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Entrepreneurship Questions

 

  • Limited partners are precluded from active intervention in the management of the fund due to the aspect of limited liability. In order to allow complete separation of the management of potential investments by the General Partners, there is an agreement that stipulates a “concentration limit” of the funds to be invested in a single company. The concentration limit will not only ensure that they General Partners do not over-invest the companies funds in a single company but will also ensure that they do not expose the company in high-risk ventures that might make the company suffer huge losses.
  • In order to protect themselves from unlimited liability, General Partners can rely on methods that will ensure their assets are protected. One common and most effective asset protection strategy is the use of insurance services.
  • A proprietary deal is the kind of deal that allows a particular buyer to buy a company before the owner presents the company to other buyers. These kinds of deals are attractive to private equity firms because such firms are always looking for investment opportunities that are in line with their reputation and expertise. Venture capital firms, on the other hand, put their focus in sectors undergoing change, such as information technology.
  • Due diligence refers to reasonable evaluation of a private equity firm done by investors in order to ensure that the firm has met all the legal requirements before investing in it. The investors will look into the company’s history and try to unravel the truth using this process. They, therefore, try to determine whether the company is a good limited partnership or general partnership. They also evaluate if the funds’ objectives are in line with their own.