General Partnership Management
A general partner manages a private equity fund. They decide which businesses to acquire and manage. The general partner contributes financially to show commitment. They earn significant rewards but have responsibilities like analyzing deals and managing investments.
Roles and Responsibilities
It doesn’t take much to form a general partnership. But once formed, the implications can be serious due to unlimited, shared liability among partners. General partners actively manage partnerships. With unlimited personal liability, they assume all financial risks. General partners have authority to make decisions and represent the partnership. They typically invest capital into the partnership.
Legal and Financial Implications
A general partnership is a business arrangement by which two or more individuals agree to share responsibilities, assets, profits, and financial and legal liabilities of a jointly-owned business. Partners are responsible for the debts, and the seizure of an owner’s assets is a possibility.
Every partner in a general partnership faces unlimited personal liability for their own actions, the actions of other partners that bind the partnership, and the actions of company employees. Partners in a general partnership owe each other a fiduciary duty of loyalty and care.
Continuity of Partnership
By default, a partnership will terminate upon the death, disability, or withdrawal of any one partner. However, most partnership agreements provide that the partnership continues, with the share of the departed partner remaining in the partnership or going to a successor.
Profitability of General Partnerships
How do general partners make money? General partners analyze potential deals and make the final call on what to do with the money they manage. They invest their personal assets into their fund and are held personally liable for the debts and business of the firm.
The fund’s general partners must persuade institutional investors to put money into it by promising them a significant return on investments over ten years. The venture capital businesses must then make astute investments to return the limited partners’ money plus a profit.
Ways Venture Capitalists Make Money
- Management fees – an annual fee based on a percentage of assets under management. This is usually around 2%.
- Carried interest or carry – a share of the profits earned by the fund after the initial investment has been returned to investors. This is usually around 20% of profits.
In summary, general partners raise money for their funds promising good returns to investors, charge an annual management fee, and take a percentage of the profits if the fund performs well. Their income comes from fees and carried interest.