TL;DR: A key person clause gives investors or clients a contractual safety net when the specific individuals who justified the deal are no longer involved. In fund management, the clause typically suspends the investment period or triggers investor consent rights when a named partner dies, departs, or reduces their time commitment below a specified threshold. In services and talent-dependent deals, it can trigger termination rights, fee reductions, or replacement obligations. The provision forces a practical question every party should answer upfront: what happens to this relationship when the person you are actually betting on is gone?

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What Is a Key Person Clause?

A key person clause is a contractual provision that identifies one or more individuals whose continued active involvement is considered material to the agreement, and prescribes specific consequences if those individuals cease to be involved. The clause answers a simple question: if the person who made this deal worth doing is no longer part of it, what rights does the other party have?

In the fund management context, key person clauses are a standard feature of limited partnership agreements (LPAs) for private equity, venture capital, hedge funds, and real estate funds. The clause names specific general partners or investment professionals (typically the fund's founders or senior portfolio managers) and defines the events that constitute a "key person event" - death, permanent disability, voluntary departure, involuntary termination, or a reduction in time devoted to the fund below a specified percentage (usually 50-75% of business time). When a key person event occurs, the fund's ability to make new investments is typically suspended until the limited partners vote on whether to resume, replace the key person, or wind down the fund.

Outside fund management, key person clauses appear in professional services agreements, consulting contracts, outsourcing arrangements, talent representation deals, and any transaction where the value proposition is tied to specific individuals rather than an organization. A company hiring a boutique advisory firm for a complex M&A transaction may insist on a key person clause naming the lead partner, ensuring that the firm cannot substitute a junior partner midway through the engagement.

The Institutional Limited Partners Association (ILPA) has published guidelines on key person provisions as part of its Principles series, recommending that LPAs include clearly defined key person events with automatic suspension of the investment period (rather than requiring an affirmative LP vote to suspend). The ILPA position reflects the view that key person protections should operate as defaults in favor of investors, with the burden on the GP to seek LP approval to continue investing after a key person event.

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Why It Matters

Alignment of commitment and capital: Investors commit capital to a fund based on the track record, judgment, and relationships of specific individuals. Without a key person clause, the GP could lose its star dealmaker and continue deploying investor capital with a materially weaker team, with no recourse for the LPs beyond their general governance rights.
Prevents bait-and-switch: In professional services, the key person clause prevents a firm from winning the engagement with its best talent and then quietly reassigning the work to less experienced professionals. The client retains the right to the specific individuals whose capabilities justified the fee.
Orderly transition mechanism: Rather than forcing an abrupt termination, a well-drafted key person clause creates a structured process - suspension, notice, consultation, vote - that allows all parties to assess the situation and make informed decisions about whether to continue, restructure, or unwind.
GP incentive alignment: Key person clauses incentivize GPs to retain their best people by making the consequences of departure directly visible in the fund's governing documents. If a senior partner's departure triggers a suspension of the investment period, the GP has a powerful financial reason to structure retention packages that keep that person engaged.
Valuation protection: In M&A transactions involving talent-dependent businesses (agencies, consulting firms, medical practices), a key person clause linked to earnout provisions protects the buyer against the risk that the sellers will depart and take client relationships with them before the earnout period concludes.

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Key Elements of a Well-Drafted Key Person Clause

Named individuals: Identify each key person by name. Avoid generic descriptions like "senior partners" or "investment committee members" - these create ambiguity about who is actually covered. In fund documents, the key persons are typically limited to 2-5 individuals who are the primary drivers of the fund's investment strategy.
Triggering events defined with precision: Specify the exact events that constitute a key person event: death, permanent disability (defined by reference to a medical standard or insurance policy), voluntary resignation, termination for cause, termination without cause, reduction in time commitment below a stated threshold, and conviction of a felony or regulatory disqualification. Each trigger should be defined independently.
Time commitment threshold: In fund management, specify the minimum percentage of business time each key person must devote to the fund (typically 50-75%). Define how "business time" is measured and whether service on boards, charitable activities, or management of predecessor funds is included or excluded from the calculation.
Consequence mechanics - suspension vs. termination: Specify whether a key person event automatically suspends the investment period (ILPA-recommended approach) or merely gives LPs the right to vote on suspension. Address whether the suspension is immediate upon the event or takes effect after a short cure period (typically 30-90 days).
LP consent and voting thresholds: Define the voting threshold required for LPs to (a) reinstate the investment period after suspension, (b) approve a replacement key person, or (c) terminate the fund. Common thresholds range from a simple majority to 75% of LP interests. Address whether the GP's affiliated LP commitment counts toward the vote.
Cure and replacement provisions: Specify whether the GP can cure a key person event by appointing a replacement approved by the LPs, and the timeframe for doing so (typically 90-180 days). Define the qualifications or approval process for a replacement - some LPAs require the replacement to have a specified minimum number of years of relevant experience.
Interaction with carried interest and GP commitment: Address what happens to the GP's economics if a key person event leads to fund termination or early wind-down. Specify whether unvested carried interest is forfeited, whether the departing key person retains any economic interest, and whether the GP commitment is returned on a modified basis.
Non-compete and garden leave coordination: Specify whether the departing key person is subject to a non-compete or garden leave period, particularly where the departure is voluntary. Address the interaction with any separate employment or partnership agreement governing the key person's post-departure obligations.

