Basic Legal Issues For Private Equity Funds

Of all the fund-raising approaches in Chinese financial market, private placement fund is relatively special. and even develops alongside registered fund. As a kind of investment vehicle, the private placement fund appears and develops rapidly in our security market in recent years, which has reached to about 900 billions RMB according to the recent survey. It seems to exert a deeper influence on market because of its relative exemption from supervision. Currently, facing the huge demand on capital for innovation, the multi-layered construction of financial system and the pressure engendered by foreign financial magnates, Chinese decision-makers have once again realized the huge potentials of private fund as a financial. However, with the growth of the private placement fund, the accumulated problems are obvious and potential. Even so, up to now, there is no systematic legislation concerning the standardization and development of private fund in china. Furthermore, our country educational circles collects not clear cognition of the fund essential features to private placement fund. As for what issuing regulation the private placement fund ought to abide? What is the fundamental legal relation attribute under private placement fund? What responsibility to the investor the fund-managers ought to undertake? Our country educational circles do not cany out suflScient discussion at present. Firstly, this article fixes legal sense of private placement fund, and analyses its essential features. Secondly, the author discusses the system of private placement in the Unites states and further puts forward some advices to our present law. Finally, the author on the one hand discusses the fiduciary duty of private placement fund managers and on the other hand put forward some advices to our present fund law to build a fiduciary-duty-centered investor protection mechanism.Apart from the preface, the paper consists of three chapters.In Chapter 1, the author defines the "private placement fund" as "a collective investment vehicle which privately offers its securities to sophisticated investors and in securities mainly with great risks." The private placement fund is different from others, such as registered investment company, etc. Besides, the author discusses the legal arrangements of private investment companies, such as agency of undisclosed principal, trust, corporation, limited partnership, etc.In Chapter 2, the author studies the regulations of American private placement through the Regulation D which form the regulatory scheme of that country. Besides, the author discusses some deficiency of current laws and regulations of private placement fund of china, and proposes some workable suggestions to its perfection.In Chapter 3, the author explores the nature of relation between fund-holders and fund-managers and duty of fund-managers. In section one, to compares fiduciary relation with relation of trust, the author finds that fiduciary duty is the extension and expansion of trustees' liability in the law of trust. The author also indicates the fiduciary relationship between fund-holders and fund-managers. Besides, the fund-managers have fiduciary duty to fund-holders. In section two, the author briefly explains the content of fiduciary duty-duty of care and duty of loyalty, then analyzes the origin of fiduciary duty and further compare the duty of care and duty of loyalty which supplement each other. Subsequently, the author makes a deep investigation into the duty of care and duty of loyalty. In the first place, the author focuses on three questions: the definition, criterion and the requirements of the duty of care. Furthermore, the author makes a comparison of specific requirements of duty of care in United States and puts forward some advices to our present law. In the second place, the author researches the duty of loyalty in three aspects: explanation, regulation on conflict of interest transactions of fund managers, legal effect of violation of duty of loyalty. The author summarizes differences of the regulation on conflict of interest transactions in other countries and find that regulation based on compulsory disclose and serf-control is appropriate for private placement fund in china. Besides, the author also discusses the legal effect of violation of duty of loyalty and points out the distinct advantage of revocable doctrine.