Limited Partnership Agreement Template

In plain language: Establishes the partnership as a legal entity, states its full name, principal place of business, registered agent, and the jurisdiction of formation.

Common mistake: Using an unregistered trade name instead of the legally filed partnership name. If the name on the agreement doesn't match the state filing, third-party contracts and bank accounts become difficult to enforce.

In plain language: Lists every general and limited partner by legal name, designates their GP or LP status, and specifies each partner's initial capital contribution amount, form, and due date.

Common mistake: Describing contributions as 'services to be rendered' without assigning a dollar value. Unvalued service contributions create ambiguous capital accounts and complicate tax reporting on Schedule K-1.

In plain language: States the duration of the partnership — either a fixed end date or an indefinite term — and the conditions under which the term may be extended.

Common mistake: Omitting a term provision entirely in open-ended investment partnerships. Without a defined term or extension mechanism, disagreements about when to exit underlying assets have no contractual resolution path.

In plain language: Specifies how net profits and losses are allocated among partners for both accounting and tax purposes — typically pro rata to capital account balances or by a defined waterfall.

Common mistake: Using identical allocation percentages for profits and losses without considering the tax consequences. Allocating 100% of early losses to LPs for tax deductions while reversing that allocation on profits triggers IRS substantial economic effect scrutiny.

In plain language: Sets the priority order for distributing cash: return of capital to LPs, preferred return to LPs, catch-up to GP, then carried interest split.

Common mistake: Drafting a catch-up clause that inadvertently awards the GP more than their stated carry percentage. Model the waterfall mathematically before finalizing — errors here are the most common source of partner disputes in fund structures.

In plain language: Grants the general partner exclusive authority to manage partnership operations and lists specific actions that require LP consent or a supermajority vote.

Common mistake: Granting the GP unlimited authority with no major-decision consent rights for LPs. Courts in many jurisdictions will still protect LPs from GP self-dealing, but contractual consent rights are faster and cheaper to enforce than litigation.

In plain language: Prohibits partners from transferring their interest without GP approval and grants existing partners a right of first refusal before any interest is sold to a third party.

Common mistake: Omitting a right-of-first-refusal period. Without a defined response window — typically 30 days — the clause is unworkable and a partner can claim the offer was constructively refused.

In plain language: Defines the process for admitting additional limited partners after formation, including consent requirements, minimum investment, and capital account treatment.

Common mistake: Allowing the GP to admit new partners unilaterally without LP consent. Diluting existing LP interests without their approval exposes the GP to breach-of-fiduciary-duty claims.

In plain language: Lists the triggering events for dissolution, names the liquidating trustee, and sets the order in which assets are distributed on wind-up — creditors first, then partners per the waterfall.

Common mistake: Not specifying what happens if the GP is the only partner triggering dissolution. Without a successor GP mechanism, the partnership may be forced into judicial dissolution — a costly and time-consuming process.

In plain language: States the jurisdiction whose partnership law governs the agreement and whether disputes go to arbitration, mediation, or court.

Common mistake: Selecting a governing state with no meaningful connection to where the partnership operates or where partners reside. Several states — Delaware and California in particular — have LP statutes that apply local rules regardless of the agreement's choice-of-law clause in some circumstances.

A limited partnership agreement is a legally binding contract between one or more general partners (GPs) and one or more limited partners (LPs) that governs the formation, management, profit sharing, and dissolution of a limited partnership. The GP manages operations and bears unlimited liability; LPs are passive investors whose liability is capped at their capital contribution. The agreement is the controlling document for all partner rights and obligations.

A general partner manages the partnership's day-to-day operations and bears unlimited personal liability for partnership debts. A limited partner is a passive investor who contributes capital but takes no active management role — in exchange, their liability is limited to the amount they invested. If a limited partner participates in management decisions, they risk losing their liability protection in many jurisdictions.

Most jurisdictions require filing a Certificate of Limited Partnership with the state or provincial authority to create the LP entity, but a written limited partnership agreement is not always legally mandated. However, operating without one is highly inadvisable — without a written agreement, the partnership is governed by default statutory rules that rarely match the parties' intentions, particularly on profit sharing, management authority, and dissolution.

A distribution waterfall is the contractual sequence in which the partnership distributes cash to partners. A typical private equity or real estate waterfall returns LP capital first, then pays a preferred return to LPs (often 6–8% per year), then a catch-up to the GP, and finally splits remaining profits between GP and LPs — commonly 20%/80% (carried interest). The specific structure is negotiated at formation and governs every distribution for the life of the fund.

Carried interest is the GP's share of partnership profits above a defined return threshold — typically 20% of profits after LPs have received their capital back plus a preferred return. It is calculated at the fund level over the entire investment period, not deal by deal. In the US, carried interest is taxed at long-term capital gains rates if the underlying assets are held more than three years, a treatment that has been the subject of ongoing legislative debate.

Both structures offer pass-through taxation and limited liability for passive owners, but they differ in governance and liability exposure. An LLC has members who can all be active and protected by the liability shield. A limited partnership requires at least one GP with unlimited liability, making it most suitable for fund structures where the GP is itself a liability-shielded entity (e.g., an LLC or corporation). LLCs are generally simpler to form and manage for operating businesses.

Generally no — limited liability is the core protection offered to LPs. However, an LP can lose that protection if they participate in the management of the partnership. In most US states, participating in management converts the LP into a general partner with unlimited liability. Modern LP statutes in Delaware and other states have narrowed this risk, but LPs should still avoid any direct management role.

For straightforward structures with a small number of sophisticated partners, a high-quality template is a sound starting point. Legal review is strongly recommended for fund structures raising capital from multiple investors, any arrangement involving carried interest and a waterfall, cross-border partnerships, or partnerships in regulated industries. A typical attorney review of a template runs $1,500–$3,000; a fully custom-drafted fund agreement can cost $10,000–$50,000 for institutional-grade documentation.

Dissolution triggers a winding-up process: the partnership stops new business, liquidates assets, pays creditors in priority order, and then distributes remaining proceeds to partners per the waterfall. The GP (or a court-appointed liquidating trustee) manages this process. In most jurisdictions, a Certificate of Cancellation must be filed with the state after winding up to formally terminate the entity and extinguish ongoing filing and tax obligations.