What is an LP giveback?

The LPA sets any cap and time limit on the giveback. Delaware’s limited partnership law adds a statutory layer: a limited partner that knowingly receives a distribution made when the partnership’s liabilities exceed its assets must repay it, and unless otherwise agreed it has no liability for a distribution under that law more than three years after receiving it. ILPA’s Principles say the GP’s clawback period should run past any LP giveback.

Say an LP has received $10 million from a fund whose LPA allows a giveback of up to 25% of distributions. If a claim against the fund arises, the GP could ask that LP to return up to $2.5 million. Simple example. Terms vary by fund.

Money an LP treated as final can be called back, so the cap and time limit on the giveback matter when it plans its cash.