To qualify for the franchise and excise tax venture capital fund exemption, the venture capital fund must be a limited liability company, limited liability partnership, limited partnership, or business trust, that is formed and operated for the exclusive purpose of buying, holding, and/or selling securities (including debt securities) primarily in non-publicly traded companies; however, the venture capital fund cannot be a broker of securities. In addition, the venture capital fund must primarily derive its capital from investments by individuals or entities that are not affiliated with the fund, or investments by affiliates that also qualify for the venture capital fund exemption.
For the purpose of determining whether a venture capital fund meets the exemption requirement of buying, holding, and/or selling securities primarily in non-publicly traded companies, the venture capital fund should compare the historical cost (the original cost to acquire the asset) of the securities held in non-publicly traded companies to the historical cost of all securities held by the venture capital fund, as of the end of the tax year to which the exemption will apply. The venture capital fund will meet this exemption requirement if over 50% of the total historical cost of its securities is comprised of securities held in non-publicly traded companies.
Reference: Tenn. Code Ann. § 67-4-2008(a)(5).
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