Not every investment vehicle ends with a sale, a merger, or a clean cash exit.
Sometimes the most practical—and least disruptive—way to wind down a fund is to distribute the remaining holdings directly to investors in kind, rather than force liquidations that don’t serve anyone well. In the example here, the vehicle is a limited partnership, but the same concepts usually apply to an LLC (or other entity structure) with the analysis driven by the governing agreement.
Dissolution Is a Legal Process, Not Just an Outcome
“Dissolving the fund” isn’t a single act—it’s a process governed by the entity’s operating documents (an LPA for a limited partnership, an operating agreement for an LLC) and the authority they allocate among managers, general partners, and investors.
Before anyone starts talking about transfers, there are foundational questions that need clear answers:
• Who has authority to initiate dissolution? (GP, manager, members, or a defined trigger)
• What approvals are required? (majority threshold, supermajority, unanimity, or none)
• What notice or timing requirements apply? (especially for written consents)
• What standard governs decision-making during wind-up? (often a mix of contract language and fiduciary duty concepts)
When the dissolution mechanics aren’t followed closely, the “wind-up” can turn into a future dispute about authority, process, and fairness—even if the economics seemed straightforward at the time.
Issuer Approval Still Controls
Even when a fund and its investors are aligned on an in-kind distribution, one practical reality can’t be drafted away:
the issuers still control the transfer process.
Private company equity and similar instruments frequently come with transfer restrictions, consent requirements, rights of first refusal, and “paperwork gates” embedded in shareholder agreements, operating agreements, or investor rights documents. As a result, an in-kind distribution is often less like “handing out shares” and more like coordinating a series of issuer-facing steps:
• notifying issuers of the wind-up
• requesting the issuer’s required transfer procedures and forms
• complying with ROFR/approval mechanics
• executing joinders or investor acknowledgments
• completing record transfers on the issuer’s books
A clean wind-up recognizes that issuer procedures can drive timing and sequencing, and it builds the distribution plan around those realities instead of assuming assignments alone finish the job.
Closing Thought
Whether the entity is a limited partnership, an LLC, or another structure, successful in-kind distributions come down to two disciplines: (1) treating dissolution as a defined legal process under the governing agreement, and (2) respecting that issuer transfer restrictions will often control how, when, and whether a transfer becomes effective.
