Limited partnership agreement
The contract that sets out how the fund is run and how money flows between the GP and LPs.
The LPA covers fees, the investment period, distribution rules, removal rights, key person provisions, reporting and more. It is negotiated with larger LPs and is the document their lawyers review most closely.
Key LPA sections include the investment period and fund term, fees and expenses, the distribution waterfall, carried interest and clawback, investment restrictions, key person and removal provisions, transfer rules, reporting and LPAC powers. Most LPAs run to 80 pages or more.
LPA terms are negotiated mainly with larger LPs and their counsel, often in parallel with side letters. LP associations publish principles and model terms that institutional investors use as a reference, so departures from market practice draw comments and slow closings.
Worked example
An LPA for a $75M venture fund sets a 10 year term with two one-year extensions, a 5 year investment period, a 2 percent fee on commitments that steps down to 1.5 percent on invested capital, 20 percent carry over an 8 percent hurdle on a whole-fund basis, a key person clause naming both partners, and no-fault removal at a 75 percent vote.
Common questions about LPA
How long does it take to negotiate an LPA?
For a first-time fund with institutional LPs, legal negotiation often takes six to twelve weeks before the first close. Starting from market-standard terms and having experienced fund counsel shortens it.
What is the difference between an LPA and a side letter?
The LPA applies to every investor in the fund. A side letter is a separate agreement giving one LP additional rights or changes, such as reporting, fee discounts or regulatory protections.