Limited Partnership Agreement for a Private Equity Fund

Summary

This Limited Partnership Agreement for a Private Equity Fund (LPA) (or in some instances a limited liability company agreement) is the primary legal document when drafting a private equity fund. It is a legally binding agreement, signed by both investors and the sponsor. This template contains practical guidance, optional clauses, and drafting notes. Private equity fund formation requires the drafting of a number of documents ranging from marketing documents to service provider agreements. The formation document, which is an agreement between the general partner and the limited partners, is the LPA. The LPA and certificate of limited partnership (which is filed with the state in which the fund will be domiciled), are the governing documents that set out the terms under which the fund will operate as agreed upon by the general partner and the limited partners. State statutes provide default provisions where an LPA is otherwise silent. An LPA that sets out the intentions of the parties to the fullest extent possible will better ensure that state law does not displace the parties' expected outcomes. The LPA typically has sections addressing the following: • General provisions. Basic housekeeping about matters such as formation, purpose, and registered address. • Management. Describing how the limited partnership is managed, including calculation and payment of the management fee. The standard arrangement is that the general partner is responsible for all management decisions, while the limited partners are purely passive investors. • Closings. Details the procedure for conducting a fund closing, as well as any true-up and interest payments required from investors admitted at subsequent closings. • Capital calls. Describes the procedure for calling capital from investors. • Investment limitations. Outlines the restrictions on investments made by the fund, and commonly addresses portfolio concentration, geographic, and industry limitations. • Distributions. The major focus of the distribution provisions is the distribution waterfall, which details the priority of distributions, including the 20% carried interest payable to the general partner. • Reporting. Addresses the annual audited report, interim unaudited reports, and tax reporting. • Exculpation and indemnification. Provides broad exculpation and indemnification to management and related persons. • Duration and dissolution. As a fund, the partnership's duration will be limited. This provision details any permitted extensions to the fund's term and the consents required for such extensions. If the partnership dissolves and liquidates, this section governs that process. • Transfers. As there generally is no liquidity in funds, investors may make transfer requests from time to time that the general partner may seek to accommodate. • Miscellaneous. Provisions regarding certain administrative and other matters, including the amendment process. For detailed guidance on drafting the LPA, see the practice note, Limited Partnership Agreement Drafting for a Private Equity Fund. For a full listing of related first year associate investment management content, see First Year Associate Resource Kit: Investment Management. For a full listing of related private equity fund formation content, see Private Equity Fund Formation Resource Kit. Where applicable, this template also incorporates certain changes in SEC oversight and enforcement of private funds activities and certain prescriptive substantive requirements for the operation of private funds adopted in August 2023 in new rules and amendments under the Investment Advisers Act of 1940 (New Adviser Rules). For more information on the final rule, please see SEC Adopts Significant New Rules Impacting Private Fund Advisers: Client Alert Digest.