LPA (Limited Partnership Agreement)

The limited partnership agreement (LPA) is the master governing document of a private fund organised as a limited partnership, setting out the rights, obligations, and economics of the general partner and all limited partners. Every material aspect of fund operations, from capital calls to distribution waterfalls to GP removal rights, is defined by the LPA.

How it works

The LPA is executed at the fund's first close and governs the fund for its entire life, typically ten to twelve years including extension periods. It is negotiated between the GP and its counsel and prospective anchor LPs, and is typically not amended once the fund begins operations (changes require LP consent, usually a supermajority). The final form of the LPA is binding on all LPs admitted at any closing, including those who join at subsequent closes after the document has been finalised.

The LPA covers economics, governance, and operations. On economics, it defines: management fees (rate, base, step-down, offsets); carried interest rate; preferred return or hurdle rate; GP catch-up provisions; distribution waterfall structure (European or American); clawback provisions; and GP commitment size. On governance, it defines: LP advisory committee composition and powers; key person provisions (restrictions triggered if named investment professionals leave); GP removal rights (for cause and, in LP-friendly structures, for no cause with supermajority LP vote); fund extension conditions; and transfer restrictions for both LP and GP interests.

On operations, the LPA defines: the investment period (duration, conditions for termination); permitted investments and investment restrictions; recycling provisions and recallable distribution mechanics; capital call procedures, including notice periods, permitted purposes, and default consequences; distribution procedures, including timing, currency, and the treatment of in-specie distributions; subscription line borrowing limits; reporting obligations (frequency, content, delivery method); audit requirements; and fund dissolution procedures.

Fund administrators rely on the LPA as the primary reference document for all operational decisions. Capital call calculations, distribution waterfall calculations, management fee calculations, recycling determinations, equalisation calculations at subsequent closes, and clawback tracking all flow directly from LPA provisions. Administrators maintain a LPA summary (or term sheet) for each fund that extracts the operationally critical provisions and makes them accessible to the team without requiring reference to the full document for each transaction.

Worked example

Marlow Partners Fund III is a EUR 450M Luxembourg SCSp RAIF. Its LPA includes the following operationally critical provisions (illustrative extract):

Investment period: five years from first close (terminable early by two-thirds LP vote). Management fee: 1.875% of committed capital during investment period; 1.25% of invested capital (cost) thereafter; 100% offset against management fees received from portfolio companies. Preferred return: 8% per annum, compounded annually. GP catch-up: 100% to GP until GP holds 20% of aggregate profits. Carried interest: 20% (subject to catch-up). Clawback: GP principals jointly and severally liable for excess carry on whole-fund basis; 25% of each carry distribution held in escrow until investment period end. Capital call notice period: 12 business days; default rate: EURIBOR + 5%. Subscription line: maximum 15% of commitments; maximum duration 18 months. Recycling: proceeds of realisations during the investment period are recallable up to the original cost of the investment realised. Reporting: quarterly capital account statements; annual audited accounts within 90 days of year-end; quarterly NAV and portfolio updates.

The fund administrator extracts these provisions into a fund operating manual, used as the reference for all capital call, distribution, and reporting processes. Any ambiguity in LPA interpretation is escalated to the GP's counsel for written clarification, which is retained in the fund's legal file.

Frequently asked questions

What is the difference between an LPA and a PPM or offering memorandum? The LPA is the governing legal contract between the GP and LPs. The private placement memorandum (PPM) or offering memorandum is the marketing and disclosure document provided to prospective investors before they commit, describing the fund's strategy, team, terms, risks, and regulatory information. Prospective LPs receive the PPM before signing; they execute the subscription agreement and become bound by the LPA on admission. The LPA governs; the PPM describes.

Can the LPA be amended after the fund closes? LPA amendments are possible but require LP consent, typically a two-thirds or three-quarters supermajority of LP interests. Amendments in the early life of a fund (before final close) are more common and may be made without LP consent for technical or clarifying changes that do not adversely affect LP economics. Material changes to economics or governance require formal consent. GPs rarely seek LPA amendments outside of genuinely exceptional circumstances because the consent process is operationally complex and signals fund governance problems to LPs.

What is an LPAC (LP Advisory Committee)? An LPAC is a committee of LP representatives established under the LPA with defined powers. Common LPAC powers include: approval of conflicts of interest (such as related-party transactions or investments by the GP in portfolio companies); review of valuations where there is an absence of observable market data; approval of extensions to the investment period; and, in some funds, approval of the fund's annual budget. The LPAC is a governance oversight body, not an investment committee; it does not approve individual investments.

How do side letters interact with the LPA? Side letters are bilateral agreements between the GP and individual LPs that modify or supplement LPA terms for that LP specifically. The LPA governs the fund as a whole; side letters create LP-specific carve-outs or additions. Where a side letter conflicts with the LPA, the LPA typically prevails unless the LPA specifically authorises the GP to grant side letter terms (as many modern LPAs do for fee modifications and enhanced reporting). See the Side letter entry for full mechanics.

What happens to the LPA at fund wind-down? The LPA includes provisions governing the fund's dissolution process: the order of final liquidation payments (which mirrors the distribution waterfall), the clawback calculation and settlement, the timing and process for releasing LP capital accounts, and the dissolution of the fund entity. The fund administrator manages the wind-down process in accordance with LPA provisions, producing final capital account statements, facilitating clawback settlements if required, and coordinating with legal counsel to formally dissolve the fund entity.

Related terms

Subscription agreement, Side letter, Commitment, Capital call, Distribution waterfall, Carried interest, Preferred return, Clawback, Management fee, Equalisation, Recallable distribution

Related pages

How fund administrators use the LPA as an operational reference document, Swelv for fund administrators