April 14, 2020

Can the GP involve in the management of the portfolio company?

At times GPs may feel the need to reign in the portfolio company's management or the implementation of restructuring and turn-around plans more directly. However, tax complications can arise at this point. Typical shareholder decisions, including replacing the operating management by stormproof types, should not be a problem, unless the new management comprises of GP-affiliated persons. By getting involved in the operational management or through excessive advisory board intervention, the fund may be qualified as a trading business (Gewerbebetrieb) which would have a negative tax effect.