The most important features of a hedge fund structure are pass-through tax treatment and limited personal liability for the managers and partners. The appropriate vehicles in the U.S. to deliver these advantages are the limited partnership and limited liability company (LLC).
Most commonly, domestic hedge funds are structured as a limited partnership with an LLC as the general partner. In this structure the hedge fund managers are provided limited personal liability in their position as member-managers of the general partner LLC. Individual investors in the hedge fund are limited partners and purchase limited partnership interests at the time of subscription.
Offshore funds are often structured as business companies, an entity similar to a U.S. corporation, which issue shares of stock. The management company is often not an investor in the fund and an investment management agreement is necessary to control the relationship between the fund and the management company.