Fund Structure
No-Fault Divorce
A provision allowing LPs to terminate the GP's management without proving cause, typically requiring a supermajority vote.
A no-fault divorce clause (or GP removal without cause provision) allows LPs to terminate the GP's management of the fund without having to prove any wrongdoing or breach of duty. It typically requires a supermajority vote (usually 75-80% of LP interests) and may include provisions for an orderly transition, such as continued management fees during wind-down and preserved carry rights on existing investments.
In Practice
After the GP's second consecutive fund underperformed, LPs representing 82% of interests invoked the no-fault divorce provision, replacing the GP with a new management team while preserving the outgoing GP's carry on investments made during their tenure.
Why It Matters
No-fault divorce is the ultimate LP governance right — the ability to fire the GP even without cause. Its existence (or absence) in the LPA signals the balance of power between GPs and LPs and is increasingly demanded by institutional investors.
VC Beast Take
In practice, no-fault divorce is rarely exercised because the threshold is so high and the disruption so significant. But its presence in the LPA acts as a deterrent against GP behavior that erodes LP trust. Think of it as the nuclear option that keeps everyone honest.
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