How does Liability of Members work? Let’s discuss examples.
Pablo Vidal Arean
May 03, 2023
There are limitations of liability and indemnification. So, can you help us with some hypothetical examples that you are concerned about? In general, outside of criminal actions, liability is manifest through litigation. Litigation is traditionally initiated by vendors, partners and limited partners, but may also be brought by portfolio companies, portfolio co-investors, etc. Litigation is managed through the dispute resolution clause and costs are offset by insurance.
Venture capital funds are typically formed as limited partnerships which have general partners and limited partners. In a limited partnership, the general partner faces unlimited liability while the liability of the limited partners is limited to the amount of their investment. For example, if the fund is has debts or is sued or incurs liabilities, the limited partners will not be subject to paying for the fund's liabilities while the general partner will face exposure to such debts and liabilities.