A Limited Partner (LP) in the context of private equity or venture capital, is an individual or an entity that contributes capital to a fund but does not participate in its management. These are often institutions like pension funds, insurance companies, foundations, or wealthy individuals.
In a typical fund structure, the General Partner (GP) or the fund manager is responsible for making investment decisions and managing portfolio companies, while the LPs provide the necessary capital. LPs take on a passive role and their liability is usually limited to their contribution in the fund, thus the term "limited" partner.
In return for their investment, LPs receive a share of the profits from the fund's investments, typically through a combination of management fees and carried interest. The specific terms of this arrangement are detailed in a partnership agreement. The LPs also often have certain rights, such as the right to receive regular updates on the fund's performance and the right to vote on certain major decisions.
