Legal Definitions - in commendam

in commendam

The Latin legal phrase in commendam translates to "in trust." It describes a legal arrangement where one party holds and manages property or assets for the benefit of another party or a group of parties. This concept is most commonly applied in the context of a limited partnership, where a general partner holds the partnership's assets and manages its operations for the collective benefit of all partners, including the limited partners.

• Example 1: Real Estate Investment Fund

  Imagine a real estate investment firm that establishes a limited partnership to acquire and manage a portfolio of commercial properties. The firm itself acts as the general partner, responsible for identifying suitable properties, negotiating purchases, overseeing property management, and handling all operational aspects. Individual investors contribute capital to become limited partners, expecting returns from rental income and property value appreciation. In this scenario, the properties acquired and the funds held for their management are considered to be held by the general partner in commendam. This means the general partner holds and manages these assets in trust for the collective benefit of all limited partners, who have a financial interest but no direct management control or personal liability beyond their initial investment.

• Example 2: Private Equity Fund

  Consider a private equity firm that forms a limited partnership to invest in and improve various companies. The private equity firm serves as the general partner, making all strategic investment decisions, actively managing the acquired companies, and working to increase their value over time. Large institutional investors, such as university endowments or pension funds, are the limited partners, providing the majority of the capital. The capital contributed by these limited partners, and the ownership stakes in the companies acquired by the fund, are held by the general partner in commendam. The general partner has a fiduciary duty to manage these assets prudently and for the ultimate financial gain of all partners, while the limited partners' involvement is primarily financial, relying on the general partner's expertise and management.