When an investor buys into a special purpose vehicle (SPV) to gain exposure to a pre-IPO company, the pitch is usually framed around the underlying issuer — its growth trajectory, its last funding round, what the secondary market is pricing it at today. Almost no energy goes into the document that actually governs the investor's rights: the SPV operating agreement.
That document defines who controls the SPV, what the manager can do without asking investors, what happens if the manager becomes insolvent or stops responding, and whether investors can do anything about it. These are not edge cases. Manager disputes, wind-downs, and outright failures have touched enough secondary deals in the last few years that the questions below should be routine due diligence, not afterthoughts.
Who the manager is — and what they can do unilaterally
An SPV is typically structured as a single-purpose LLC. The manager (sometimes called the general partner in a fund-style vehicle) is the person or entity that formed it, signed the transfer documents with the issuer, and now sits between the investors and the underlying shares. That position carries significant discretion.
In most standard operating agreements, the manager can: decide when and whether to sell the underlying shares, accept or reject a tender offer on behalf of the SPV, negotiate secondary sales of the SPV's position, and determine the timing of distributions. Investors are typically passive members. They hold economics; the manager holds control.
This structure exists for a reason. It keeps the SPV's cap-table footprint small — one entry rather than dozens — and allows quick decision-making during liquidity events. But it also means that if the manager's interests diverge from yours, you have limited levers to pull.
The three governance clauses that actually matter
1. Manager removal and replacement
Some operating agreements allow investors to remove the manager for cause (fraud, willful misconduct, material breach of the agreement) by a majority-in-interest vote. Others allow removal without cause. Many allow neither until a specific sunset date or liquidity event. Before investing, ask directly: under what conditions can the manager be removed, and what percentage of invested capital must agree?
If the answer is "only for cause" and the definition of cause is narrow, you are essentially locked in with whoever formed the vehicle. In practice, proving fraud or willful misconduct requires litigation. Litigation takes years and costs money that comes from the same pool as your invested capital.
2. Manager insolvency, dissolution, and succession
What happens if the management entity — often a small LLC itself — winds down, files for bankruptcy, or simply stops operating? A well-drafted operating agreement names a successor manager or gives members the right to appoint one. A poorly drafted agreement may leave the SPV in legal limbo, requiring a court-supervised process to establish authority to act on the underlying shares.
This is not hypothetical. Several SPV managers formed during the 2021 private market boom have since become unreachable or insolvent. Investors in those vehicles have found themselves holding interests in an entity with no functioning management, which means no ability to sell, no distributions, and no clear path to enforcement.
3. Conflicts of interest and related-party transactions
Managers sometimes run multiple SPVs investing in the same issuer at different price points. If a tender offer comes in below the manager's blended cost basis in a later vehicle but above yours, the manager may have an incentive to accept or decline that offer in ways that benefit one pool over another. Look for conflict-of-interest disclosure provisions and any requirement that related-party decisions be approved by a disinterested majority. These are among the conflicts of interest in an SPV that buyers most often underweight.
Practical questions to ask before you wire
The following questions are not exhaustive legal due diligence — consult your own counsel for that — but they are the ones that separate investors who have read the agreement from those who haven't.
- Can the manager be removed without cause, and if so, by what vote threshold expressed as a percentage of contributed capital?
- If the manager entity dissolves or becomes insolvent, who has authority to act on behalf of the SPV in the interim?
- Does the manager hold any economic interest in the SPV that creates an incentive to delay or accelerate a sale?
- Are there any other SPVs managed by the same entity investing in the same issuer at different price points?
- What is the process for calling a member vote, and does the operating agreement require the manager to facilitate that process?
- Is there a defined end date or automatic wind-up provision, and what happens to unclaimed distributions?
A manager who bristles at these questions before you invest is giving you information. A manager who answers them clearly and points to the relevant sections of the operating agreement is giving you a different kind of information.
How SPV structure at Limen Markets addresses these points
We use templated SPV operating agreements that include explicit for-cause and without-cause removal provisions, a named successor manager mechanism, and conflict-of-interest disclosure requirements. We also make the operating agreement available for review before any capital commitment — not after. Investors are encouraged to share the document with their own legal counsel.
We are not suggesting our structure eliminates governance risk — no SPV eliminates it entirely. We are saying that governance risk should be legible before you invest, and we build our documents to make it legible.
The economics of a secondary deal — price per share, implied valuation, expected exit multiple — are the variables that get discussed most. They are also the variables over which you have the least control once you are a passive member. Governance is the variable that determines what happens when things don't go according to plan.
If you are evaluating an SPV opportunity on our marketplace or elsewhere, start with the operating agreement. If you would like to review current secondary offerings where the governing documents are ready for your review, visit the marketplace.
Manager removal: the right most buyers never check
In an SPV, the manager (also called the general partner or managing member) controls the position — voting the shares, signing transfer paperwork, and deciding when proceeds are distributed. The operating agreement defines whether the investors who supplied the capital can ever replace that manager. Many agreements make removal effectively impossible: they require 'cause' — fraud, gross negligence, a felony — rather than poor judgment, and set a supermajority threshold a dispersed investor base can rarely assemble. Before you commit, find the removal clause and read exactly what standard and what vote it requires.
Majority-in-interest voting and how decisions get made
Most SPV governance turns on a 'majority in interest' — a vote weighted by capital contributed, not by headcount. A single large investor can therefore control outcomes the rest of the pool cannot. Confirm three things: which actions require a vote at all (amendments, extensions, removal, follow-on capital), what threshold each requires, and whether the manager holds carve-outs that let it act without one.
Successor managers, manager insolvency, and deadlock
Ask what happens if the manager disappears. A well-drafted agreement names a successor-manager mechanism for appointing a replacement if the original resigns, dies, or becomes insolvent. If the manager is an operating business rather than a bankruptcy-remote entity, its own insolvency can entangle your position with its creditors. And if no faction can reach the required threshold, the vehicle can deadlock — nobody can force a sale, an extension, or a distribution. Deadlock is rare, but when it happens it can freeze a position for years.
Fiduciary duties — and how often they are waived
By default a manager owes duties of loyalty and care. Delaware LLC law, which governs most SPVs, allows those duties to be modified or even eliminated by contract. It is common for SPV agreements to waive the duty of loyalty, permit the manager to act in conflicts of interest, and limit liability to willful misconduct. None of this is necessarily disqualifying, but you should know whether the person controlling your money is held to a fiduciary standard or only to the contract.
A governance due-diligence checklist
- Manager removal: what standard ('cause' vs. no-cause) and what vote does it require?
- Successor manager: is there a named process if the manager exits?
- Voting: which decisions need investor approval, and at what threshold?
- Conflicts and fiduciary duties: which are waived or limited?
- Distributions: does the manager have discretion over timing, or is it mandatory after a liquidity event?
- Amendments: can the manager change the agreement without your consent?
Governance terms do not change the headline price, but they decide what happens in exactly the situations where money is at stake — a stalled exit, an underperforming manager, a dispute. Read them before you wire, not after. This is educational, not legal advice; have counsel review the operating agreement of any vehicle you seriously consider.