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Market Position & Benchmarks

Where Does Your Clause Fall?

LP-Favorable: Automatic suspension of the investment period upon any key person event, with reinstatement requiring approval of 75% or more of LP interests (excluding GP affiliates). No cure period. Broad definition of key person events including reduction in time commitment, departure from the GP entity for any reason, and regulatory disqualification. The fund cannot make any new investments (including follow-on investments in existing portfolio companies) during the suspension period.
Market Standard: Automatic suspension after a 90-day cure period, with reinstatement requiring approval of a majority in interest of LPs. Key person events include death, disability, and departure, with a time commitment threshold of at least 50% of business time. Follow-on investments in existing portfolio companies are permitted during the suspension period. The GP has 180 days to propose a replacement key person for LP approval.
GP-Favorable: Key person event triggers only an obligation to notify LPs and convene an advisory committee meeting. No automatic suspension - LPs must affirmatively vote to suspend the investment period, with a supermajority threshold (often 80%). Narrow definition of key person events limited to death and permanent disability, excluding voluntary departure. Broad carve-outs for temporary absences, sabbaticals, and government service.

Market Data

According to Preqin data, approximately 85-90% of private equity fund LPAs contain key person provisions, with the percentage increasing to over 95% for first-time funds where the LP's investment thesis is most directly tied to specific individuals.
ILPA's 2023 Principles recommend automatic suspension of the investment period upon a key person event as a best practice, and an estimated 70% of recently formed PE funds have adopted automatic suspension provisions (up from approximately 50% a decade earlier).
The median cure period in PE fund key person clauses is 90 days, with a range from 0 days (immediate suspension) to 180 days, based on a review of LPAs by law firm Debevoise & Plimpton.
In venture capital funds, key person clauses are particularly concentrated, with an average of 2.1 named key persons per fund, compared to 3.4 for mid-market buyout funds and 1.8 for mega-cap funds where the platform is more institutional.
Approximately 15-20% of private equity funds have experienced a key person event during their term, based on industry estimates from Cambridge Associates, with the most common trigger being voluntary departure rather than death or disability.

Sample Language by Position

LP-Favorable: "Upon the occurrence of a Key Person Event, the Investment Period shall be automatically suspended effective immediately and the General Partner shall not make any new Investments or fund any additional capital calls (other than to pay fund expenses and honor binding commitments entered into prior to such Key Person Event) unless and until the Limited Partners holding at least 75% of the Commitments (excluding Commitments held by the General Partner and its Affiliates) vote to reinstate the Investment Period. A 'Key Person Event' means the occurrence of any of the following with respect to any Key Person: (a) death; (b) Permanent Disability; (c) departure from the General Partner for any reason; (d) devotion of less than 75% of such Key Person's business time to the affairs of the Fund; or (e) conviction of a felony or regulatory disqualification."

Market Standard: "If a Key Person Event occurs, the General Partner shall promptly notify the Limited Partners and the Investment Period shall be suspended effective 90 days after such Key Person Event unless cured within such period. During any suspension, the General Partner may make follow-on Investments in existing Portfolio Companies but may not make new platform Investments. The Investment Period may be reinstated upon the approval of Limited Partners holding a majority in interest of the Commitments, or upon the General Partner's appointment of a replacement key person approved by the Advisory Committee."

GP-Favorable: "Upon the occurrence of a Key Person Event, the General Partner shall notify the Advisory Committee and convene a meeting within 60 days to discuss the implications for the Fund's investment program. The Investment Period shall continue unless and until Limited Partners holding at least 80% of the Commitments vote to suspend it. A 'Key Person Event' means the death or Permanent Disability of two or more Key Persons within any 12-month period. For the avoidance of doubt, the voluntary departure of a single Key Person shall not constitute a Key Person Event."

