Analyzing GP organizational structure of PE funds

Most private equity (PE) funds are established in the form of a limited partnership. The general partner (GP) manages fund matters and bears unlimited joint and several liability for the debts of the fund; and the limited partners (LPs), as investors of the fund, do not participate in the fund’s management, and bear limited liability only to the extent of their amount of contributions. This column takes a brief look at the evolution of the structure of funds since the broad acceptance of the limited partnership model in China.

Early model. The basic structure commonly used for limited partnership funds at the outset was the establishment of a limited liability company by the managing person and his team members as shareholders (the management team company), which then, acting as the GP, initiates and establishes a limited partnership fund.

The GP may serve as the fund’s management company, or alternatively a separate limited liability company may be established to be the management company after the execution of a management agreement with the fund. In order to simplify the discussion, the author will assume that the GP also serves as the management company as well.