Knowledge
A guide to the entity layers in a typical private equity structure — what each one is, why it exists, and how instruments flow through the chain.
Most European PE funds use a Luxembourg-anchored structure. The fund vehicle raises capital from limited partners and deploys it downward through a series of holding entities before reaching the operating business. A typical chain looks like this:
The exact number of layers varies by deal. Some structures omit MasterCo where a single fund is the sole investor; others insert additional HoldCo tiers for tax or financing purposes. The chain above represents the most common pattern used by mid-market European PE funds.
Each entity in the chain serves a specific structural, tax, or regulatory purpose. The table below summarises the primary role of each layer.
| Entity | Jurisdiction | Purpose |
|---|---|---|
| Fund (SCSp) | Luxembourg | Capital pooling vehicle. The SCSp (Spéciale en Commandite Simple) is the primary fund entity — it holds LP commitments and is managed by the GP. Tax-transparent for most LP jurisdictions. |
| MasterCo (Sarl) | Luxembourg | Tax-efficient intermediate holding company. Consolidates the fund's investments across multiple portfolio companies, and may be the borrower of fund-level financing facilities. |
| LuxCo (Sarl) | Luxembourg | Per-deal special purpose vehicle. One LuxCo is typically created per portfolio company acquisition, isolating deal-level debt and equity from the broader fund structure. |
| TopCo | Target jurisdiction (e.g. England & Wales, Norway) | Acquisition vehicle incorporated in the target company's jurisdiction. Often the entity in which management and co-investors hold their equity alongside the fund. |
| HoldCo | Target jurisdiction | Intermediate holding company, frequently used to hold senior bank debt, provide security to lenders, or create a ringfence around the trading group. |
| OpCo | Target jurisdiction | The trading entity — the business that was actually acquired. All commercial activity, employees and operating assets sit here. |
Larger deals often include co-investors: LPs or third parties who invest alongside the fund in a specific portfolio company rather than through the main fund vehicle. Co-investment is typically structured through a dedicated co-invest entity — usually another Sarl or limited partnership formed for the specific deal.
The co-invest vehicle sits parallel to the main fund chain, typically investing at the LuxCo level or directly into TopCo. This means the fund and the co-investor both hold shares in the same entity, with their respective ownership percentages recorded in the cap table at that level. Co-invest structures need careful cap table treatment: the fund's effective ownership of OpCo is diluted by the co-invest stake at the point it enters the chain, and that dilution must be carried through every level below.
Instruments are issued at each level of the structure, not just at OpCo. A typical deal will have ordinary shares, preference shares, and shareholder loans (SHLs) at multiple tiers simultaneously. The economic logic is that each entity needs its own capitalisation to fund the investment below it.
Equity flows downward: the fund subscribes for shares in MasterCo, MasterCo subscribes for shares in LuxCo, and so on to OpCo. Shareholder loans follow the same path — the fund may advance an SHL to MasterCo, which on-lends to LuxCo on broadly similar terms, which on-lends again to TopCo. Each inter-company loan is a distinct instrument with its own rate, day-count basis, and compounding frequency, even where the terms are designed to mirror the layer above.
Each level has its own instrument terms. A 12% PIK SHL at the Fund → MasterCo level will typically be on-lent at a slightly different rate — for example 10.8% — at the MasterCo → LuxCo level. The spread reflects transfer pricing adjustments, local withholding tax positions, or headroom in the interest coverage covenant at the operating company. Fund administrators must track each instrument separately rather than assuming the same rate applies throughout the chain.
Preference shares work similarly: they may be issued by TopCo to LuxCo, with a defined coupon that accrues quarterly. Because prefs rank ahead of ordinary equity in any exit waterfall, their accrued value at each level directly affects what flows to ordinary shareholders. Accurate, up-to-date accrued interest figures are therefore critical to any meaningful valuation or waterfall modelling.
Management investment plans (MIPs) give the portfolio company's management team an equity stake in the business alongside the fund. Rather than issuing shares directly to individual managers, most structures use a nominee or special purpose vehicle to hold management's collective interest. This keeps the TopCo cap table clean — one nominee line rather than a long list of individual shareholders — and simplifies the transfer of shares when managers join or leave.
The nominee holds ordinary shares (or a separate class of sweet equity shares) in TopCo on behalf of the management team. Underlying beneficial interests are documented separately in a management shareholders' agreement. For cap table purposes, the nominee appears as a single investor at the TopCo level, with its ownership percentage determined by the size of the management equity pool agreed at the time of acquisition.
Some structures also use a separate MIP co-invest vehicle — a limited partnership or Sarl — that sits in parallel with the fund at the LuxCo or TopCo level, particularly where management are co-investing meaningful personal capital rather than receiving carried-style sweet equity.
CapTab tracks every entity, instrument and ownership percentage across the full hierarchy — from Fund to OpCo — in a single transaction register.