Introduction:
Following our previous Series on Key Person, limited partners (the “LPs”) do not just invest in strategies or spreadsheets, they invest in people. The individuals behind the investment funds are often the real assets: the ones who source the deals, shape the investment thesis, and manage capital across volatile cycles. In early-stage fund negotiations, it’s often the individuals, not the term sheet, that give LPs the confidence to commit.
That said the LPs also invest in brands. A firm like Bain Capital, Carlyle, or KKR does not need to name every individual behind the curtain. Sometimes, it’s not the people who inspire confidence, it’s the platform.
So whether it is trust in a team or faith in a platform, the result is the same investors commit capital because they believe in what (and who) stands behind the fund, and at the beginning, that belief sets the tone.
The general partner (the “GP”) pitches with conviction. The LPs are confident. Documents are drafted. Closings happen. Everyone’s incentives are lined up. It is the honeymoon phase.
But even in the best marriages, things can go wrong as time goes by.
Sometimes it is betrayal, fraud, misconduct, a scandal. Sometimes it is misalignment, poor communication, or disappointing performance, and sometimes, it is simply that the GP stops being the right fit.
What happens next?
This is when the GP removal clauses are triggered. The provisions nobody wanted to discuss at the outset, suddenly become the only ones that matter. Clauses that GPs and LPs once hoped would never be triggered are now under the closest scrutiny
In the Sections that follow, we will unpack the reasons that lead to the deterioration of the GP/LP relationship, and the mechanisms available to LPs in response.
1. Removal of the GP “For Cause”: not just a loss of confidence
A. What constitutes “cause”?
A removal for cause clause is a standard right in limited partnership agreements, whether the sponsor is a first-time GP or a global platform. The primary purpose of a “for cause” removal clause is to protect investors from serious wrongdoing. While the specific language of the clause may vary across limited partnership agreements, the underlying principle is consistent: limited partners must be able to remove the GP when it breaches its fundamental duties towards the fund and its investors.
No matter how strong the relationship or how small the fund, LPs need the ability to remove the GP in case of fraud, gross negligence, insolvency, willful misconduct, or a fundamental breach of fiduciary duty. Some may negotiate for an extended list but these are the core events and are non-negotiable.
B. Process and cure
In practice, invoking a removal for cause clause requires a defined process often accompanied by safeguards to avoid abuse. How it works? Typically, a supermajority of the Limited Partners, commonly 75% or more by interest, must consent to the removal after a cause event has been alleged by one or more LPs.
Some LPAs allow or require the LPAC to conduct a preliminary review, or to formally determine whether cause exists, before the matter is escalated to the full LP base. This two-step process helps balance the seriousness of the allegation with procedural fairness for the GP.
The General Partner is often given the opportunity to respond or cure the alleged breach unless the misconduct is non-curable by nature (e.g., fraud). While some LPAs require a final court judgment for serious allegations like fraud, most allow the LPs or LPAC to make a good faith determination based on available evidence. This ensures the clause can serve its purpose without being rendered useless by protracted litigation. This procedural protection ensures the clause is not triggered lightly and that the GP has an opportunity to defend its position.
C. Impact and market expectation
Some emerging GPs push back on including a “for cause” removal clause, fearing both the reputational damage and the financial consequences. From their perspective, even the existence of such a clause introduces instability, the possibility of being removed from their own fund. No LP invoke removal for cause lightly, including them in the LPA is not a threat to the GP’s position it’s a baseline expectation of accountability.
2. No one did anything wrong… but… you are out! : the no-fault removal of the General Partner
A. What triggers a no-fault removal
Unlike removal for cause, no-fault removal allows Limited Partners to remove the General Partner without alleging misconduct or breach. It is not designed to punish wrongdoing, but rather to give LPs a last-resort mechanism to address loss of confidence, chronic underperformance, or a serious breakdown in the GP-LP relationship.
B. Removal mechanics
Unlike cause-based removal, there is no requirement for a finding of fault, and the GP is generally not afforded a right to cure or formally contest the decision. Because of its potential impact, no-fault removal is subject to strict procedural requirements and is rarely used. Most LPAs require a supermajority threshold, typically 75% to 85% of interest, to approve the removal. The clause is also often subject to a lock-up or deferral period, such as until the end of the investment period or a set number of years from the final closing, and may include advance written notice requirements (e.g. 30–90 days). In some cases, LPs must nominate or approve a qualified successor GP as a condition to effect the removal.
The LPA will typically address the consequences of removal, , which are highly negotiated to balance Limited Partners, protection and the GP’s commercial interests.
C. Commercial tension and negotiation dynamics
No-fault removal clauses remain controversial among GPs, particularly emerging managers who may view them as destabilising or as creating an imbalance of power. Some will push back on their inclusion or seek high thresholds, long lock-up periods, or economic protection upon removal. From the LP perspective, however, the clause is seen as a necessary governance safeguard, rarely used, but critical to maintaining accountability in discretionary structures. These competing views often shape the negotiation of both procedural triggers and downstream economic terms.
3 After the fall: what happens post removal
Once the General Partner has been removed, whether for cause or without, it raises a series of immediate and complex questions about the continuity, control, and economics of the fund.
A. Who takes over?
In most LPAs, removal is effective only if the limited partners nominate and approve a successor GP within a specified timeframe. If no replacement is agreed, the fund may enter in an early wind-down phase, with the removed GP or an appointed third party responsible for liquidating assets and returning capital. Depending upon the rules and regulations of the jurisdiction where the fund is established, some LPAs may allow for an interim manager or a special purpose vehicle to be put in place temporarily to oversee the fund until a permanent successor is in place.
B. What happens to carried interest and fees?
The LPA typically sets out the economic consequences of a GP removal, including whether the removed GP retains any accrued but unpaid carried interest, is entitled to a pro rata share of future carried interest attributable to investments made during its tenure, or continues to receive a reduced management fee during any transition or wind-down period.
In deal-by-deal models, the GP may retain crystallised carried interest from realised deals and, in some cases, may be entitled to a share of future carried interest from the assets it originated.
In fund-as-a-whole models, carried interest is generally not crystallised until the fund has returned all contributed capital and the preferred return has been achieved. Accordingly, if the hurdle has not been met at the time of removal, the GP typically forfeits any entitlement to carried interest unless the LPA expressly provides for deferred or conditional rights linked to future performance. Where no such entitlements are preserved, the GP may forfeit all future economics, particularly if the removal is for cause or if the LPs decide not to continue the partnership.
C. What about indemnities and liabilities?
Post-removal, the GP may remain entitled to indemnification for actions taken in their capacity as GP, provided they have not engaged in fraud, gross negligence, or wilful misconduct. However, in cause-based removals, LPs may reassess indemnity scope or even bring legal claims depending on the circumstances. LPAs often carve out indemnity protection where the removal is based on serious misconduct.
Final thoughts:
Whether triggered by misconduct, misalignment, or a loss of confidence, the removal clauses provide limited partners a way to act when trust can no longer hold the relationship together. Ultimately, they are about protecting the long-term integrity and continuity of the partnership.
Shahin Dehkohneh
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