I don't think it needs to be overly complicated and I would guess a GP/LP could be executed well for much less. I've seen plenty of these arrangements for similar purposes but not specific to search funds.

With that said I'm curious what people have done for search funds in Canada and why. And with our changing tax/compliance landscape if that would change.

Hi Andrej, curious to know what answers you got after this post.

Did anyone address the tax implications at deal stage and for a future exit of the business? I'd think a US LLC could create tax challenges. Certainly ownership would be a factor.

Scott, this is a good question. I never got into the tax implications with who I've spoken to. What stands out from your perspective? My understanding of the deal mechanics and the tax implications is simplified as follows:

A Canadian searcher ("Searcher") sets up a search fund as a Delaware LLC (the "Searchco") to raise search capital, primarily from US investors.

In turn, Searchco locates a Canadian business ("Canadianco") to acquire. Searchco raises the necessary equity through its LLC, and then acquires the ownership in the Canadianco.

Canadianco then hires the Searcher as a salaried CEO, who is incentivized through a vested equity schedule.

After 5-7yrs, when Canadianco is exited, the Searcher cashes in their vested equity as capital gains, and is taxed accordingly in Canada (as they're likely a Canadian resident) while the investors in the Delaware LLC are taxed in their jurisdiction since US LLCs have flow through properties.

From my understanding, the Searcher never owns equity in the deal and has an equity option tied to their vesting schedule on exit.

Tagging a few more Searchfunders in Canada that might be able to contribute to this thread: ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌ (To our friends in Canada, THANK YOU for helping to make Searchfunder a collaborative community, Searchfunders in Canada now have UNLIMITED access to IBISWorld CANADA for free-if-you-post/comment. It’s normally $4k/year, so it’s a HUGE win. Please help us spread the word! https://www.searchfunder.com/ibisworld?country=124. With Best Wishes, ^[redacted]‌).

Speak with Facet Advisors in BC. They have a US CPA + CAN onboard. Very very good at inexpensive cross border compared to what the larger firms will run you. I'm moving everything over from MNP ATM.

We worked with Sean MacLachlan, Partner at Field Law. He's reasonable on fees, but does a very good job and is practical.

If it's a Canadian deal with Canadian investors, the GP / LP structure should work just fine. It doesn't need to be too complicated for a single search deal and should cost well below 6 figures

We worked with Frank Sur. Partner at Gowling. Very good on working out an affordable long-term solution. Happy to introduce you if you'd like.

There are a few structures that can be used. A GP or LP are the most obvious and can be done quite inexpensively, A correctly structured corporation is also an option. The challenge is not so much the structure but where your investors are. US investors will require a structure that minimizes their US tax which will require having US counsel in addition to Canadian counsel on an ongoing basis. Depending on the investor's needs entities in both the US and Canada could be needed. Duplication of legal and accounting costs for both jurisdictions will increase the Opex of any acquisition. It is not a straightforward answer but one relatively easily overcome. DM me if you want to discuss more.

This is a good question I'd like to see an answer on!

Here are some helpful notes on search fund's legal structure in Canada: https://www.mondaq.com/canada/private-equity-mbos[redacted]private-equity-search-funds-look-no-further. The Canadian search funds I've seen were all structured as GP + LP. Law firms in Canada have start-up programs that you could fall under as a search fund. These programs are relatively cheap (CAD $1500-$5000) and include structuring your entities + getting started for your first year.