The No-Fault Divorce Clause: How LPs Remove a GP Without Proving Cause

A no-fault divorce clause, also called a no-fault removal provision, is the section of a private equity or venture capital limited partnership agreement that lets a supermajority of limited partners fire the general partner or shut down the investment period without proving fraud, gross negligence, or any other misconduct. It exists because "for-cause" removal usually requires a court finding, which can take years, while a no-fault vote can happen in weeks. The Institutional Limited Partners Association (ILPA) treats it as a core governance protection, recommending a two-thirds vote threshold, even though many funds set the bar at 75% or higher.

What the no-fault divorce clause actually does

Every limited partnership agreement, or LPA, the contract that governs a private equity or venture fund, contains some version of a removal clause. It answers a blunt question: what happens when the limited partners (LPs, the investors who commit capital) lose confidence in the general partner (GP, the firm that manages the fund and makes investment decisions)? There are two doors. One requires proof of wrongdoing. The other does not.

For-cause removal is the door that requires proof. It typically triggers on a defined list: fraud, gross negligence, willful misconduct, material breach of the LPA, criminal conduct, or a felony indictment of a key principal. Many LPAs go further and require a final, non-appealable court judgment before the clause can even be invoked. That sounds protective. In practice it is close to useless as a fast-moving remedy. Litigating a fraud claim against a GP can run five to ten years through trial and appeal, all while the GP keeps managing, or mismanaging, the fund's capital. Above the Law's 2018 explainer on fund termination rights lays out exactly why LPs distrust a cause standard tied to a final judicial ruling. The process is slow, expensive, and gives a bad actor years of cover.

No-fault removal is the second door, and it does not ask why. The LPA specifies a voting threshold, commonly two-thirds to 75% of LP interests by capital commitment, and if that threshold votes yes, the GP is out. No misconduct has to be alleged. No court has to rule on anything. The fund's wiki resource on LPA mechanics puts it plainly: no-fault divorce protects LPs against "an honest but underperforming manager," which is a category for-cause clauses were never built to reach.

I think of the two clauses as solving different problems. For-cause removal punishes bad behavior. No-fault removal ends a relationship that has stopped working, for any reason at all, including reasons a court would never touch: chronic underperformance, a key partner who has checked out, or an investment strategy that has drifted so far from the original pitch that LPs no longer recognize the fund they backed.

Typical thresholds and mechanics, compared

Voting thresholds vary by fund vintage, fund size, and how much leverage the GP has in a given fundraising market. Below is how the two removal paths typically compare, drawing on ILPA's Model LPA term sheets and market surveys from law firms that negotiate these documents.

Feature	For-cause removal	No-fault removal
Trigger	Defined "cause" event: fraud, gross negligence, willful misconduct, material breach, criminal conduct	No trigger required, any reason or no stated reason
Typical LP vote threshold	Simple majority to 66.7% of LP interests (ILPA recommends a majority)	66.67% to 75% of LP interests, some funds set 80% to 90%
Proof required	Often a court or arbitral finding, though some LPAs accept an LPAC or LP good-faith determination instead	None
Typical timeline	Months to years if court adjudication is required	Weeks to a few months once the vote is called
GP's carried interest on removal	Often forfeited entirely on investments not yet realized	Usually reduced (a "haircut"), not eliminated, on pre-removal investments
Management fee	Typically terminates immediately	Terminates or steps down immediately in most current LPAs
Frequency of actual use	Very rare	Rare, but somewhat more common than for-cause in practice

Notice the ILPA Model LPA's own numbers, published in its Whole of Fund term sheet: 75% in interest to remove the GP without cause, a majority in interest to remove for cause once a Removal Conduct event is confirmed. ILPA's broader Principles 3.0 document actually recommends a lower bar than the market has settled on: a simple majority for a for-cause suspension, and "a super majority, i.e., a vote of two-thirds in interest of LPs" for no-fault removal. Real-world LPAs frequently push past that recommendation to 75%, 80%, or occasionally 90%.

