Happy Friday, Funds Family!

Today we’re going to review the key legal documents you need to raise an investment fund or syndication.

There’s a lot of paperwork…so let’s get cracking.

Core Investment Fund Documents

First, let’s hit the big-ticket items. These are the substantive documents LPs will review before deciding to invest. 🔍️ 

1. Summary of Terms

Your summary of terms is…a summary of the terms of your fund. Big surprise!

Don’t be fooled though, it’s often quite detailed. A summary of terms might be 5-10 pages for a simple syndication and 10-20 pages for a multi-asset investment fund.

If you have a PPM (discussed below), the summary of terms will be in the PPM. If you don’t have a PPM, you would typically give the summary of terms to prospective LPs as a standalone document in your data room. 💻️ 

2. Limited Partnership Agreement (LPA)

The LPA is the main legal contract between the GP and the LPs. In a simple syndication, it might be 30-40 pages. A multi-asset fund might have an LPA of 100 pages or more. 📜 

Some of the key sections of the LPA include:

• Capital commitments and contributions

• Distributions

• Fees and expenses

• Withdrawals

• Fund term

• Defaulting LPs

• Conflicts of interest

• LP advisory committees

• Reports given to LPs

The LPA is essentially the expanded, fancy, legalese version of the summary of terms.

📒 Note on “Amended and Restated” LPAs

In most cases, the LPA will actually be the “Amended and Restated” LPA. Your lawyer will typically draft a very short “initial LPA” that will enable you to formally set up the limited partnership, open bank accounts, and otherwise prepare for the initial closing. At the initial closing, everyone will enter into the long-form A&R LPA.

📒 Note on “Operating Agreements” and “LLC Agreements”

If the fund or syndication is an LLC, this agreement will be called the LLC Agreement or the Operating Agreement.

3. Subscription Documents (Sub Docs)

The subscription documents are what LPs sign to officially invest in the fund.

The subscription documents have a few key sections:

• Representations and warranties. The LPs agree to a long list of reps and warranties to ensure they are a good fit for the fund.

• Investor Questionnaire. LPs must answer questions about their background, wealth, and investment vehicle. This is necessary so the fund can comply with applicable laws and regulations.

• Signature pages. LPs indicate their investment amount. In many funds, they also sign a power of attorney entitling the GP to sign the LPA on their behalf.

• Disclosure. If the fund does not have a PPM, the subscription documents should contain all the required legal disclosures and risk factors. See the section on PPMs below.

4. Private Placement Memorandum (PPM)

The PPM is a big, fancy marketing document. It looks very official. It is, however, not strictly necessary.

The PPM has a split personality. 🎭️ 

😃 The first half of the document is filled with flowery language, positive vibes, and delightful graphs describing how great the GP is.

But then…there’s a sudden change…

😨 The second half of the PPM is depressed, nervous, and timid. You learn that investing is risky, and there are 101 ways to lose your money.

Raising money without a PPM

Some smaller funds and syndications decide to raise money without a PPM.

The scary legal stuff is necessary. If you forego a PPM, you should put the legal disclosures and risk factors in the subscription agreement so investors can read it before deciding to invest. 👀 

The positive marketing language can go in your marketing deck.

Ancillary investment fund documents

In addition to the big documents we discussed above, you’ll likely need some or all of the following side documents:

• Marketing deck. A slide deck (or similar) that outlines your thesis, track record, and fund terms. You should have your lawyer review this before sending it to prospective investors. 📊 

• Management agreement. If you have both a GP and a management company (which we typically recommend for our clients), you may have a short agreement where the ManCo is designated the fund’s management company. If the GP and ManCo are unaffiliated (less common), this agreement can be quite long.

• Entity formation. You need to form all of the fund entities, including filing certificates, EINs, initial LLC agreements, and Corporate Transparency Act filings.

• Comprehensive GP documents. If you aren’t a sole GP, you likely want robust documents laying out the deal between you and the other GP members (including anyone who will receive carried interest 🫰 ).

• Rule 506 “covered person” questionnaire. If you’re using Regulation D, you may want a document signed by the fund’s principals confirming they aren’t disqualified from using Regulation D.

• Closing Resolutions. This is a blanket “consent” document that authorizes and ratifies everything the GP (and its representatives) has done to set up the fund and admit investors. 👍️ 

Obviously, this isn’t a comprehensive list - for that, work with your lawyer!

⚠️ Please make sure your fund documents are…fund documents

We’re going to end this week’s session with a Public Service Announcement. 🗣️ 

Please ensure you’re working with a lawyer who knows fund documents - even if it’s not me!

Too many times, I’ve had people ask me to “fix” their fund. 👨‍⚕️ 

They used a bargain “general practitioner” to set up their investment fund, and they came to regret it.

Once, a client had a PPM…but the Operating Agreement was some three-page form that didn’t have any of the standard fund terms and didn’t reflect the PPM at all. Absolute disaster. 😵 

The fund documents are the deal between the GP and the LPs. If you screw this up, the whole fund may be jeopardized.

Take this seriously!

Thanks for reading, everyone.

Have a great weekend! 🙌 

⚠️ Note: This newsletter is for informational purposes only and nothing should be considered legal advice. For that, hire a lawyer! I am a lawyer, but not your lawyer (unless I actually am your lawyer because you’ve signed an engagement letter and we’re working together). This newsletter may be considered attorney advertising.