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Example Clause Language

In a private equity LPA with balanced terms:

PE Fund LPA: "The 'Key Persons' are [Name A] and [Name B]. A 'Key Person Event' shall occur if (i) any Key Person ceases to devote substantially all of his or her business time and attention (and in no event less than 60% of business time) to the affairs of the Partnership, (ii) any Key Person ceases to be a partner, member, or employee of the General Partner or its Affiliates, or (iii) any Key Person dies or becomes Permanently Disabled. Upon the occurrence of a Key Person Event, the General Partner shall provide written notice to all Limited Partners within 10 Business Days, and the Investment Period shall be suspended effective 90 days thereafter unless the Key Person Event is cured. During the suspension, the General Partner may fund previously approved Investments and make follow-on Investments not exceeding $[amount] in the aggregate, but shall not commit to new platform Investments."

In a professional services agreement where a specific lead consultant is material:

Services Agreement: "Client has entered into this Agreement in reliance on the personal skills, qualifications, and experience of [Name] (the 'Key Person'). The Key Person shall serve as lead consultant for the Project and shall devote at least 60% of his or her professional time to the Project during the Term. If the Key Person becomes unable or unwilling to perform the services contemplated herein, or if the Key Person's employment with Consultant is terminated for any reason, Consultant shall notify Client within 5 business days and Client shall have the right, exercisable within 30 days of such notice, to (a) approve a replacement consultant proposed by Consultant, (b) reduce the fees payable hereunder by 25% for the remainder of the Term, or (c) terminate this Agreement without penalty upon 15 days' written notice."

In an M&A earnout context where the seller's continued involvement is tied to payment:

Earnout with Key Person Trigger: "If during the Earnout Period any Earnout Key Person (i) voluntarily resigns from employment with the Company or its successor, (ii) is terminated by the Company for Cause, or (iii) reduces his or her weekly working hours below 40 hours per week without Buyer's prior written consent, the Earnout Payment for the Measurement Period in which such departure or reduction occurs (and all subsequent Measurement Periods) shall be reduced by the percentage set forth opposite such Earnout Key Person's name in Schedule 2.5(b). The foregoing reduction shall not apply if such Earnout Key Person's departure results from death, Disability, or termination by the Company without Cause."

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Common Contract Types

Private equity and venture capital fund LPAs: The primary context for key person clauses, where investors commit capital based on the track record of named general partners. The clause protects LPs against continuation of the investment program after the departure of the individuals whose judgment justified the commitment.
Hedge fund offering documents and side letters: Key person provisions in hedge funds operate similarly to PE funds but may include additional triggers tied to performance - such as a key person event being deemed to occur if the fund underperforms its benchmark by a specified margin after a named portfolio manager's departure.
Professional services and consulting agreements: Clients hiring advisory, accounting, or consulting firms for complex engagements routinely name the lead partner or engagement manager as a key person, with fee reduction or termination rights if that individual is reassigned.
Outsourcing and managed services contracts: Large outsourcing agreements may include key person provisions for the account executive, transition manager, or technology lead, ensuring continuity of the specific expertise that won the RFP.
Entertainment and talent agreements: Production companies, record labels, and sports organizations use key person clauses to link contractual obligations to named performers, directors, or athletes, with termination or restructuring rights if the named individual becomes unavailable.
M&A purchase agreements with earnouts: When a portion of the purchase price is contingent on post-closing performance, the buyer may require the selling founders or key executives to remain employed during the earnout period, with departure triggering a reduction or forfeiture of the earnout payment.
Joint venture agreements: Where a joint venture is formed based on one partner's specific personnel (e.g., a development JV where one partner contributes a named architect or project manager), the key person clause protects the other partner's investment in the relationship.
Government contracts: Federal contracting regulations (FAR 52.242-15 and agency supplements) often require that key personnel named in the proposal cannot be substituted without the contracting officer's written approval, functioning as a regulatory key person requirement.

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Negotiation Playbook

Key Drafting Notes

Name individuals, not titles: A key person clause that references "the Managing Director" or "the Chief Investment Officer" rather than a named individual loses its protective function if the GP restructures roles or titles. Always identify key persons by name, with a mechanism for updating the list by LP consent if the fund's leadership changes.
Define the time commitment threshold with specificity: "Substantially all business time" is ambiguous and litigable. Specify a percentage (60%, 75%) and define what counts toward business time. Address whether teaching, board service, speaking engagements, management of predecessor funds, and charitable work are included or excluded.
Address the "two of three" structure: Many LPAs with three named key persons trigger the key person event only if two of the three depart. This gives the GP some cushion for a single departure while protecting LPs against a more material loss of leadership. The appropriate threshold depends on the fund's size and the degree to which investment decisions are concentrated in specific individuals.
Coordinate with the GP's partnership agreement: The key person clause in the LPA must be consistent with the GP's internal governance documents. If the LPA names a key person who can be removed under the GP's partnership agreement without LP consent, the protections are illusory. Ensure that the LPA either restricts the GP's ability to remove named key persons or treats such removal as a key person event.
Distinguish between new investments and follow-on investments: During a suspension period, prohibiting all investment activity can harm existing portfolio companies that need additional capital. Market-standard clauses permit follow-on investments in existing portfolio companies (often subject to a cap) while suspending new platform investments.
Consider interaction with change of control provisions: If the GP entity itself undergoes a change of control - through a merger, management buyout, or spin-off - this may effectively constitute a key person event even if the named individuals remain. Draft the key person clause and the change of control clause as an integrated package to avoid gaps.

