Changes to a fund’s terms after the initial closing may require modifications to the Limited Partnership Agreement (LPA). These changes often involve substantial shifts in how the fund operates, such as extending the investment period, altering fee structures, or modifying other key terms. To make such changes, fund managers must follow specific legal processes and seek consent from the Limited Partners (LPs).
What is an LPA amendment and when is it needed?
An LPA amendment is a formal change to the terms outlined in the Limited Partnership Agreement (LPA), which governs the relationship between the Fund Lead and the Limited Partners (LPs). Amendments are necessary when the Fund Lead needs to modify the fund’s structure, strategy, or other operational aspects that deviate from the original agreement. Common reasons for amending the LPA include:
- Extending the investment period: If the fund requires more time to deploy capital.
- Adjusting the fee structure: Changes to management fees or carried interest.
- Changing the investment thesis: Shifting the fund’s focus or strategy, such as altering the types of companies or sectors the fund targets.
The LPA amendment process
- Drafting the amendment: The Fund Lead works with their legal counsel to draft the proposed amendment. This document clearly outlines the changes and how they impact the existing terms of the LPA.
- Running an LP consent campaign: Depending on the type of change, the Fund Lead may need to seek consent from the LPs once the amendment is drafted. AngelList will handle the LP consent campaign on behalf of the Fund Lead. The process involves sending out notifications to LPs requesting their approval for the proposed amendment.
- Consent mechanism: LPs are asked to approve the amendment either by affirmative consent (they must actively agree to the change) or negative consent (if no LP objects within a specified period, the amendment proceeds).
- Majority consent: In most cases, a majority of LPs must consent to the amendment for it to become effective. For some changes, 100% LP consent may be required. We recommend discussing with your counsel the exact consent required for the amendment.
- Finalizing the amendment: After receiving consent from LPs, our legal team will review the proposed changes. If everything is in order, the final amendment is executed. The signed amendment is then uploaded to the closing documents.
- LP notification: Once the amendment is finalized, AngelList or the Fund Lead is required to send a formal notice to all LPs. This ensures transparency and keeps LPs informed of any changes to the fund’s terms.