Blocker Corporation

A Blocker Corporation is a corporate entity (typically a C-corporation organized in Delaware or an offshore jurisdiction) inserted between a venture fund and certain categories of investors to prevent unfavorable tax consequences from flowing through to those investors. For U.S. tax-exempt investors (endowments, foundations, pension funds, IRAs), a blocker prevents Unrelated Business Taxable Income (UBTI) from flowing through the partnership structure—without the blocker, these investors could face taxes on what should be tax-exempt investment returns. For non-U.S. investors, a blocker prevents the creation of U.S. tax filing obligations and potential withholding on Effectively Connected Income (ECI) under FIRPTA rules. The blocker corporation pays corporate-level tax on its share of fund income, but this is often preferable to the alternative tax consequences for the investors it serves. Blockers add cost and complexity (corporate formation, separate tax filings, potential double taxation) and are typically used only when the tax benefits outweigh these costs.