What Is a General Partner?

The general partner refers generally to the management organization or natural person of the equity investment fund, referred to as GP in English. The general partners bear unlimited joint and several liabilities for the debts of the partnership, and the limited partners are liable for the debts of the partnership within the limit of the amount of their contribution.

General partner

In 2007, due to the popularity of China's capital market, even GPs that performed well and even GPs chased money. However, this wonderful time is fleeting. Since September 2008, worldwide

The key to solving the contradiction between LP (Limited Partner (LP) and GP (General Partner, GP)) in the governance structure of Chinese-style PE (Private Equity Private Equity, PE) is to find the balance of interests of both parties point.

First, the agreement on GP management fees should be more flexible. Li Lei said that the management fee of LP to GP is not as simple as 2% per year. In fact, when the fund exists for the fifth year, all the funds in the partnership period have been invested. The next two years are the issue of enjoying returns. In the process, according to foreign practice, when the capital investment is 70% to 75%, a second fund can be raised. In the first year to the fifth year, it is reasonable for the LP to give a management fee of 2% per year to the GP, because the GP needs to continue to run the market and requires fees. Then, in the 6th and 7th years, the previously raised funds have already been invested, and whether the management fee should be given to the GP, the two sides can negotiate to make the agreement more flexible. ^[1]

Differences between general partners and limited partners:

(1) Responsibility for corporate debt

According to the "Partnership Enterprise Law", a limited partnership is composed of general partners and limited partners. The general partners bear unlimited joint and several liability for the debts of the partnership. Take responsibility. It can be seen that the scope of commitment of general partners to corporate debt is greater than that of limited partners.

(2) Transactions with the company

According to the "Partnership Enterprise Law", unless otherwise agreed in the partnership agreement or unanimously agreed by all partners, general partners shall not conduct transactions with the partnership enterprise. The limited partners may conduct transactions with this limited partnership. Therefore, in terms of related party transactions, the law allows limited partners to conduct transactions with the company.

(3) In terms of prohibition of competition

According to the regulations, a limited partner may operate a business that competes with this limited partnership enterprise on its own or in cooperation with others; however, unless otherwise agreed in the partnership agreement. It can be seen that the law allows limited partners to engage in businesses that compete with the company.

(4) In terms of pledge of property shares

According to the "Partnership Enterprise Law", if a general partner pledges with his share of the property in the partnership enterprise, the consent of the other partners must be obtained; his behavior is invalid without the consent of the other partners. If a person causes losses, the actor shall be liable for compensation according to law. A limited partner can pledge its share of property in a limited partnership.

(5) With regard to the transfer of property shares

According to regulations, unless otherwise agreed in the partnership agreement, a general partner must transfer all or part of his property share in the partnership to a person other than the partner without the unanimous consent of the other partners; and a limited partner may follow the partnership agreement The contract to transfer the property share in the limited partnership to someone other than the partners, but the other partners should be notified 30 days in advance. It can be seen that, unless otherwise agreed in the partnership agreement, the general partner must "unanimously agree" with other partners when transferring the property share to a person other than the partner, while the limited partner only needs to perform "notification" ".

(6) According to "

The law restricts companies from investing in partnerships, but it does not restrict them from forming partnerships with others by contract.

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General partner funding obligations

General partners usually need to provide 1% of the total capital of the fund. Although this 1% ratio is relatively small, because the total capital of the fund is very large, this is not a small amount for general partners. The purpose of the capital contribution of the partners is that they share the risks with the limited partners and prevent them from taking excessive risks. ^[5]

Joint partner liquidation

The general partner is responsible for the operation and control of fund affairs. In order to protect the interests of creditors who have transactions with the fund, the law stipulates that the general partner shall bear joint and several liability for the debt of the partnership fund. Undertaking joint and several liabilities constitutes a strong constraint on the general partners, makes them truly perform their obligations and responsibilities for the integrity of the partnership fund operation, and restricts the general partners to borrow a large amount of external debt in the name of the fund. ^[5]

General Partner Information Disclosure

General partners shall regularly provide the financial statements of the fund to the limited partners, provide reports on the value and annual development of the companies invested in the fund, and invite the limited partners to participate in the annual fund meeting. ^[5]

Loyalty obligations of general partners

In the common law system, it is a generally accepted principle that company directors, managers have a fiduciary duty to shareholders and controlling shareholders to minority shareholders. So in a limited partnership venture capital fund, does the general partner as the fund manager have a fiduciary duty? Section 404 (A) of the United States Uniform Partnership Act stipulates the standards of behavior for partners, and the partnership is established through the provisions of this behavior standard A person's fiduciary responsibility is a trust relationship between a general partner and a limited partner. General partners have fiduciary obligations to other general partners, limited partners, and partnerships.

Faithfulness obligations include limited obligations of loyalty and caution. According to the principles of trust law, the fiduciary duty requires the trustee to restrict his behavior, not to use the trust for his own personal gain, and not to put himself in a position where the trustee's duties conflict with the interests of the individual or the interests of the third party he represents. As a manager of a venture capital fund, a general partner must not place itself in a position that conflicts with the fund assets or the interests of the beneficiaries. The obligation to be cautious mainly means that there must be no serious negligence or reckless behavior, and intentional malfeasance or illegal behavior. The obligation of prudence cannot be ruled out in a partnership agreement, but its standards can be reasonably reduced. Article 25 of China's Trust Law stipulates the fiduciary duty of fidelity and prudence. ^[5]

General partners comply with agreement

As mentioned earlier, in order to restrict the various opportunistic behaviors that a general partner may take, the partnership agreement sets a number of binding clauses on the various opportunistic behaviors that a general partner may take. The general partner must abide by the agreement and must not violate it. ^[5]