On The Protection Of Limited Partnership PE Investor 's Rights And Interests

As a new mode of investment and financing, private equity funds are attributed to an emerging financial intermediation. Private equity investment in China is currently in the early stage of development. With the promulgation of Partnership Enterprise Law of the People’s Republic of China (2007new version), the private equity market has developed very quickly. However, generally speaking, the private equity industry in China starts relatively late and the legislation is lagging behind. What’s more, because the general partners on PE market in China lack of the awareness of the integrity, the enterprises pursue the short-term interests and ignoring the building of the core competitiveness of enterprises. Besides, the external regulatory system and internal check-and-balance mechanism are incomplete. In consider of all the above factors, the author makes a statement that the issue of the protection of the interest of the limited partner has become increasingly important to the healthy and orderly development of China’s PE industry which cannot be ignored any more.The paper is divided into five sections:The first chapter analyzed the concept and legal characteristics of the limited partnership private equity funds, then made an analysis of the involved parties in the limited partnership private equity funds. From the legal relationship between the limited partner and the general partner, the paper explained the principal-agent problem and the problem of asymmetric information in the operation of the limited partnership private equity funds, and made the conclusion that the protection of the interests of the limited partners in PE industry not only needs the improvement of the external legal system but also requires the internal contractual arrangements.The second chapter introduced and evaluated the regulatory framework for U.S. PE industry and the application of the limited partnership in U.S. PE industry. Furthermore, the paper made a comparative analysis of the limited partnership private equity investment funds in China to discuss the legal framework and pointed the practical problems in the development. It came to the conclusion that we should learn from foreign experiences to build a legal system in line with China’s national conditions.In the perspective of Value Adjustment Mechanism (VAM), the third chapter clarified the meaning of the gambling agreement (VAM) to distinguish from other types of contract. Especially, this chapter analyzed the judicial opinion of the Supreme People’s Court in "Haifu Investment Case" which is known as the first case concerning the gambling agreement, then put forward some advice on the draft of term sheet in the purpose of avoiding the risks under the investment agreement.The fourth chapter further reviewed of the preferential terms frequently used in the U.S. private equity market and analyzed the possible obstacles under the PRC legal framework to remind the investors to incorporate these rights into the transaction document under PRC legal framework.The fifth chapter put forward some proposals to build the protection system of the interests of the investors in the limited partnership PE.