Frequently Asked Questions

North West Syndicate Limited Partnership (NWSLP)

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The NWSLP is established under the Limited Partnerships Act 2008. The Limited Partnership is the entity that will own the business entities described in this Information Memorandum.

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As the General Partner, True North Equities Limited is liable for the debts and liabilities, and is responsible for the day-to-day administration of the Limited Partnership. As General Partner, TNEL has overall control of the investment. In particular, the General Partner has the power, with the approval of a 75% Limited Partner resolution, to:

 

  1. amend any of the terms of the Limited Partnership Agreement;

  2. change the nature and scope of the business of the Limited Partnership;

  3. change the capital structure of the Limited Partnership;

  4. dispose of assets of the Limited Partnership, the value of which is more than half the value of the Limited Partnership’s assets before the disposition;

  5. terminate the Limited Partnership; and,

  6. remove a Limited Partner.

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The General Partner is entitled to charge the Limited Partnership for establishing and administering the Limited Partnership. Details of these fees are set out in the Limited Partnership Agreement and in the appendices of this Information Memorandum.

 

How to invest in the Limited Partnership?

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Each investor will invest in the Limited Partnership by:

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  1. paying an initial capital contribution of not less than $750,000; or,

  2. being an excluded party, by meeting the exemption criteria of the Financial Markets Authority for this investment.

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In return for the investment, each investor will become a Limited Partner with an interest in the Limited Partnership, proportionate to their level of investment and with the benefit of limited liability. Participation in the Limited Partnership entitles a Limited Partner to share in distributions (as determined by the General Partner). In certain circumstances, Limited Partners may be required to provide further capital where this is deemed appropriate by the General Partner (eg, where a business owned by the Limited Partnership requires additional working capital to pay for day-to-day running).

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Notwithstanding that the General Partner controls the Limited Partnership, there are several matters that are reserved to the Limited Partners, including the power to remove and appoint a General Partner and the solvent winding up of the Limited Partnership. Limited Partners are also entitled to participate in the Advisory Committee, which provides non-binding strategic guidance and obtains regular updates from the General Partner.

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The General Partner is expressly permitted to be involved in other Limited Partnerships or compete with the North West Syndicate Limited Partnership (whether as a General Partner or otherwise).

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The Limited Partnership Agreement is the key governance agreement in respect of the North West Syndicate Limited Partnership.  Please read the document carefully and obtain any further professional advice you consider appropriate.

 

What is a Limited Liability Partnership (LLP) Structure?

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An LLP structure is a business organisation that allows Limited Partners to enjoy limited personal liability while General Partners have unlimited personal liability.

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Under the LLP structure, each Limited Partner (LP) will generally seek funds from investors or other funds. When the LP invests, its liability is limited to its investment in the partnership.

 

Why use an LLP Structure?

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Venture capital typically involves the pooling of funds to purchase shares in companies with potential. The venture capitalist then helps grow the business in the hope of selling their shares (or otherwise exiting) at a profit, which recognises the higher risk implicit in this kind of investment.

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The LLP structure is extremely useful for raising investment capital for industries that have intensive start-up costs and require substantial research and development, and which as a result, incur significant upfront losses. The film, biotechnology, scientific and technological industries typically fall into this basket. The appeal of the LLP structure lies in two key features:

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  • Flow-through tax treatment – with the losses on start-ups being passed through to investors;

  • Limited liability with associated protection to professional venture capital investors.

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General Partner or True North Equities Limited (TNEL) What’s a General Partner?
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  • Only the General Partner can make decisions regarding the operations of the LLP.

  • Any payments received from the LLP under the Long Term Incentive (LTI) will be taxable income, but will match with deductions for payments to management and directors. These payments to management and directors will be subject to PAYE.

