Investor-Facing Documentation

For private equity funds formed as limited partnerships, the key legal document is the limited partnership agreement (LPA) which sets out in detail the legally binding relations between the investors (as limited partners in the partnership) and the general partner (representing the fund manager).

The partners are free to agree whatever commercial terms they choose to be in the LPA, save that a limited partner may not take part in the management of the limited partnership; if it does, it will lose its limited liability status.

The LPA sets out the rights and obligations of the partners and seeks to cover every aspect of the formation, operation and termination of the partnership, from the key commercial issues (e.g., investment policy, profit sharing, fees and expenses, etc.) to the detailed constitutional and administrative issues (e.g., when the manager can launch a new fund, reports and accounts, provision of information, etc.).

This sets out the relations between the partners including formation, termination, profit allocation, fees and all other commercial and administrative issues.

A tax lawyer will usually be asked to review the tax sections of the PFLPA, but it is important to read the entire document to ensure that all tax issues have been considered.

The other key PFLP document is the Private Placement Memorandum (PPM) (on behalf of the sponsor or an investor). The PPM is the main marketing document used by a private equity fund when seeking out investors. The content of a PPM is largely governed by regulatory law.

For a tax lawyer, the PPM is a useful source of information as it will generally contain details about the fund’s investment strategy and structure. When acting for a potential investor, the PPM may be the easiest place to find out the information necessary to review the tax risks associated with making an investment.