Dissolving a Fund
Dissolving a Delaware Limited Partnership: Key Steps and Best Practices
While this guide is tailored to dissolving a Delaware limited partnership (LP), these steps generally apply to other entity types, such as Delaware LLCs or entities formed in other jurisdictions. Readers should verify the specific requirements and legal status applicable to their entity.
Dissolving a Delaware limited partnership requires compliance with the Delaware Revised Uniform Limited Partnership Act (DRULPA), the fund’s governing documents and, to the extent the sponsor is a registered investment adviser, certain SEC rules. Below is a step-by-step guide to ensure a smooth dissolution process.
1. Review the Partnership Agreement and Side Letters (if any)
Examine the LP’s partnership agreement and investor side letters to identify provisions related to dissolution.
Confirm the occurrence of any dissolution-triggering events, such as the expiration of the fund’s term, a vote of the limited partners, or other specified conditions.
Identify any required consents or approvals from limited partners or other stakeholders.
2. Notify Stakeholders
Inform limited partners, investors, and other stakeholders of the decision to dissolve the LP.
Provide written notice in accordance with the partnership agreement’s requirements.
Outline the reasons for dissolution, the expected timeline, and the process for liquidating assets and distributing proceeds.
3. Settle Outstanding Obligations
Pay off all known debts and liabilities of the LP, including fees, taxes, and other obligations.
Work with service providers such as administrators, auditors, and legal counsel to close out any remaining services.
Terminate contracts with third parties, including fund counterparties, vendors and consultants, as appropriate.
4. Liquidate Fund Assets
Conduct an orderly sale or distribution of the LP’s assets, ensuring compliance with any restrictions or conditions outlined in the partnership agreement.
Use valuation experts if necessary to determine the fair market value of the assets.
Retain reserves to cover any remaining or contingent liabilities, including any indemnification obligations that may continue to exist with respect to certain assets of the fund.
5. Distribute Proceeds to Partners
Distribute proceeds from the liquidation according to the partnership agreement’s distribution waterfall or other specified provisions.
Provide limited partners with detailed accounting and reports on the liquidation and distribution process.
Address any tax considerations, including providing necessary documentation to partners (e.g., final Schedule K-1 forms).
6. File a Certificate of Cancellation
Prepare and file a Certificate of Cancellation with the Delaware Division of Corporations to formally dissolve the LP.
Ensure the Certificate includes the LP’s name, the date of filing, and any other required information.
Verify that all annual reports and franchise taxes have been paid to avoid delays in the cancellation process.
7. Notify Tax Authorities and File Final Returns
Notify the Internal Revenue Service (IRS) and Delaware tax authorities of the dissolution.
File final federal, state, and local tax returns for the LP.
Close any tax accounts associated with the LP.
8. Conduct a Liquidation Audit
If the manager of the LP is a registered investment adviser, conduct a liquidation audit to ensure compliance with regulatory obligations.
Provide the audit results to stakeholders as required and address any outstanding compliance issues.
9. Retain Records
Maintain copies of all relevant records, including financial statements, investor communications, and regulatory filings, for at least the period required by Delaware law or the partnership agreement.
Ensure secure storage of these records for future reference or audits.
Additional Considerations
Tax Implications: Address any specific tax consequences of dissolution for the LP and its partners. Provide clear documentation to limited partners regarding their tax obligations.
Regulatory Compliance: Ensure that any required filings with the SEC, state securities regulators, or other agencies are completed.
Communication Strategy: Maintain transparency and provide regular updates to limited partners throughout the dissolution process to build trust and manage expectations.
Dissolving a Delaware limited partnership can be complex, but following these steps and engaging experienced advisors will help ensure compliance and an orderly closure.
