The Key Person Clause: What It Means and How to Negotiate It (2026)

What is a key person clause? A key person clause ties an investor's commitment to specific named individuals staying involved in running the fund or the business. The idea is simple: investors backed the people as much as the plan, so if those people leave, the investors want a say in what happens next. It is also called a key man clause. The clause appears in two main places. In a fund, such as a venture capital or private equity fund, it sits in the limited partnership agreement (LPA) and protects the limited partners who invested because of the named general partners. In a direct investment or shareholders' agreement, it protects investors who backed named founders or executives. Note that this is the investment sense of "key person". In services and outsourcing contracts, a "key personnel" clause does a different job, naming the staff a supplier must use to deliver a project. This article is about the investment and fund version. This article is general guidance, not legal advice. Fund terms are detailed and heavily negotiated, so have a qualified lawyer review any real agreement. ## Why investors want it When a limited partner commits to a fund, it is trusting a small number of individuals to source, pick and manage investments over many years. If those individuals leave, the fund the LP signed up for no longer exists in any real sense. A key person clause gives the LPs a brake: it pauses new investment and forces a conversation, rather than letting the remaining team keep deploying the LPs' money without the people they backed. ## What counts as a key person event The agreement defines the trigger. Typical key person events include a stated number of named key persons who: - die or become permanently disabled;

• resign, retire or are removed;
• stop devoting the agreed amount of time (often "substantially all" of their business time) to the fund or business for a set period;
• in some agreements, are found to have committed serious misconduct such as fraud. The threshold is usually expressed as a number: for example, "if two of the three named Key Persons cease to be actively involved". ## What happens when it is triggered The usual consequence is not the end of the fund. It is a suspension of the investment period. New investments stop, though follow-on investments in existing portfolio companies and ordinary expenses are often still allowed. The suspension gives the limited partners time to decide what to do. Industry guidance points to a common pattern: an automatic suspension that becomes permanent after a set period, often around 180 days, unless a defined majority of investors votes to lift it and let the team carry on, sometimes with replacement key persons approved. Removing the manager is a separate decision with its own voting threshold; a key person event by itself does not remove the manager. ## Sample key person clause The block below is illustrative drafting for a fund context, not a precedent for a specific deal. ``` KEY PERSON 1. "Key Persons" means [Name A], [Name B] and [Name C]. 2. A "Key Person Event" occurs if, during the Investment Period, [two] or more Key Persons cease for any reason to devote substantially all of their business time to the Fund, whether through death, disability, resignation, removal, or failure to meet the time commitment in clause 3, and the event is not cured under clause 5. 3. Each Key Person shall devote substantially all of their business time to the affairs of the Fund and its investments during the Investment Period. 4. On a Key Person Event, the Investment Period is automatically suspended. During suspension the Manager may not make new Portfolio Investments, but may complete investments already committed, make follow-on investments in existing Portfolio Companies, and pay ordinary expenses. 5. The suspension becomes permanent [180] days after the Key Person Event unless, within that period, Limited Partners representing at least [a defined super-majority] of commitments vote to: (a) reinstate the Investment Period; and/or (b) approve one or more replacement Key Persons. 6. A Key Person Event does not of itself remove the Manager, which is governed by clause [Removal].

- **The threshold (clause 2).** "Two of three" is stricter on the manager than "all three". Set it to reflect who really drives the fund.
- **The time commitment (clause 3).** "Substantially all business time" is the usual standard for senior people. Pin down how outside activities and other funds are treated.
- **The consequence (clause 4).** Confirm exactly what is frozen and what continues, so the portfolio is not harmed during a suspension.
- **The reinstatement vote (clause 5).** The deadline and the voting threshold decide how much power the investors really have. ## Negotiation points for investors (limited partners) - Name every key decision-maker, not just the headline founder.
- Set a sensible trigger threshold and a clear time-commitment test.
- Keep the reinstatement vote with investors and set a fair deadline, so the suspension is not quietly lifted.
- Make sure follow-ons and existing commitments continue, so the portfolio is protected during a pause. ## Negotiation points for the manager (general partner) - Keep the named list short and focused on those who truly cannot be replaced.
- Build in a cure mechanism and a route to approve replacement key persons.
- Allow for planned, orderly succession so a retirement does not automatically freeze the fund.
- Make sure the suspension does not stop you protecting existing investments. ## Common mistakes to avoid - Naming too few or too many key persons, so the clause is either toothless or too easily triggered.
- No clear time-commitment standard, so "actively involved" becomes an argument.
- Failing to say what continues during a suspension, risking harm to the portfolio.
- No route to approve replacement key persons, so a single departure ends the fund's ability to invest.
- Confusing the key person clause with manager removal; they are separate decisions. ## A note on jurisdiction Key person clauses are contractual and the drafting travels across markets, but the surrounding fund law varies by jurisdiction. Funds are commonly structured as limited partnerships in jurisdictions such as Delaware, the Cayman Islands, the United Kingdom, Singapore and, increasingly, India through its alternative investment fund framework regulated by the Securities and Exchange Board of India. Each regime has its own rules on how a partnership agreement operates and how investor votes bind the fund. Treat "varies by jurisdiction" as the rule and confirm locally. Last verified October 2026. ## Keeping the people-dependent terms in view A key person clause is one of several terms, alongside time commitments, removal rights and succession plans, that turn "we backed these people" into something enforceable. The ongoing work is keeping those terms consistent across the fund documents and knowing exactly what is triggered, and by whom, if a named individual steps back. That ongoing work is the idea behind an AI contract workspace. It can hold the fund or investment documents as linked clauses rather than scattered files, show whether a clause sits favourable, neutral or unfavourable to your side, surface every obligation that depends on a named individual, and let you edit wording in plain English with a clean diff. Tools such as [Adira](https://adiralaw.com) are built around that single-workspace idea, tuned to how your organisation contracts. The guidance above is enough to understand and negotiate a key person clause on its own; a workspace simply keeps drafting, review and tracking as one connected job.