Access to Records under the Delaware Uniform Limited Partnership Act
A vast majority of hedge funds are structured as limited partnerships under the Delaware Uniform Limited Partnership Act (the DULPA). The code is very flexible and allows the limited partnership agreement (LPA) to be drafted in a very manager-friendly manner. To the extent that a LPA is silent on an issue covered by the DULPA, the DULPA will control.
With regard to the record keeping requirement of hedge funds, many funds will include a default provision in the LPA which provides investors access to the records of the hedge fund upon reasonable notice to the general partner of the fund. The records that the investors will have access to are listed in Section 17-305 of the DULPA, which I have reprinted below. The requirements are fairly standard items which and should not pose an inconvenience to the general partner.
However, managers should note that by defaulting to the DULPA the manager may actually be providing investors in the fund with the potential right to access the name and contact information for other investors in the fund. DULPA Section 17-305(a)(3) provides,
Each limited partner has the right, subject to such reasonable standards … to obtain from the general partners from time to time upon reasonable demand for any purpose reasonably related to the limited partner’s interest as a limited partner a current list of the name and last known business, residence or mailing address of each partner.
Of course, under this section the investor making such a request would need to show that the request was made a purpose reasonably related to such investors interest in the fund. The manager would obviously be able to deny such a request if the investor did not present a good reason for the request. The general partner would also have other potential remedies under Section 17-305(b) and Section 17-305(e). The hedge fund offering documents could also be revised so as to restrict investors from having this right.
The full text of the section is reprinted below and can be found here.
§ 17-305. Access to and confidentiality of information; records.
(a) Each limited partner has the right, subject to such reasonable standards (including standards governing what information and documents are to be furnished, at what time and location and at whose expense) as may be set forth in the partnership agreement or otherwise established by the general partners, to obtain from the general partners from time to time upon reasonable demand for any purpose reasonably related to the limited partner’s interest as a limited partner:
(1) True and full information regarding the status of the business and financial condition of the limited partnership;
(2) Promptly after becoming available, a copy of the limited partnership’s federal, state and local income tax returns for each year;
(3) A current list of the name and last known business, residence or mailing address of each partner;
(4) A copy of any written partnership agreement and certificate of limited partnership and all amendments thereto, together with executed copies of any written powers of attorney pursuant to which the partnership agreement and any certificate and all amendments thereto have been executed;
(5) True and full information regarding the amount of cash and a description and statement of the agreed value of any other property or services contributed by each partner and which each partner has agreed to contribute in the future, and the date on which each became a partner; and
(6) Other information regarding the affairs of the limited partnership as is just and reasonable.
(b) A general partner shall have the right to keep confidential from limited partners for such period of time as the general partner deems reasonable, any information which the general partner reasonably believes to be in the nature of trade secrets or other information the disclosure of which the general partner in good faith believes is not in the best interest of the limited partnership or could damage the limited partnership or its business or which the limited partnership is required by law or by agreement with a third party to keep confidential.
(c) A limited partnership may maintain its records in other than a written form if such form is capable of conversion into written form within a reasonable time.
(d) Any demand under this section shall be in writing and shall state the purpose of such demand.
(e) Any action to enforce any right arising under this section shall be brought in the Court of Chancery. If a general partner refuses to permit a limited partner to obtain from the general partner the information described in subsection (a)(3) of this section or does not reply to the demand that has been made within 5 business days after the demand has been made, the limited partner may apply to the Court of Chancery for an order to compel such disclosure. The Court of Chancery is hereby vested with exclusive jurisdiction to determine whether or not the person seeking such information is entitled to the information sought. The Court of Chancery may summarily order the general partner to permit the limited partner to obtain the information described in subsection (a)(3) of this section and to make copies or abstracts therefrom, or the Court of Chancery may summarily order the general partner to furnish to the limited partner the information described in subsection (a)(3) of this section on the condition that the limited partner first pay to the limited partnership the reasonable cost of obtaining and furnishing such information and on such other conditions as the Court of Chancery deems appropriate. When a limited partner seeks to obtain the information described in subsection (a)(3) of this section, the limited partner shall first establish (1) that the limited partner has complied with the provisions of this section respecting the form and manner of making demand for obtaining such information, and (2) that the information the limited partner seeks is reasonably related to the limited partner’s interest as a limited partner. The Court of Chancery may, in its discretion, prescribe any limitations or conditions with reference to the obtaining of information, or award such other or further relief as the Court of Chancery may deem just and proper. The Court of Chancery may order books, documents and records, pertinent extracts therefrom, or duly authenticated copies thereof, to be brought within the State of Delaware and kept in the State of Delaware upon such terms and conditions as the order may prescribe.
(f) The rights of a limited partner to obtain information as provided in this section may be restricted in an original partnership agreement or in any subsequent amendment approved or adopted by all of the partners and in compliance with any applicable requirements of the partnership agreement. The provisions of this subsection shall not be construed to limit the ability to impose restrictions on the rights of a limited partner to obtain information by any other means permitted under this section.