LP Default Remedy

LP Default Remedy refers to the set of contractual penalties and enforcement mechanisms in the Limited Partnership Agreement that apply when a limited partner fails to fund a capital call. Default remedies exist because VC funds rely on unfunded commitments—if an LP defaults, the fund may be unable to make planned investments or meet its obligations. Typical remedies escalate in severity: first, a cure period (usually 10-30 days) with interest penalties on late payments; if uncured, harsher consequences including forfeiture of some or all of the defaulting LP's fund interest (often at a significant discount to NAV, such as 50%), loss of voting and governance rights, mandatory sale of the LP's interest to non-defaulting LPs or the GP at a discounted price, and in extreme cases, legal action to enforce the commitment. Non-defaulting LPs may be called upon to fund the shortfall, increasing their pro-rata share of the fund.