A key person provision is an LPA term that requires specified individuals, typically the lead GP or founding partners, to devote a minimum amount of time to the fund. If a key person departs or reduces their involvement below the threshold, the provision triggers a suspension of the investment period and may give LPs the right to wind down the fund.
Why It Matters
Key person provisions protect LPs from a fund continuing to invest after the people they trusted to manage their money have left. LPs commit capital based on the track record of specific individuals, not the firm name alone. For the GP, triggering a key person event can end the fund's ability to make new investments and derail future fundraising.
Key Details
- The provision names specific individuals, usually one to three principals whose involvement the LPs consider material to the fund's investment thesis.
- A time commitment threshold is specified, commonly 50 to 75 percent of business time. Falling below this threshold counts as a triggering event even if the person has not left the firm.
- When triggered, the investment period is suspended. The fund can continue to manage existing portfolio companies but cannot make new investments until the issue is resolved.
- LPs typically vote on whether to resume the investment period, appoint a replacement, or begin winding down the fund. The required vote threshold varies by LPA but is often a majority or supermajority of LP interests.
- Some LPAs include a cure period, for example 180 days, during which the GP can propose a replacement key person for LP approval before the suspension becomes permanent.
For more on LPA governance terms, see Private Fund Documents.
Capital Company handles key person tracking and LP notification workflows as part of fund administration.
This content is for informational purposes only and does not constitute legal, tax, or compliance advice. Consult qualified counsel for guidance specific to your situation.