Agreements in Private Equity
Private equity firms invest in companies that are not publicly traded. These investments can range from early-stage startups to established businesses looking to expand. However, private equity investments are usually made with the intention of improving the company’s financial performance and ultimately selling it for a profit.
To ensure that the private equity firm and the company they are investing in are on the same page, legal agreements are necessary. These agreements outline the terms and conditions of the investment, as well as the roles and responsibilities of each party involved. Here are some of the common agreements in private equity:
1. Limited Partnership Agreement (LPA)
The LPA is the main agreement between the private equity firm and the limited partners (LPs). The LPs are the investors who provide the capital for the private equity fund. The LPA outlines the structure of the fund, including the investment strategy, the fees charged by the private equity firm, and the distribution of profits.
2. Subscription Agreement
The subscription agreement is signed by the LPs when they invest in the private equity fund. It outlines the terms and conditions of the investment, including the amount of capital to be invested and the payment schedule.
3. Management Agreement
The management agreement outlines the role of the private equity firm in the management of the portfolio company. It includes the duties of the general partner (GP), who is responsible for the day-to-day management of the fund, as well as the investment team.
4. Shareholders Agreement
The shareholders agreement is signed between the private equity firm and the management team of the portfolio company. It outlines the terms and conditions of the investment, including the roles and responsibilities of each party, the financing structure, and the exit strategy.
5. Employment Agreements
Private equity firms often require the management team of the portfolio company to sign employment agreements. These agreements outline the compensation package, the job responsibilities, and the performance expectations.
In summary, legal agreements are an important part of private equity investing. They ensure that the private equity firm and the portfolio company are aligned and working towards the same goals. While these agreements can be complex, they are essential for a successful investment.