Two mechanics matter as much as the headline number. First, many no-fault clauses are tied to timing gates: the removal right does not activate until after the investment period ends, or requires 30 to 90 days of advance written notice, so LPs cannot yank the GP mid-deployment on a whim. Second, no-fault removal is frequently bundled with, or substituted for, a "key person" trigger, a separate mechanism that automatically suspends the fund's investment period if a named partner stops spending substantially all of their time on the fund. A key person event does not remove the GP outright, but it freezes new investments until LPs vote to reinstate, which gives LPs real leverage without having to invoke the full removal machinery.

Why LPs push for it and why GPs resist

The LP case is straightforward. A no-fault clause is the only mechanism in the LPA that does not require litigation-grade proof of anything. ILPA's 2020 Private Market Fund Terms Survey found that 71% of LPs reported no-fault removal provisions in place in at least half the funds they invested in that year, and ILPA members called the provision "an essential investor protection worth fighting for." The same survey found that 52% of respondents had a gross negligence standard of care in more than three-quarters of their funds, which sounds protective until you realize gross negligence is a notoriously hard standard to prove in court. No-fault removal is the backstop for exactly that gap.

The GP case is also straightforward, and it is not paranoid. A no-fault clause creates real fundraising uncertainty. A GP that has done nothing wrong can still lose the fund if a supermajority of LPs decides they are unhappy, whether because of a bad vintage, a personality conflict, or a strategic disagreement that has nothing to do with fiduciary breach. GPs worry, reasonably, that the clause converts ordinary performance disputes, the kind every manager has in a down market, into an existential threat. That fear is not hypothetical. Institutional Investor's reporting on GP-LP relationships notes that Preqin data showed no-fault removal present in 77% of 2011-vintage funds, falling to 58% for 2019 to 2020 vintages, as GPs used a hot fundraising market to push the term back.

Both sides also fight over what happens to economics after removal. GPs want to keep carried interest earned on deals already closed. LPs want a haircut on that carry so a replacement manager has enough economic incentive to finish managing an inherited portfolio well. ILPA's position, stated in Principles 3.0, is that "in the case of removal, whether no fault or for cause, the GP should see a meaningful forfeit of or reduction to carried interest, to ensure sufficient economics remain to incentivize a new manager." That is a real cost to the departing GP even when no wrongdoing is alleged, which is exactly why GPs treat the threshold number as one of the most consequential lines in the entire LPA.

Real disputes over these clauses do surface publicly, even though most are resolved quietly. In 2021, investors in Novalpina Capital's debut fund voted to remove the firm as general partner after what PE International's Buyouts Insider called a breakdown among the firm's own founding partners that made continuing the partnership untenable, with LPs left to decide whether to install a replacement manager or wind the fund down. It is a useful case precisely because the underlying dispute was not simple theft. It was dysfunction at the top, the kind of situation for-cause clauses are not built to reach and no-fault clauses are.

What ILPA actually recommends

ILPA is the trade association representing limited partners globally, and its published Principles are the closest thing the private equity industry has to a common reference point for what "market" governance looks like. ILPA is explicit that no-fault removal is not a punitive tool aimed at ordinary GPs. It is a structural check on concentrated power. The organization's Model LPA overview states the provision should include "a No-fault Removal provision without payment of additional management fees to the GP, upon a LP vote threshold," paired with "the option to impose a haircut on carried interest to the GP upon the vote of a supermajority of LPs."

On thresholds specifically, ILPA's own recommendation, a two-thirds vote, is more LP-friendly than what its own Model LPA term sheets actually specify, which is 75%. That gap tells you something about market reality versus stated best practice. Even the industry group writing the guidance settled for a higher bar in its model document because that is what got broader GP buy-in during the drafting process, which involved roughly 20 attorneys representing both sides.

ILPA also draws a hard line most GPs do not love: a determination of "cause" should not require a final, non-appealable court judgment. ILPA's Principles state that LPs should be able to remove a GP for bad acts "upon preliminary determination, rather than a final court decision not subject to appeal." That position, if adopted, would narrow the practical gap between for-cause and no-fault removal, since for-cause would no longer take years to invoke. Most LPAs have not gone that far, which is part of why no-fault remains the clause LPs actually rely on.

