Quest Software Inc. in Aliso Viejo would be taken private under terms of a proposed $2 billion sale to New York-based private equity firm Insight Venture Partners.

Quest’s shares are up about 23% this morning, to a market value of just less than $2 billion.

The deal calls for Quest Chief Executive Vinny Smith and the rest of its management team to remain in place, according to a statement by the company. The statement said Quest’s headquarters would “remain in California.”

“As a private company, we will have increased flexibility to drive innovation across our product lines and execute our long-term strategy,” according to Smith, who owns about 34% of Quest’s shares and would retain his stake under terms of the deal. “This move to a private company also will create exciting career opportunities for our employees, while retaining our commitment to continuing to provide excellent service to our customers.”

Quest’s board voted unanimously to approve the deal, according to the company.

A special committee composed of three directors will consider outside bids over the next 60 days.

The deal calls for Quest to pay a $4.2 million breakup fee if the deal falls through over the next the 60 days, or $6.3 million is it’s called off at a later date.

Quest makes software that manages and improves on other business products from Redmond, Wash.-based Microsoft Corp., Oracle Corp. in Redwood Shores, New York-based IBM Corp. and others. The company is Orange County’s third-biggest software maker by revenue.

Smith recently returned to the chief executive job at the company to fill a vacancy left by Doug Garn, who shifted to the role of vice chairman due to health considerations, according to the company.

Smith has led Quest to a spot as a market leader in database development and optimization, with more than two million users, and a major presence in Microsoft’s infrastructure management market. He’s also credited with developing simplified applications for cloud computing and virtualization.

Quest counts more than $800 million in annual revenue. The company recently posted a 5% decline in fourth-quarter adjusted profits to $42.6 million. Revenue climbed 13% to $245.9 million during the period.

The company has about 3,000 workers companywide and an estimated 600 in Orange County.

The deal with Insight Venture Partners has already touched off a legal challenge. New York-based law firm Bernstein Liebhard LLP said it is investigating whether Quest’s board “is breaching its fiduciary duty to its shareholders in connection with the definitive agreements” to sell to the private equity firm and go private. The law firm is “focused on the potential unfairness of the price to Quest shareholders and the process by which the [board of directors] considered and approved the transaction.”