Transfer agreement vs subscription agreement, what each one does
· 7 min read · Navys Team
In an LP transfer, the transfer agreement and the subscription agreement do two different jobs. The transfer agreement (sometimes a deed of transfer and assignment) moves the limited partnership interest from seller to buyer, apportions the economics between them, and allocates liability for the interest's history. The subscription agreement, or a deed of adherence in its place, binds the incoming investor directly to the fund and its constitutional documents. One is a bilateral deal between two investors. The other is the buyer's contract with the partnership. Confuse the two, or assume a signed transfer agreement is enough on its own, and a gap opens that tends to surface at closing.
This entry sets out what each document does, where deeds of adherence and side letters fit, and why both instruments are usually required.
What does the transfer agreement do?
The transfer agreement is the contract between the transferor and the transferee. It effects the sale. It identifies the interest, moves title from one party to the other, and states the consideration. Beyond the bare transfer, it does three things that matter to both sides.
First, it apportions the economics as at the transfer date. That means allocating which distributions belong to the seller and which to the buyer, and who is responsible for capital calls issued before and after completion. An interest transferred mid-quarter carries accrued rights and obligations, and the agreement fixes the cut-off.
Second, it allocates liability for the interest's history. The buyer inherits an interest with a past: prior drawdowns, potential clawback exposure, and any indemnities owed to the fund. The agreement sets out warranties from the seller about the state of the interest and, often, an indemnity if those warranties prove wrong.
Third, it records the conditions to completion, which commonly include the manager's consent and the buyer clearing KYC. Until those conditions are met, the transfer is agreed but not effective.
What does the subscription agreement do?
The subscription agreement is the buyer's contract with the fund. It is the same instrument a new investor signs at a closing, and it does something the transfer agreement cannot: it binds the incoming LP directly to the partnership.
Through it, the buyer makes the representations the fund requires of any investor. Typical ones cover eligibility (accredited or professional investor status, depending on the regime), regulatory and tax status, source of funds, and the absence of sanctions concerns. The buyer also agrees to be bound by the limited partnership agreement, so it takes on the covenants that govern every LP: honouring capital calls, confidentiality, and the transfer restrictions themselves.
Without this step, the fund has a new economic owner with no direct contractual relationship to the partnership. That is the gap the subscription agreement, or its lighter-weight cousin, exists to close.
Transfer agreement vs subscription agreement at a glance
The distinction is easiest to hold in a table. The parties differ, and so does the purpose.
| Feature | Transfer agreement | Subscription agreement / deed of adherence |
|---|---|---|
| Parties | Transferor and transferee (often the GP joins) | Incoming investor and the fund |
| Core purpose | Moves the interest, sets price and cut-off | Binds the buyer to the LPA and fund covenants |
| Economics | Apportions distributions and capital calls | Records commitment and any remaining unpaid amount |
| Liability | Warranties and indemnity between buyer and seller | Investor representations to the fund |
| Who cares most | Buyer and seller | The GP and administrator |
The two documents work together. A transfer with a signed transfer agreement but no adherence leaves the buyer economically in but contractually adrift. Adherence without a transfer agreement leaves the buyer bound to the fund with no title to the interest it thinks it bought.
Where does a deed of adherence fit?
A deed of adherence is the short-form alternative to a full subscription agreement. Where the fund is already established and the buyer is simply stepping into an existing interest, a fresh subscription document is often more than the situation needs. The deed of adherence does one thing cleanly: the incoming investor covenants with the fund to be bound by the LPA as if it had been an original party, and gives whatever representations the GP insists on.
Which instrument a fund uses is a drafting choice, not a legal rule. Some managers require the full subscription pack for every incoming LP. Others accept a deed of adherence for transfers and reserve the longer document for primary closings. Fund counsel checks the LPA and the fund's precedent to see which is expected, since the fund's transfer provisions frequently prescribe the form the manager will accept.
The label matters less than the function. Whether it is called a subscription agreement or a deed of adherence, its role is to make the buyer a party to the partnership.
Where do side letters fit?
Side letters sit apart from both documents, and they are the part most likely to be missed. A side letter is a bilateral agreement between the fund and a specific investor that varies the standard terms: fee arrangements, reporting rights, excuse and exclusion provisions, most-favoured-nation rights, and co-investment access.
Two questions arise on a transfer. First, does the seller's side letter pass to the buyer? Usually not automatically. Many side letters are personal to the original investor and lapse on transfer, or transfer only with the manager's agreement. Second, does the buyer want its own side letter? An institutional buyer often negotiates fresh terms as a condition of coming in, which adds another document and another negotiation to the pack.
The practical failure is treating side letters as an afterthought. If the buyer assumed it inherited the seller's fee break and finds the letter lapsed, the economics of the deal change after signing. Confirming the status of side letters early belongs on any LP transfer checklist that counsel runs before completion.
Why are both documents usually required?
Because they answer different questions. The transfer agreement answers who owns this interest and on what terms as between buyer and seller. The subscription agreement or deed of adherence answers what the new investor's relationship with the fund is. A transfer needs both answers.
The sequence usually runs like this:
- Agree the transfer. Buyer and seller negotiate the transfer agreement, including price, apportionment, and warranties.
- Secure consent. The manager consents under the LPA, often as a condition in the transfer agreement.
- Bind the buyer to the fund. The buyer signs the subscription agreement or deed of adherence and clears KYC.
- Deal with side letters. The parties confirm which terms lapse, transfer, or need renegotiation.
- Complete. Consideration settles, the documents take effect, and the administrator updates the register.
Skip the third step and the register records a member with no contract to the fund. Skip the first and the buyer has undertakings to the partnership but no title. The documents are not interchangeable, and neither one stands in for the other.
Where to start
Understanding which document does what is the easy part. Keeping every version straight across five parties is the hard part. If you want the full sequence these documents sit within, how an LP transfer moves from request to closing sets out each stage and where they stall. You can also read our analysis of what the email-driven version of this process costs in The True Cost of LP Transfers.