Practical guidance for LPs and for emerging managers raising a fund

If you are an LP negotiating a first-time fund's LPA, do not assume a no-fault clause is standard. It is common in institutional-quality documents, but plenty of emerging managers, especially those raising sub-$250 million funds without an anchor institutional LP setting terms, resist it outright or bury it under a threshold so high (85% to 90%) that it is functionally dead on arrival. Ask directly during diligence: is a no-fault removal right in this LPA, at what threshold, and does it apply to GP replacement or only to suspending the investment period? Those are three different rights with three different levels of protection, and a GP who offers you one while implying you have all three is not being straight with you.

Also read the economics attached to removal, not just the vote threshold. A 66.7% threshold with full carry preservation for the outgoing GP is a weaker protection than an 80% threshold with a real carry haircut, because the first gives you a right you will rarely assemble enough votes to use, while the second makes the remedy meaningful once you clear the bar. Check the timing gates too. A no-fault right that only activates after the investment period ends protects you less than one available throughout the fund's life, though GPs argue, not unreasonably, that mid-deployment removal risk scares off the capital they need to close the fund.

If you are an emerging manager raising your first or second fund, my honest read is that the industry consensus has moved further than most first-time GPs realize. Post-2008, and again after several high-profile GP blowups in the years since, institutional LPs, pensions, endowments, sovereign wealth funds, treat a reasonable no-fault removal provision as table stakes, not a concession they are asking you for as a favor. A GP who will not budge on this term at all, who fights to strip it out entirely rather than negotiate the threshold, the timing gate, and the carry treatment, is sending a signal worth noticing. It is not automatically disqualifying. Plenty of strong first-time managers negotiate a workable middle ground: a 75% or 80% threshold, activation only after the investment period, and a modest carry haircut rather than full forfeiture. But refusing the concept entirely, in 2026's fundraising environment, tells sophisticated LPs you expect them to trust you with a decade of their capital without giving them a real exit if the relationship breaks down through no fault of anyone. That is a harder sell than most emerging managers think, and it can cost you institutional commitments before you ever get to a term sheet.

The reverse is also true. LPs who demand an unreasonably low threshold, say a simple majority, for a right this consequential are not being protective, they are creating instability that scares away the capital that makes a fund viable. A GP watching a 51% no-fault trigger has to assume the fund could be taken from them over a single bad year, and that assumption changes how they manage risk in ways that hurt returns for everyone. The workable zone, based on what actually gets signed in institutional-quality LPAs today, sits in the 66.67% to 80% range, with carry haircuts rather than full forfeiture and a timing gate tied to the investment period.

Frequently Asked Questions

Is a no-fault removal clause the same as a for-cause removal clause?

No. For-cause removal requires proving specific misconduct, such as fraud, gross negligence, or willful misconduct, and often needs a court or arbitral finding before it can be triggered. No-fault removal requires no proof of wrongdoing at all. A supermajority of LPs can vote to remove the GP for any reason, including a performance disagreement or a loss of confidence that never rises to legal cause.

What percentage of LPs typically needs to vote yes to remove a GP without cause?

Most institutional-quality LPAs set the threshold between 66.67% and 75% of LP interests by capital commitment. ILPA's own Principles recommend two-thirds, though its Model LPA term sheets specify 75%, and some funds negotiate thresholds as high as 80% to 90%, which can make the right nearly impossible to exercise in practice.

Does a GP lose all of its carried interest if LPs remove it without cause?

Usually not entirely. Most no-fault removal provisions let the outgoing GP retain carried interest on investments made before removal, though often at a reduced rate. ILPA recommends "a meaningful forfeit of or reduction to carried interest" specifically so a replacement manager has an economic incentive to finish managing the inherited portfolio well. For-cause removal, by contrast, often results in full forfeiture of unrealized carry.

Why would a first-time fund manager resist including a no-fault removal clause?

Emerging managers worry the clause creates fundraising and operational uncertainty, since a GP that has done nothing legally wrong can still be replaced if a supermajority of LPs becomes unhappy for any reason, including a strategic disagreement or a rough vintage. That said, institutional LPs increasingly treat a reasonable no-fault provision as a standard governance term rather than a negotiable extra, so an emerging manager who refuses it outright risks signaling inflexibility to the exact LPs they most want to attract.

Author Disclosure: Jeff Barnes, MBA has no personal position in any company, fund, or platform named in this article. Angel Investors Network has no current commercial relationship with any party mentioned. AIN provides marketing and education services, not investment advice. Past performance does not guarantee future results. All investments involve risk, including loss of principal.