 

Key Differences Between using an LLP rather than a Company
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There are some significant differences to operating the investment from a LLP compared to a company, including:

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  • Tax transparency of an LLP, eg. any initial or on-going losses are available to investors;

  • Distribution of capital proceeds: in an LLP non-taxable gains can be paid without complication to investors whereas in a company, the company needs to be liquidated to access non-taxable gains;

  • Complexity of an LLP structure is greater than a corporate structure (in effect creating a look-through holding company) but is not unusual for this type of higher-risk investment.

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Tax issues arising
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Tax considerations for each of the entities are as follows:

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Limited Liability Partnership (LLP)
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  • An LLP is transparent for tax purposes so Limited Partners will have a proportionate share of taxable income and deductions. Limitation will apply to those who have no tax base in their Limited Partnership share, which means any share of Limited Partner loss will likely be deferred until the Limited Partner makes a profit.

  • Any amounts that are received are non-taxable to the LP (eg. on sale of part of any business) will be attributed to the Limited Partners – no special arrangements arise in relation to accessing cash.

  • Management fees charged by the General Partner should be tax deductible on the assumption that they relate to on-going operations and the LLP is in business.

  • Any new investors after the first round will likely result in existing Limited Partners having a deemed disposal (for tax purposes) of part of their interests in the LP.

 

What is the True North Equities System?
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TNEL, the General Partner, was established to provide high net worth people with a range of opportunities to invest in growth businesses.

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The details of each Limited Partnership are documented in the Limited Partnership Agreement peculiar to each syndicate. Please make yourself familiar with this document before you invest.

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Investment opportunities are provided by way of the Limited Partnership vehicles set up to directly invest in each business. In this case NWLSP has already invested into Ask Your Team, Reduced to Clear and Freedom Internet. This Limited Partnership is now available for additional investments.

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Given that the investment profile of each business carries a high level of individual risk, each Limited Partnership diversifies this risk by investing across a range of businesses.

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One of the key goals is to provide investors with a higher capital return, without the day-to-day issues of being an active investor in these types of businesses.

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While there is diversification provided in each Limited Partnership, further diversification may be achieved by establishing a selection of Limited Partnerships allowing investors to choose between different investment portfolios.

So often investors who retire from a farm, from a business or from a senior executive role don’t have the time or the due diligence skills to evaluate high-growth opportunities. TNEL not only provides the opportunity but completes robust due diligence before proceeding with a purchase, and then supports the business to provide additional expertise and capital to improve the chances of success.

 

What will be the size of the syndicates?
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TNEL aims to establish syndicates with a target investment of $20 million, at this milestone we will may rethink the strategy, we will create an opportunity for investors to be part of a change of direction of the syndicate if it makes sense.

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Partners will have the opportunity to extend the syndicates beyond this level with consent of the General Partner plus a 75% Resolution of Partners.

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How many other investors will be involved and what sort of people will they be?
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The aim is to have up to 15 investors in each syndicate who each invest $1 million. This may, however, vary from syndicate to syndicate. Investors will need to be an eligible investor to enter a syndicate.

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TNEL shareholders will always invest in each syndicate via their personal business entity, as we believe that it is important to have our own “skin in the game”. TNEL shareholders will have a minimum of $ 750,000 invested into each syndicate.

 

What does High Net Worth mean?
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The new requirements of the Financial Markets Conduct Act 2014 requires investment products of this nature to only deal with high net worth individuals who invest in excess of $750,000 and those who can be excluded from the requirements of the Financial Markets Conduct Act by meeting the exemptions.

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How much debt will be taken on within a syndicate?
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No debt will be taken on directly by the syndicate. The individual businesses may have debt. No guarantees will be taken by directors or the syndicate.

 

What will the syndicate investment criteria be?
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TNEL policy will be to identify businesses with the following characteristics:

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a.      Experienced management in place;

b.     Strong potential for growth;

c.      Sound partner investors;

d.     Strong business concept with proof demonstrating market demand;

e.      Strong exit strategy;

f.       Ability to influence governance and business direction.

