GP / LP Structure
The GP/LP structure lets a General Partner manage a fund while Limited Partners provide capital and share profits, with liability limited to their investment.
What Is the GP / LP Structure?
The GP/LP structure (General Partner / Limited Partner) is the standard legal and operational model for private equity, venture capital, and many institutional funds. In this arrangement, the General Partner (GP) manages the fund’s investments and operations, while Limited Partners (LPs) provide most of the capital and share in profits, but have no day-to-day control and limited liability.
How Does the GP / LP Structure Work?
General Partner (GP):
Responsible for sourcing deals, making investment decisions, and managing the fund.
Receives management fees and a share of profits (carried interest).
Typically invests a small portion of the fund’s capital for alignment.
Limited Partners (LPs):
Supply the majority of the capital.
Liability is limited to their committed investment.
Do not participate in daily management but receive profits per the partnership agreement.
Legal Framework:
The relationship is governed by a Limited Partnership Agreement (LPA), which sets out roles, fees, profit sharing, and rights.
Why Is the GP / LP Structure Important?
This structure aligns interests, as GPs are incentivized to perform through carried interest, while LPs benefit from professional management and limited risk. It also provides clear governance, operational efficiency, and is widely recognized by institutional investors.
Example: GP / LP Structure in Practice
A private equity fund raises $200 million from LPs. The GP manages investments, earns a management fee and carried interest, while LPs receive profits after fees and their capital is returned.
Key Considerations
LPs’ liability is capped at their investment.
GPs have operational control and fiduciary duty.
The structure is standard for alternative funds, offering transparency and investor protection.
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