A Study On Laws On Foreign Private Euqity Funds

The past several decades witnessed the emergence of international private equity funds as a new type of foreign direct investment and international financial service trade. In China, foreign private funds became more and more active and are widely welcomed by Chinese enterprises that are thirsty for capital for further development. The practice of foreign private equity funds present us a lot of issues to be profoundly and widely studied. This thesis shed a light on the practical issues encountering to foreign private funds from a view point of international investment law, aiming to deeply demonstrate those basic principles of international investment law and provide with theoretical guidance for further development of foreign private equity funds.This thesis composes of seven chapters, as well as an introduction. The first chapter is an introduction of the foreign private equity funds. It briefs the fundamental characters of the investment tool of the private equity, comparing different contexts used by different institutions and researchers. This thesis focuses on the similar concepts under the frame of Chinese law and the differences between each other are presented. From a broad perspective, this thesis defines private equity as an instrument of investment in unlisted enterprises for purpose of making profit by exiting later. In addition, this chapter draws a picture of the development phases of foreign private equity funds in China and clarifies the scope of the discussion.The second chapter is the legal framework for foreign private equity investment. By pinpointing the nature of combination of foreign direct investment and financial service trade, this thesis discusses the role played by the legal environment, which are to guide the development, to compromise expectations of different parties and to provide incents. This thesis emphasizes that the legal framework for foreign private equity funds shall be constructed on basis of the principles of national treatment, transparency and free choice of contract.The third chapter is the institutions on market access for foreign private equity investors. The market access is the first crucial question the foreign private equity funds intend to land on China. This chapter details with the structure and defects of several alternatives under current Chinese law, which include foreign invested venture capital fund, foreign invested investment company, inbound investment by foreign invested enterprise and foreign invested equity investment management enterprise.The fourth chapter is institutions on offshore foreign private equity funds. By recalling the discussion in the previous chapter, this chapter points out the fact that the investors are using offshore structure to solve the problem of market access. The main feature of the offshore structure and its inherent defects are revealed in this chapter. In addition, this chapter predicts the legal development by analyzing the recent legislation and practices.The fifth chapter is the firm structure of foreign private equity funds. Limited partnership is usually adopted by international private equity funds. This chapter provides with the advantages of limited partnership, including ease of establishment, reasonable responsibility allocation, short term, flexibility of interest sharing, stability of internal structure and flow through of tax. By introducing the main feature and shortcomings of firm structures that could be adopted under the current Chinese legal system, this chapter reveals the conflicts between the laws on foreign investment and the laws on general firm structure.The sixth chapter is the issues about investor protection. By investing the domestic enterprises, foreign private equity funds acquire a group of rights. The legal system shall provide sufficient protection on the group of rights. This chapter presents an analysis of the convertible preferred shares and reveals the legal risk of the main terms of preferred shares.The seventh chapter is a conclusion, which discusses the requirement and feasibility of reform of foreign investment law and enterprise law from a point view of foreign private equity fund. Again, this chapter suggests reforming the laws on market access, unifying the foreign investment law and enterprise law, introducing relevant institutions on protection of shareholder rights.