This is Part 2 of Luxembourg Fund Formation, Translated: A Guide for Non-EU Fund Sponsors. Start here.

If you run a Delaware limited partnership or a Cayman exempted limited partnership, the Luxembourg equivalent will feel familiar for about eighty per cent of the document. This piece is about the other twenty per cent, being the provisions your counsel will draft out of habit that do not work here, and the ones that quietly matter more than they look.

This guide is written from the US perspective, because that is the most common case. If you are in London, Singapore, Dubai, Hong Kong, Toronto or São Paulo, the analysis is the same, as your starting point is usually a Cayman vehicle.

The short answer: the Luxembourg special limited partnership (SCSp) is a close functional cousin of the Delaware LP and the Cayman ELP. Economics, waterfall, capital calls and governance carry across almost unchanged. What does not carry across is the governing law, the enforceability of certain default and fiduciary provisions, and some other nuances. And those differences are not cosmetic.

The legal form

The SCSp was introduced in 2013 as a legal form deliberately designed to give sponsors familiar with Anglo-American partnerships something they would recognise. Placed beside the structures you already use:

• General partner and limited partners. Same split. The general partner (associé commandité) has unlimited joint and several liability; limited partners (associés commanditaires) are liable only up to their commitment, provided they do not carry out acts of management towards third parties.

• No minimum capital. Commitments and drawdowns work as you would expect.

• A partnership agreement that governs almost everything. Luxembourg law imposes very few mandatory provisions on an SCSp. Contractual freedom is genuinely broad, so it is closer to Delaware than most people arriving from a civil law assumption expect.

• English language. The partnership agreement can be drafted and executed in English.

• Formation by private deed. No notary is required. The agreement is not filed; only an extract goes on the trade and companies register.

• Limited partners are not named publicly. The register shows the general partner, the name, the purpose, the registered office and the managers. Investor identities and their commitments stay out of the public record.

• No legal personality. Unlike a Delaware limited partnership, an SCSp has no separate legal personality. Cayman exempted limited partnerships share this feature, although the legal consequences and mechanics differ. This distinction is discussed below.

• Compartments. The SCSp legal form allows considerable flexibility in structuring separate pools of assets. Statutory compartments, ring-fenced by law, are already available where the SCSp is used under any of Luxembourg’s fund product laws, including the RAIF (see Part 3: Regulated or not. Choosing a fund regime). The unregulated SCSp is next: government bill n° 8814, tabled on 30 July 2026, would extend statutory compartments to unregulated SCSps managed by an authorised EU AIFM. Adoption is expected by the market in the near term, and structures are already being set up with it in mind.

In Cayman or Delaware terms: the idea is the segregated portfolio company (SPC), or a Delaware series: one vehicle, several walled-off pools, each with its own assets and liabilities and no recourse between them. Luxembourg does it inside a single fund with one manager.

What carries across

More than sponsors expect. Commitment and drawdown mechanics, the distribution waterfall, carried interest and its escrow, management fee provisions, advisory committee arrangements (subject to the acts-of-management point above), key person and removal provisions (including removal of the general partner, provided the agreement sets out how the partnership continues and who replaces it), transfer restrictions, excuse and exclusion rights, and side letters can generally be carried across, with adaptation where Luxembourg law or the SCSp structure requires it. A well-drafted Delaware or Cayman agreement is a serviceable starting draft.

That is the reason the parallel fund model works at all. You are not building a different fund. You are building the same fund under a different law.

What does not carry across

Five items, in the order they tend to cause trouble.

The governing law is not negotiable. The partnership agreement of a Luxembourg SCSp is governed by Luxembourg law. You cannot select New York law for the fund document the way you might for a credit agreement. Related contracts can and often do sit under other laws, but the constitutional document of the partnership does not.

In Cayman or Delaware terms: this is the first instinct to abandon. Choice of law is a negotiating point in almost everything else you sign. Here it is not on the table.

There is no legal personality, and the signing block reflects that. Unlike a Delaware LP, the SCSp is not a separate legal person distinct from its partners. In practice, it operates through its manager (often the general partner itself), who represents it and contracts on its behalf, and Luxembourg law provides for a distinct pool of partnership assets. The practical consequences show up in execution formalities, counterparty onboarding, and how your counsel drafts representations about the fund’s existence and capacity.

Fiduciary duties cannot be waived to the same extent. Delaware law permits a partnership agreement to expand, restrict or eliminate fiduciary duties almost entirely, subject only to the implied covenant of good faith and fair dealing. US-drafted agreements make full use of that latitude. Luxembourg does not offer the same freedom: contracts must be performed in good faith, liability for fraud and gross negligence cannot be excluded, and where the fund has an authorised manager, the manager’s duty to act in the best interests of the fund and its investors is set by regulation rather than by the agreement.

In Cayman or Delaware terms: the waiver architecture you rely on is a Delaware statutory gift. It is not a general feature of Luxembourg partnership law, and it does not exist here in the same form.

Punitive default remedies may be read down. Partnership agreements typically impose severe consequences on a defaulting investor: forfeiture of a substantial share of the capital account, forced transfer at a discount, loss of future participation. Under Luxembourg law, a provision of that kind can be characterised as a penalty clause, and a court has the power to reduce a penalty that is manifestly excessive. A remedy your investors accepted without comment in Delaware may be softer than it appears here. The power to reduce cannot be excluded by contract, but how the remedy is framed affects whether it applies at all.

