Glossary - Limited Partner (LP)
A Limited Partner (LP) is an investor in a partnership who is not involved in the day-to-day management of the company and whose liability is limited to the amount of their investment in the partnership. LPs typically invest in venture capital funds, private equity funds, and real estate investment partnerships. They earn returns from their investments but do not have the same responsibilities or legal obligations as the General Partners (GPs) who manage the funds.
Also known as
- Silent Partner
Use cases examples
- Limited Partnership Agreement: The Limited Partner shall contribute $1,000,000 to the partnership and shall receive distributions as defined in the Limited Partnership Agreement without being actively involved in the management of the partnership.
- Private Placement Memorandum: Limited Partners will be admitted to the fund upon execution of the Subscription Agreement and will participate in the profits and losses of the fund in proportion to their contribution but will not take part in the active management of the fund.
Considerations for investors
- Evaluating the track record, management capabilities, and strategy of the General Partner managing the fund before committing as a Limited Partner.
- Understanding the fund's strategy, fee structure, and the specific terms of the partnership agreement to align expectations with potential returns.
Considerations for founders
- Determining if accepting investments from LPs aligns with the business goals and structure, considering the passive nature of such investments.
- Understanding the legal implications and regulatory requirements associated with having limited partners in your investment structure.
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