One piece of lingo you often hear in the syndication world is the phrase GP or LP, or general partner or limited partner. What do these mean and how do they apply to you? My name is Tilden Moschetti. I am a syndication attorney with the Moschetti Syndication Law Group specializing in Regulation D Rule 506b and 506c offerings. We are going to go through what those phrases mean, their definitions, and how they apply.
The use of the terms GP or LP, which stand for general partner and limited partner respectively, is actually an anachronism. I say it’s an anachronism because it refers to a structure under an LP, which is an organization set up as a limited partnership. Limited partnerships still exist, and they’re still very useful under specific circumstances. However, most people who are doing syndications and private offerings have moved away from doing LPs and have moved to putting their projects, assets, and opportunities in LLCs (limited liability companies).
The reason for this shift is that over time, investor sentiment has changed. Investors now feel more secure about their rights in an LLC rather than an LP.
A GP or the general partner is you, the sponsor. You have some liability as it relates to the fund itself, how it works, and how it functions. When I say GP, I’m usually talking about the manager or the sponsor; they’re all the same person. The GP is the person who’s in charge, has some liability, but also profits from all the work they’re doing. They’re actively engaged in the syndication or the fund itself.
LPs are the investors, or limited partners. They’re the people who have basically no liability at all, except to the extent of the cash they’ve invested in the fund or syndication. That’s the limit of their liability. They are completely passive in their role.
In the way that most limited partnerships are set up, LPs have no voting rights and no control whatsoever. An LLC may have some voting rights for their investor members, but not always. There always needs to be some voting rights available, but they will be very curtailed.
That’s what a GP and an LP are and how they fit into syndication. Yes, we use these terms. They’re not actual constructs within an LLC itself, but we create the scaffolding around it to essentially create the same type of structure. For short, most of the time you will hear a syndicator, sponsor, or an attorney talking about a GP or an LP role.
My name is Tilden Moschetti. I’m a syndication attorney with the Moschetti Syndication Law Group. Let me know if I can help you.