Interest on defaulted commitments compounds differently. Luxembourg restricts the compounding of interest, and a default interest provision drafted on Anglo-American assumptions may be partly unenforceable. This is not a theoretical point: it affects real money in a real default, and it is fixable if addressed at drafting rather than at enforcement. We have written about the constraint in detail: see Compound Interest in Luxembourg: Article 1154 for Lenders.

In Practice: the pattern we see is not that foreign counsel gets Luxembourg wrong. It is that they get Luxembourg law right and the drafting instinct wrong, reaching for a provision that is standard, robust and heavily negotiated at home, and that here needs to achieve the same commercial result by a different route.

If you intend to run a subscription line

Most sponsors do, and it belongs here rather than at the financing stage, because what a lender can lend against is largely fixed by decisions taken in the document this article is about.

The borrowing powers have to be in the agreement. Lenders read the partnership agreement for express authority to borrow, to grant security over uncalled commitments, for the general partner to call capital in order to repay, and for the lender to call capital itself on enforcement. Retrofitting that language means returning to your investors, usually at the moment you least want to ask them for something.

The security is over the call right, not the portfolio. A Luxembourg facility is typically secured on the right to call capital and on the account the calls are paid into. Luxembourg’s financial collateral regime is particularly accommodating here, and it is one of the quieter reasons these structures finance well, but the mechanics assume fund documents drafted with them in mind.

Your side letters shrink the borrowing base. Excuse rights, transfer rights, sovereign immunity, confidentiality carve-outs and most-favoured-nation clauses can cause a lender to discount an investor, or exclude them from the base entirely. Concessions granted in what you thought was a governance negotiation turn out to carry a financing cost, and it is almost never priced at the time.

And if you have two funds. Whether the parallel vehicles borrow jointly, severally or separately, and whether either can be called on for the other’s debt, is a formation decision rather than a financing one.

The facilities themselves are a subject of their own, and we will deal with them separately in our future articles.

The question your tax counsel will ask first

This guide does not give tax advice, but you should recognise these questions before your tax counsel raises them.

Transparency. The SCSp is treated as tax transparent in Luxembourg. The SCSp itself is subject to neither net wealth tax nor Luxembourg corporate income tax, and distributions are not subject to Luxembourg withholding tax. Income is looked through to the partners.

The commerciality trap. Transparency is not automatic in every respect. An SCSp can be treated as carrying on a commercial activity (and so become subject to municipal business tax) depending on its activity and on the general partner’s participation in the partnership. Structuring around this is routine, but it has to be done deliberately at formation rather than discovered later.

Two further points are worth raising early. Luxembourg partnerships are generally not entitled to Luxembourg’s double tax treaties, so treaty access, where it matters, is usually addressed at the level of holding vehicles below the fund rather than at the fund itself. And where each investor sits in the structure is driven by their tax position rather than yours, a question for your counsel and theirs, settled at formation, because moving an investor afterwards is considerably harder than placing them correctly at the start.

Running two agreements side by side

The parallel structure means two partnership agreements that must stay commercially aligned without being identical. Eight areas cause almost all of the friction:

• Allocation between the funds: how investments are split, and what happens when one side cannot participate

• Timing: investing and divesting at the same time, in practice as well as on paper

• Co-investment: how opportunities are offered across both investor bases

• Term and extensions: divergence here compounds over the life of the fund

• Key person provisions: whether a trigger in one fund triggers the other

• Governance: one advisory committee or two, and how they interact

• Capital calls and default: consistent mechanics despite differing enforceability

• Voting: whether investors across both vehicles aggregate for consent thresholds

Get these wrong and you spend the life of the fund managing an asymmetry you created at formation.

The Bottom Line: the SCSp was built to be recognisable to sponsors coming from Delaware and Cayman, and it succeeds. The risk is not that the structure is alien, but that it is familiar enough to be treated as identical. The provisions that fail are the ones nobody thought to check, because they had never failed before.

Common questions

Can I just use my existing LPA?

As a starting draft, largely yes. As an executed document, no. Expect a targeted redraft rather than a rebuild.

Can the Luxembourg agreement be governed by New York or English law?

No. The partnership agreement of a Luxembourg SCSp is governed by Luxembourg law.

Do my investors appear on a public register?

Limited partners are not named in the register extract. Beneficial ownership reporting is a separate question.

Is the SCSp regulated?

Not in itself. Regulation attaches through the manager, and through the vehicle you choose. See Part 3: Regulated or not. Choosing a fund regime and Part 4: The manager question: build, rent, or stay small.

How long does it take to form?

Formation itself is relatively fast. The timeline is driven by the manager, the service providers and your own readiness: see Part 7: What it costs, and how long it really takes.

Next in this series – Part 3: Regulated or not. Choosing a fund regime.

Last updated 19 October 2026.

Disclaimer: Library articles are provided for general information purposes only and do not constitute legal advice. Accessing or relying on them does not create a lawyer-client relationship. Readers should seek advice on their specific circumstances before acting.