Limited Partner Clawback

Limited Partner Clawback is a common contractual provision in a private equity partnership agreement. In many LPAs (limited partnership agreement), this provision may require the LPs to return a percentage of the distributed fund as necessary to pay for the indemnification obligations once the limited partnership become a subject of a lawsuit. The said returned portion is typically paid to "Covered Persons" (can be the Principals, GPs, investment managers, affiliates and/or agents) for any legal judgment imposed upon the limited partnership, except when the liability is due to the their own gross negligence, bad faith, willful misconduct, or material breach of pertinent agreements and applicable laws. Majority of the LPAs that have this clause stipulates that the amount cannot exceed the limited partners' committed capital to the fund.

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