Model partnership agreement
A model partnership agreement has been a persistent need in the private equity asset class given the cost, time and complexity of negotiating the terms of investment. General partners have an interest in reducing the length of side letter agreements, providing fundraising certainty, and lowering their fund formation costs. Similarly, limited partners wish to have fair and transparent terms that explain rights and obligations, while also lowering their legal negotiation costs.
ILPA has released two comprehensive, Delaware law-based model partnership agreements that can be used to structure investments into a traditional private equity buyout fund. Such include either a “whole of fund” distribution waterfall or a “deal by deal” distribution waterfall economic arrangement.
The ILPA model partnership agreement project is part of ILPA’s broader PA Simplification Initiative and began in early 2018, with a group of approximately 20 attorneys representing both GPs and LPs in the global marketplace. Through an extensive process of drafting and negotiation, these attorneys, along with the ILPA team, drafted a Model LPA for private equity.
The original version of the “Whole of Fund” model partnership agreement was released in October 2019, in July 2020 revisions were made. A one page summary of the “Whole of Fund” Model LPA is available below and here (changes from the original document are outlined on pages 3 and 4). Also in July 2020, ILPA released a new “Deal by Deal” Model LPA to the marketplace to provide additional flexibility in the utilization of the ILPA Model.
The model partnership agreement by SBIC
SBA encourages SBIC applicants to use this SBA model partnership agreement for an SBIC Issuing Debentures (the “Model”). The Model has been prepared by SBA to assist applicants for SBIC licenses. The model partnership agreement is designed to provide the required provisions for an SBIC formed as a limited partnership and the general format for that limited partnership agreement. Each applicant will need to add provisions that reflect its individual situation and the arrangements among its partners. Applicants not seeking to use debenture leverage should also use the model partnership agreement but will need to make appropriate changes.
SBA has developed the model partnership agreement as part of its effort to make the SBIC program more accessible to new applicants who are less familiar with many aspects of the SBIC program and to increase the efficiency of the SBIC licensing process. The model partnership agreement will help reduce the time and expense to applicants in preparing an agreement of limited partnership for an SBIC. This is by providing applicants and their advisers with a working model of what is required and the formatting that will expedite processing.
SBA expects that the model partnership agreement will reduce the time required for the review of an applicant’s legal documentation. Because the Model provides a standard set of required provisions and an outline for the placement of other basic provisions customarily found in many limited partnership agreements, SBA attorneys will be able to focus their attention on the more limited number of specific provisions added by an applicant.
The elements of the SBI model partnership agreement
The Model combines four basic elements together in an integrated agreement:
- basic procedural and other standard provisions needed for an agreement of limited partnership formed under the Revised Uniform Limited Partnership Act;
- basic business, tax and regulatory provisions commonly used in privately held limited partnerships which make long term debt and equity investments;
- the specific provisions that SBA requires be included in limited partnership agreements for SBICs; and
- the suggested wording for additional provisions that are often incorporated into a limited partnership agreement.
Using the model partnership agreement
The model partnership agreement provides applicants with the required terms and formatting for preparing an agreement of limited partnership for an SBIC. Rather than having an applicant develop its own form of limited partnership agreement, the model partnership agreement allows an applicant to streamline the process by using required provisions and formatting, letting the applicant focus on and draft just those provisions that are particular to its own situation.
The model partnership agreement indicates by Times New Roman type suggested provisions that an applicant may use or modify based on the understandings among its partners, and brackets where an applicant may add additional language or provisions. Applicants are free to add additional provisions and delete or modify those model partnership agreement provisions other than the provisions in bold, Arial type or that footnotes indicate should not be modified if used.
The footnotes, brackets, and fonts other than bold, Arial type that appear in the Model are not required to be used by applicants and may be deleted or modified when an applicant creates its own agreement of limited partnership. Note, however, that provisions in bold, Arial type must be shown in bold, Arial type in the redline copies of the applicant’s agreement submitted to SBA for review.
Since the model partnership agreement reflects a general form of limited partnership agreement, all of its provisions, other than those in bold, Arial type, may not be appropriate for a particular applicant. Applicants and their advisers should carefully review the provisions in the model partnership agreement to make sure that the provisions are appropriate for the applicant’s specific situation. Applicants should consider additions, deletions and modifications to the model partnership agreement carefully, but should seek to avoid altering the general formatting because such changes will reduce the benefits of the standardization arising from the use of the Model. In addition, the model reflects SBA regulations and SBA policy at the time that the Model was developed. If these regulations or policy change, changes may be required in the related provisions of the model.
Submitting to SBA an agreement using the model
SBA strongly advises an applicant to use the model’s format, sections and numbering and to keep the provisions of the applicant’s agreement in the same order as the provisions in the model. Applicants should also be aware that changes in the text of those provisions of the Model that are either set out in bold, Arial type or where footnotes indicate that SBA requires particular language to be used if the provisions are incorporated will substantially delay processing and increase review time and are unlikely to be deemed acceptable by SBA.
Applicants must include with their submission to SBA:
- a clean copy of the applicant’s agreement;
- a redline copy of the applicant’s agreement marked to show all additions and deletions from the Model (including footnotes), using markings showing additions by underscoring and deletions by strikethrough. Model Provisions in bold, Arial type must be in bold, Arial type in the redline;
- a copy of both the applicant’s agreement and the marked version of the applicant’s agreement, in electronic form on a USB flash drive (with Standard-A USB connector) or DVD/CD-ROM; and
- a letter certifying that the marked copy of the applicant’s agreement submitted to SBA shows all additions and deletions from the model partnership agreement.
Aspects of a model partnership agreement
- Notices with respect to representation by limited partners
If any representation ceases to be true, the limited partners will promptly provide the partnership with a correct separate written representation provided in each section. Further, the model partnership agreement will aid in giving the SBA prompt notice of any corrected representation received from any limited partner.
- Liability of partners
The General Partner has the liability for the liabilities of the Partnership provided for in the Act and the SBIC Act. The General Partner will not be obligated to restore by way of capital contribution or otherwise any deficits in the respective capital accounts of the limited partners should such deficits occur. The model partnership agreement provides that the partner will not have any greater obligation with respect to any outstanding leverage than is required by the SBIC Act or SBA.
Also, except as otherwise provided under the model partnership agreement, the Act and the SBIC Act, no limited partner will be liable for any loss, liability or expense whatsoever of the partnership. notwithstanding the preceding sentence, a limited partner will remain liable for any portion of such limited partner’s commitment not paid to the partnership and cannot be released from its obligation to contribute capital to the partnership pursuant to the limited partner’s commitment without SBA’s prior consent.
- Restriction of powers
The model partnership agreement may make investments in portfolio companies only during the investment period. Upon the termination of the investment period, the partnership shall be prohibited from making investments in any company that was not a portfolio company. Such include successors thereto by sale, merger or operation of law at the termination date of the investment period. This is provided that nothing herein shall prohibits the partnership or the general partner from calling capital contributions or using other available funds to do various things. Such include complete investments such as executing or making payment on guarantees that were in process or committed to at the termination of the investment period. The second aspect is making investments such as executing or making payment on guarantees to preserve, protect or enhance the value of existing investments.
References
https://www.zapmeta.ws/search/nairobi
http://framehouse-group.com/business/partnership
https://www.business-in-a-box.com/partnership
https://uk.smartanswersonline.com/
https://www.nygpadmin.cce.cornell.edu
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