The GP Partnership Agreement: Vesting, Buy-Sell and Deadlock Between Co-Sponsors
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Two or three people often sponsor a deal together: one finds it, one raises the money, one runs it. The investor documents govern the investors, but the relationship between the sponsors is separate, and most disputes come from what the partners never wrote down. This post covers the main terms of a general partner (GP) or sponsor-side agreement, and why to set them before money is raised. It is general information, not legal advice, and your attorney should draft your agreement.
What does the agreement cover?
| Term | What to decide |
|---|---|
| Roles | Who sources, raises, underwrites, closes, asset manages and reports |
| Time | Expected hours and what counts as non-performance |
| Economics | Split of acquisition fees, asset management fees and the promote. See GP equity splits |
| Capital | Who funds earnest money, due diligence costs and co-investment, and whether it is a loan or equity |
| Vesting | When each partner earns their share (see below) |
| Decisions | What each partner decides alone and what needs a vote |
| Deadlock | A path when partners disagree |
| Key person | Which partner must stay involved. See key person clause |
| Exit | Voluntary departure, removal for cause, death, disability, divorce |
| Buy-sell | How and at what price one partner buys out another |
| Non-compete and confidentiality | What partners may do on the side |
| Dispute resolution | Mediation, arbitration, venue |
| Taxes | How sponsor income flows to each partner's return |
How does vesting work?
Vesting means a partner earns their share over time or on milestones, rather than owning it all on day one. Common designs: part vests at closing, part over the hold period, part on delivering a specific result such as raising a set amount. If a partner leaves early, the unvested part goes back to the remaining partners. This protects the partner who keeps working from a partner who walks away. Keep the schedule simple and tied to things you can measure.
How do you handle deadlock?
Two equal partners can disagree with no tiebreaker. Options: give one partner the final say on a defined area (for example, the lead sponsor decides operations, the capital partner decides investor communication); name a neutral adviser; use mediation, then arbitration; or provide a buy-sell mechanism for true standoffs. Each has trade-offs. A "shotgun" buy-sell (one names a price, the other buys or sells at it) is quick but favors the partner with more cash. Choose consciously.
What about exits and buy-sell?
Write down triggers: for cause (fraud, breach, loss of a license), voluntary, death, disability, bankruptcy. For each, say who may buy, how the price is set (formula, appraisal or agreed valuation), how it is paid (cash or over time) and what the departing partner keeps (for example, earned fees and vested promote). Also decide who signs the loan guarantee and how a partner is released. See loan guarantor and removing a sponsor for cause.
What must investors be told?
The offering documents should identify the sponsors, their roles, their compensation and any conflicts. Material terms of the sponsor-side agreement, such as who has control, may need to be disclosed. See PPM and related-party fees. Sponsors' bad actor status matters under the exemption (17 CFR 230.506); see the bad actor rule.
Our take
Have the awkward conversation early, while everyone is friendly. A clear agreement is what lets partners stay friends when something goes wrong.
Trade-offs and who this is not for
- Not a template to copy. Your roles and economics decide the terms.
- Common mistake: a handshake split that changes when the deal gets bigger.
- Not a substitute for counsel, and each partner may want their own lawyer.
How DoorRaise fits in
DoorRaise helps sponsors raise equity for apartment buildings with 5+ units from friends and followers who already trust them, under Rule 506(b) or 506(c). We are software, legal document preparation, escrow coordination and verification services. We are not a law firm, broker-dealer, investment adviser, funding portal, bank or escrow agent, and we do not hold investor money: investors wire their money to escrow at Enterprise Bank & Trust, in the deal's name.
DoorRaise keeps the deal in its own company with its own documents and a deal page, and runs an accreditation check on every investor, in 506(b) and 506(c) raises. Flat fees, never a percentage of the raise (see pricing). Create your free sponsor page.
FAQ
Do co-sponsors need a separate agreement?
Yes. The investor operating agreement does not settle how the sponsors share work, money and decisions.
What is vesting for GP equity?
Earning your share over time or on milestones, so a partner who leaves early does not keep all of it.
What is a buy-sell clause?
A way for partners to buy each other out at an agreed price or formula on specific events.
Can investors see the sponsor agreement?
They should be told what matters to them, such as control and compensation. Your attorney will advise on what to disclose.
Sources
This article is general information, not legal, tax or investment advice. Each partner should consider their own attorney. DoorRaise is not a law firm, broker-dealer, investment adviser or funding portal.