is included in the application form, ensure you follow and address all criteria in Part D of the application form).
  • A Limited Partnership Deed with a certificate of registration as an Incorporated Limited Partnership from the relevant State Government authority.
  • Individual investor Subscription Deeds (if seeking unconditional registration).
  • The partnership’s Information Memorandum and any public offer documents.

For a hard copy of the application form, email AusIndustry at venturecapital@industry.gov.au or call 13 28 46.

How will I know if I am successful?

The Committee will grant registration if the partnership meets the legislative requirements. The Committee has 60 days to decide which can be extended by a further 60 days.

The Committee will advise the fund manager if a partnership has been granted or refused registration.

For ESVCLPs, AusIndustry provides support over the life of the partnership.

Key documents

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