Research On Legal Issues Of Foreign-related Private Equity In China

With rising influence in global capital markets, Private Equity (PE) promoted the development of high-tech economy and M & A waves in developed countries. In the same way did it in China, and the foreign-related PE play an important rule in Chinese markets. The Legal system should be set up to protect PE operate smoothly and guard the safety of our economy. And this is the path to the establishment of Sino-international Capital Center.This dissertation focuses on five key legal issues, include the establishment, placement, governance, information disclosure and regulation, the analysis are as follows:Chapter I introduces the basic theories of the subject, including the name, the concept, and draw the conclusion of the Legal Characteristics and Legal relationship of PE.Discuss on the invest model, historical development and Legislative system of foreign-related PE, and mentioned its positive and negative externality.Chapter II focuses on the market access of foreign-related PE, the establishment and private placement. This market access is not belonging to the commitments of GATS, and our legal system regulate the foreign-related PE more strictly than native PE. For further development, we should treat the foreign-related PE equally. The standards of private placement construct by non-public offering, qualified funds and qualified investors. And now institutional investors are allowed and encouraged to access in PE markets.Chapter III includes the governance of three main organizational forms, they are Limited Partnership, Corporation and Trust. Limited partnership is most popular in international PE, and the relative regulation need to be established in China, and the conflicts of culture should be fused. The organization of corporation and trust have its advantages and deficiencies.Chapter IV is about information disclosure. It is dilemma for private fund to tell or not tell, and it is balance of commercial secrets and protection of investors. Concluded that the fund managers have the obligation of disclosure to the public, the regulators and fund investors, and the degree can be different. What’s more, the valuation methods of unlisted equity should be engaged in advance.Chapter V constructs the framework of Chinese regulation on PE. The regulatory philosophy should take into account the financial security and financial efficiency; achieve financial openness and financial innovation, at the same time focusing on protecting the interests of investors. What’s more, the legislator should focus on the rule of the market, but not the power of their own. For the regulatory rules, the most important is the monopolization of the market by foreign-related LBO fund, the behavior will harm to the fair order of market, and even threaten the security of our economy. This should be reviewed strictly by our anti-trust law and relevant national economic security review department. Secondly, the risk of operation should be identified, such as the negative effect of leverage buyout, the conflicts of interests of the managers of the fund, rules should regulate them and offer legal remedies. What’s more, market self-regulation should play an important role, and in some degree, it will be more effective. And the international cooperation is necessary for the regulation of foreign-related PE fund, by bilateral agreements or under the framework of IOSCO.