Early Stage Venture Capital Limited Partnerships (ESVCLP)
At a glance
Provides early stage venture capital limited partnerships (ESVCLPs) with a flow-through tax incentive and a complete tax exemption on an investor’s share of a fund’s income to increase investment in early stage venture capital businesses.
Who can apply:
At a minimum, you must:
- be either a limited partnership or an incorporated limited partnership
- be established in Australia or in a country that Australia has a double tax agreement with
- have a partnership agreement that ensures the partnership exists for between 5 and15 years.
Other eligibility requirements may apply.
The ESVCLP program 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 and Science 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 ESVCLP's approved investment plan
- does not represent more than 30% 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% of employees and at least 50% 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% 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 program is jointly managed by the Committee with the support of AusIndustry, within the Department of Industry, Innovation and Science, 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 VCLPs.
You can apply for an ESVCLP if you:
- are a limited partnership or 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% of the partnership’s committed capital.
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% of the partnership’s committed capital
- not form part of a bigger fund (or attached to a unit trust), is stand-alone.
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.
A company will be viewed as ‘early stage’ if it satisfies both of the following criteria:
- seven (7) years or less since being incorporated, and
- its average revenue over the past two years is less than three million dollars.
A company should ensure these criteria are satisfied at the time the ESVCLP makes its first investment in that company.
It should be noted that:
- the suggested criteria are a guide, there may be cases where it is appropriate for an ESVCLP to have an investment plan that invests outside of the criteria
- by publishing the criteria, the Board gives an ESVCLP the chance to explain why they should be allowed to go outside of the criteria, if it intends to do so
- the Committee will monitor the feedback and impact of the criteria and report to the Board on a regular basis and
- failing to be ‘early stage’ is one reason that may make an investment plan inappropriate. The Committee may approach the Board if it requires clarity on one or more of these features.
For more information on the eligibility criteria please refer to the 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 to 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
- 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.
To request a hard copy of the application form, email firstname.lastname@example.org.
For assistance with the application form contact us.
If your application is 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.