An LP election is the formal process by which existing limited partners in a fund choose how to handle their interest when a continuation vehicle transaction occurs. Each LP receives a defined window to decide whether to sell for cash, roll into the new vehicle, or, in some cases, do a combination of both.
Why It Matters
The election mechanism is what distinguishes a continuation vehicle from a forced restructuring. LPs are not required to accept a single outcome. Instead, they receive disclosure materials, a valuation basis, and a deadline by which to make an informed decision. This structure preserves LP agency at a point in the fund's life where the GP is fundamentally changing the investment arrangement.
Key Details
- Sell (cash out): The LP sells its interest and receives cash funded by the secondary buyer's capital commitment.
- Roll (continue): The LP transfers its interest into the new vehicle and maintains exposure to the underlying assets under new terms.
- Partial election: Some transactions allow LPs to sell a portion of their interest and roll the remainder.
- The election period is a defined window, typically 30 to 45 days, during which LPs receive detailed disclosure materials including the proposed transfer price, new vehicle terms, and any fairness opinion.
- LPs who do not respond by the deadline are treated according to the default provision in the fund's governing documents, which typically defaults to the cash-out option.
- Tax consequences differ depending on the election. A cash-out is a taxable disposition. A rollover may qualify for deferral, depending on the structure.
For a full overview, see the Continuation Vehicles guide.
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. Capital Company is not a law firm and does not provide legal advice.