What Is A Limited Partnership Agreement (LPA)?

A Limited Partnership Agreement (LPA) is a legal document that outlines the terms, conditions, and responsibilities governing the relationship between the general partners and limited partners in a limited partnership, particularly in the context of venture capital (VC) or private equity funds.

Key Components of an LPA:

Roles and Responsibilities:
- General Partners (GPs): Manage the day-to-day operations of the fund, make investment decisions, and are responsible for the overall performance of the partnership.
- Limited Partners (LPs): Provide capital to the fund but have limited involvement in its management. Their liability is typically limited to the amount they invest.
Capital Contributions:
- Details the amount of capital each partner is required to contribute and the schedule for these contributions, known as capital calls.
Profit Distribution:
- Outlines how profits (and losses) will be distributed among the partners. This often includes the “waterfall” structure, which defines the order in which profits are shared, typically favoring the LPs until they recoup their investment and achieve a certain return, after which the GPs receive their share.
Management Fees:
- Specifies the fees paid to the general partners for managing the fund, usually a percentage of the committed capital.
Decision-Making Authority:
- Details the decision-making process and the rights of both GPs and LPs. It defines what decisions the GPs can make independently and which require LP approval.
Term of the Partnership:
- Defines the duration of the partnership, including any extensions or early termination conditions.
Transfer of Interests:
- Regulates the sale or transfer of partnership interests by the LPs, ensuring that any new partners are acceptable to the other members.
Exit Strategy:
- Outlines the procedures for liquidating the partnership and distributing the assets if the partnership is dissolved.
Penalties for Non-Compliance:
- Specifies the penalties for failing to meet capital calls or other obligations, which can include loss of partnership interest or other financial penalties.
Confidentiality and Reporting:
- Defines the reporting requirements to LPs, including the frequency and content of financial reports, and outlines confidentiality obligations regarding partnership activities.

The Limited Partnership Agreement (LPA) is a critical document in venture capital and private equity, as it governs the entire lifecycle of the fund and the relationship between the parties involved.

The Biggest Benefit Of A Limited Partnership Agreement (LPA)

A Limited Partnership Agreement (LPA) offers numerous advantages for business partners.

First and foremost, an LPA safeguards each partner’s rights and interests. It clearly defines the roles, responsibilities, and financial commitments of each party, and outlines the procedures for resolving disputes. This clarity helps prevent misunderstandings and conflicts.

Additionally, the LPA establishes a structured framework for decision-making, which can enhance cooperation and streamline operations within the partnership. There are consequences for limited partners who don't meet capital calls.

Finally, an LPA outlines the process for dissolving the partnership if necessary, minimizing potential conflicts and ensuring a smooth exit strategy when the business relationship comes to an end.

Invest In Private Growth Companies With Lower Fees

If you want to invest in venture capital, check out the Fundrise venture capital product, which invests in the following five sectors:

Artificial Intelligence & Machine Learning
Modern Data Infrastructure
Development Operations (DevOps)
Financial Technology (FinTech)
Real Estate & Property Technology (PropTech)

Roughly 65% of the venture product is invested in artificial intelligence, which is a big deal. In 20 years, I don't want my kids wondering why I didn't invest in AI or work in AI! I've invested $140,000 in the Fundrise venture product so far.

The investment minimum is also only $10. Most venture capital funds have a $250,000+ minimum. You can see what Fundrise is holding before deciding to invest and how much. Traditional venture capital funds require capital commitment first and then hope the general partners will find great investments.

Fundrise is a sponsor of Financial Samurai and Financial Samurai is an investor in Fundrise. I've invested $140,000 in the Fundrise venture product so far.

Flip