A guide to the limited partnership agreement (LPA)

Author: The Carta Team
Read time: 14 minutes
Published date: 25 June 2026

Learn what an LPA is, including the key economic and governance provisions, and how LPA terms connect to real fund operations.

Contents

• What is a limited partnership agreement?
• Why are limited partnership agreements important?
• What are the key economic terms in an LPA?
• What governance provisions does an LPA include?
• What LP rights are included in an LPA?
• Why the LPA matters for fund operations
• Frequently asked questions about limited partnership agreements

What is a limited partnership agreement?

An LPA is the legally binding contract between the general partner (GP) and the limited partners (LP) that governs how a fund operates—from the economic relationship between the GP and LPs to the governance rules that protect both sides. The LPA is foundational for any fund.

The LPA covers three broad categories of terms: economic provisions, governance provisions, and operational terms.

Why are limited partnership agreements important?

The LPA protects both sides of the relationship by defining expectations upfront. For GPs, it provides the legal authority to manage the fund. For LPs, it offers transparency into how their capital will be managed.

LPA terms also play a significant role during fundraising, suggesting market-standard terms can build LP confidence.

What are the key economic terms in an LPA?

Management fees

The management fee compensates the GP for running the fund and typically amounts to 2% of the total commitments during the investment period. After this period ends, the fee often reduces.

Carried interest and distributions

Carried interest is the GP's share of profits, commonly set at 20%. The distribution of profits depends on the distribution waterfall structure defined in the LPA.

Capital calls

Capital calls are requests from the GP to LPs to transfer portions of their commitments over time. The notice period for capital calls is usually at least 10 business days.

Fund term

The fund term is the total lifespan of the partnership, typically lasting eight to ten years with possible extensions.

Fundraising and investment periods

These periods define when the GP can admit investors and when capital can be deployed into new investments.

Recycling

Funds can recycle capital from portfolio company exits for reinvestment rather than distributing it to investors.

What governance provisions does an LPA include?

GP clawback

This provision requires the GP to return excess carried interest upon final liquidation of the fund.

Key person provisions

These identify essential individuals at the GP whose involvement is crucial for the fund's strategy. If a key person event occurs, the investment period typically gets suspended.

Indemnification

The LPA indemnifies covered individuals unless liability arises from gross negligence or misconduct.

What LP rights are included in an LPA?

Co-investments

Many funds offer co-investment rights to LPs to incentivize larger investments.

Limited partner advisory committee

The LP advisory committee (LPAC) addresses conflicts of interest and provides oversight.

Side letters

Side letters modify LPA terms for specific LPs, often including fee discounts or enhanced reporting.

GP removal

LPs usually can remove the GP for cause with a significant majority.

Conflicts of interest

The LPA should address potential conflicts through disclosures or LPAC approvals.

Additional LP rights

LPs have rights to regular financial reporting, transfer restrictions, and specific dissolution rights.

Why the LPA matters for fund operations

The LPA governs nearly every operational decision throughout the fund's life, ensuring transparency and reducing conflicts. A well-structured LPA had significant operational importance during capital calls, distributions, and reporting obligations.

Frequently asked questions about limited partnership agreements

What is the purpose of a limited partnership agreement?

An LPA defines the rights, obligations, and economic terms between the GP and LPs, governing fund operations.

Can limited partnership agreement terms be negotiated?

Yes, terms can be negotiated during fundraising.

What happens if a limited partner defaults on a capital call?

The LPA outlines default provisions typically involving significant penalties.

Who drafts the limited partnership agreement?

The fund's legal counsel drafts it in collaboration with the GP.

Can an LPA be amended?

Yes, amendments typically require supermajority approval from LPs or the LPAC.