Key person clause
A rule that pauses new investing if named leaders stop working on the fund.
If the specified individuals leave or cut their time, the investment period is suspended and LPs vote on whether to continue. It ties the fund to the people LPs chose to back.
Key person clauses name the individuals, define the time commitment required, often substantially all of their business time, and set what happens if it is breached: an automatic suspension of new investments, a cure period to find a replacement, and an LP vote to resume or end the investment period.
For small teams, LPs often name every partner. GPs negotiate the wording carefully so a temporary absence, illness or a planned transition does not trigger a suspension that could disrupt the portfolio.
Worked example
A two-partner fund names both founders as key persons. If either stops devoting substantially all of their business time to the fund, new investments are suspended for up to 180 days. The GP can propose a replacement partner, and if LPs holding a majority of commitments approve, the investment period resumes.
Common questions about key person clause
What triggers a key person event?
Usually a named individual leaving, dying, becoming incapacitated or no longer devoting the agreed time to the fund. The LPA defines the exact trigger.
What happens after a key person event?
The investment period is normally suspended, so no new investments are made, while the GP proposes a solution. LPs then vote on whether to resume, and if they do not, the investment period may end.