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How long will investments in each business be held?
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We are buying with the view to hold businesses for the foreseeable future. In the event that there is a good opportunity to maximise the return for investors we may exit as the opportunity presents.

 

Who will manage the businesses?
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TNEL will not be the direct manager of any business.

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TNEL will only invest in businesses that have competent CEOs and where that same CEO has their own capital invested in the business. This provides stability of management and a strong incentive to grow the business.

In each of the current investments within NWSLP the CEO has a significant investment in the company.

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How will I have transparency over my investment and know what’s going on?
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TNEL will provide a quarterly report on the progress of each of the businesses within each Limited Partnership. In addition an annual report will be prepared and disclosed to Limited Partners in each partnership.

 

Can we dispose of the General Partner?

Yes, you can exit the General Partner with the support of the holders of 75% (or more) of the total number of Partnership Shares. There are special conditions contained in the Limited Partnership Agreement for this purpose.

Of course we want to do the best job possible so that this is not ever contemplated, but we thought it was best for Limited Partners to have a means of removing the General Partner in certain circumstances and in accordance with the Limited Partnership Agreement.

 

Returns
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What target returns can be expected?

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We believe that investors can expect a better return over the longer term of this investment than they would get from investing their funds in the bank. But there is no guarantee of performance. Our target for each syndicate is to achieve a return that is 20% p.a. Returns will vary from the estimated budget during the period that new investors are brought into the syndicate, as new businesses are acquired, and as each business takes advantage of the opportunities in the market.

 

What risks are involved?
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There are significant risks involved. The investment businesses are mainly in their early growth and there is no guarantee of their success. Diversification across a range of businesses helps to reduce this risk but we wish to be clear that each business will have a range of market risks that investors need to understand. We advise undertaking strong due diligence and seeking independent advice before you invest.

 

When can I expect to be paid?
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Subject to the Limited Partnership Agreement, investors can expect to be repaid a proportionate share of their capital on each liquidity event (ie. when each business is sold and exits the Limited Partnership). Capital return policy of up to 5% can be accessed in June of each year with 4 months prior notice.

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Are there any costs to enter the Limited Partnership?
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Yes, significant work goes into creating the opportunity to invest and that incur a level of cost. These costs include comprehensive assessment and due diligence of each of the businesses and the investors who enter the partnership.

 

Will we be informed who the other investors are?
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Yes, we will be fully transparent about the shareholder register. We will provide an updated shareholder register at the point of entry of each new investor. In addition you will receive quarterly reports and will have access to the financials via Xero at any time.

 

Will there be investor meetings (AGM etc)?
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Yes, we will hold quarterly Limited Partner meetings that coincide with the quarterly reports. In addition, an AGM will be held annually to present the annual accounts.

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How much of a say do I have in the decision of what to invest in?
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The General Partner’s role (TNEL) is to find and review opportunities and then to make recommendations. The GP will then also undertake any negotiations as part the transaction process. We will consult with Limited Partners in each syndicate at the point of recommendation but the final decision to invest or not will rest with the GP.

 

Will there be annual/regular dividends?
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The investments will initially be in growth phase and you should not expect monthly or annual dividends. As the investments mature they may pay dividends and these may be distributed to partners depending on the situation of the fund at the time. As soon as there is a liquidity event we will return your share of that investment as and when the settlement proceeds are made available to the Limited Partnership.

 

How do I get out?
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The Limited Partnership agreement outlines the opportunity for you to exit a Limited Partnership in the event you wish to do so prior to the sale of the last investment business. Normal pre-emptive rights provisions exist to enable you to seek to sell your shares to an existing or new partner. The General Partner provides no guarantee that we will be able to sell your shares in the event of an early exit requirement.

 

Can I transfer/sell my shares/investment to someone else?
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Yes, either inside the group or to a third party. In both cases you will need to follow the pre-emptive rights provisions in the Limited Partnership Agreement.

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