Common Pitfalls

Relying on the key person clause as the sole retention mechanism: The clause creates consequences for departure but does not prevent departure. It must be paired with economic incentives (carried interest vesting, co-investment rights, management fee participation) and, where appropriate, non-compete and non-solicitation agreements to create a complete retention framework.
Failing to address the "reduced time" scenario: Many key person clauses trigger only on departure or death, ignoring the scenario where the key person remains nominally involved but devotes most of their time to a new fund, outside business interests, or personal matters. Without a time commitment threshold, a key person can effectively abandon the fund while technically remaining a partner.
Ignoring the economic consequences for the departing key person: If the key person clause does not address what happens to the departing individual's carried interest and capital commitment, disputes will follow. Specify whether the departing key person forfeits unvested carry, retains vested carry, continues to participate in existing investments, or is bought out at a formula price.
No mechanism for LP communication during suspension: A suspension period without a structured communication process leaves LPs in the dark. Include requirements for the GP to provide written updates on the status of the fund, replacement search efforts, and portfolio company performance during any suspension period.
Overlooking the non-compete dimension: If a key person departs to start a competing fund, the key person clause addresses the fund's investment period but does not prevent the individual from competing. Ensure that the LPA, the GP's partnership agreement, or a separate employment agreement contains non-compete and non-solicitation provisions that are enforceable in the relevant jurisdiction.

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Jurisdiction Notes

U.S.: Key person clauses in fund LPAs are governed by state partnership law (typically Delaware, given that most U.S. PE funds are organized as Delaware limited partnerships). Delaware's Revised Uniform Limited Partnership Act (DRULPA) gives broad deference to the LPA's terms, including key person provisions, and Delaware courts have enforced these clauses as drafted (see, e.g., case law interpreting LP voting rights and GP removal provisions under 6 Del. C. Section 17-302). Non-compete provisions linked to key person departures are subject to state-specific enforceability standards - California generally refuses to enforce non-competes (Bus. & Prof. Code Section 16600), while Delaware and New York apply reasonableness tests. Federal government contracts impose key personnel requirements under FAR 52.242-15 that operate independently of any contractual key person clause.
U.K.: Key person provisions in English-law-governed fund documents are enforceable as contractual terms, with English courts interpreting them according to standard principles of contractual construction. Post-departure restrictive covenants (non-competes) linked to key person clauses must satisfy the restraint of trade doctrine - they must protect a legitimate business interest and be reasonable in scope, duration, and geographic area. The FCA's Senior Managers and Certification Regime (SM&CR) imposes additional regulatory requirements on the roles and responsibilities of key individuals in authorized fund managers, which may interact with contractual key person provisions.
International: In the Cayman Islands, where many offshore funds are domiciled, key person clauses in exempted limited partnership agreements are enforced as drafted, with the Exempted Limited Partnership Act providing broad freedom of contract. Luxembourg SCSp (special limited partnership) structures commonly include key person provisions modeled on ILPA guidelines, enforceable under Luxembourg partnership law. In civil law jurisdictions, non-compete provisions linked to key person departures may be subject to mandatory legal limitations - German law, for example, requires that post-contractual non-competes in employment relationships be accompanied by compensation (Karenzentschadigung) under Section 74 HGB, which may apply to key persons who are classified as employees rather than partners.

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Related Clauses

Change of Control Clause - Addresses changes in entity ownership, while key person clauses address changes in individual involvement; the two should be drafted as complementary protections.
Non-Compete Clause - Restricts the departing key person's ability to compete after leaving, reinforcing the key person clause by preventing the individual from immediately launching a rival fund or practice.
Termination for Convenience - A key person event may give the non-GP party termination rights functionally similar to a termination for convenience, particularly in services agreements.
Earnout Clause - In M&A transactions, key person provisions are frequently embedded within earnout structures, tying contingent payments to the continued involvement of named individuals.
Successors and Assigns - Interacts with key person provisions by determining whether a key person's obligations and benefits transfer upon death or disability to their estate or successors.
Conditions Precedent - In fund formation, the absence of a key person event is often a condition precedent to each capital call, preventing the GP from drawing capital during a suspension period.

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This glossary entry is provided for informational and educational purposes only. It does not constitute legal advice, and no attorney-client relationship is formed by reading this content. Consult qualified legal counsel for advice on specific contract matters.