Study The Legal Issues Of The Gambling Agreement

With the development of China market economy, many small and medium-sized enterprises are experiencing a period of gradual development and expansion. In such a period, the perfect conjunction point is found between the capital requirements of the entrepreneur and the capital advantages of private equity investor. However, at the same time the risk control in the process of the growth of the target company has become the problem both parties jointly face. Therefore a new system become gradually mature and obtains the widespread application during the constant exploration of both parties, this is the "VAM"—Valuation Adjustment Mechanism.At the beginning of this century, VAM was introduced into China by the international investment banks and was applied in the famous cases like Mengniu and Yongle. "Interim Measures on the Administration of Venture Capital-Invested Enterprises", jointly issued by ten ministries and commissions and administrations such as the National Development and Reform Commission in 2005, began to guide and supervise the venture capital-invested enterprises, and make private equity institutions gradually step into the standardized operation. "NVCA Model Legal Documents for Venture Capital Investments" was publicly published in China in Dec.2006, and then the relevant provisions on VAM were fully introduced, which have a great instructive meaning to the majority of domestic entrepreneurs and investors. In recent years, VAM has been widely accepted and applied by domestic and foreign private equity institutions.This thesis analyzes and summarizes the relevant legal issues of VAM and its application in private equity with the clue concerning the conclusion, performance and termination of VAM and by methods of empirical analysis and case analysis, and puts forward proposals to further improve according to the related stipulations of current laws in China.In addition to the introduction, this thesis is divided into six chapters. ChapterⅠis Overview of VAM. The study subject of this thesis is VAM in private equity, which is very necessary in private equity background. VAM is a legal valuation adjustment rule agreed by the parties. VAM is a conditional contract; it looks the target company's value at the point of development, and reflects the investment fairness through the dynamic adjustment, not only protecting the interests of both parties, but also plays an incentive constraint on the team of founders.ChapterⅡis Conclusion of VAM. The subjective base of the conclusion of VAM is that both parties have consensuses on the target company's long-term development and current fund-raising arrangements; while the objective base is that both parties basically determined the target company's value adjustment through the information disclosure of the team of founders and the due diligence of private equity institutions. The thesis lists the common problems and solutions in the due diligence, and analyzed the fiduciary duty of the team of founders as the controlling shareholder.ChapterⅢis Setting Up and Implementation of Valuation Adjustment in VAM. Valuation adjustment is the core aspect of VAM. As a conditional contract, Vim's benchmark article is the agreed conditions, while the realization of valuation adjustments is the consequences after the conditions are triggered and the contract continues to be performed. This chapter describes the setting up and producing base of benchmark article of valuation adjustment, as well as the realization of valuation adjustment, through the case demonstration.ChapterⅣis Shares held by Private Equity Institutions. The nature of shares held by private equity institutions is an agreed share with a priority. This chapter demonstrates through cases the agreement of preferred rights of common shares such as preferred dividend, preferred repayment, preferred withdrawal and value guarantee. It analyzes the practical significance of setting preferred rights of shares, and states the limitations of preferred rights of shares regulated by the current Company Law of the People's Republic of China.ChapterⅤis Withdrawal of Private Equity Institutions. The main withdrawal ways of the target company are to sell the sharp, trading and merger & acquisition after the listing. Trading refers to the shares acquisition of the team of founders or the target company from the private equity institutions; while merger & acquisition refers to third party transferring the shares of the target company. It focuses on the system of drag-along right, and analyzes how to design if this system is introduced into China in the merger & acquisition.Chapter VI is Status and Recommendations of VAM in China. Private equity is a high risk investment, while the private equity institutions are expanding rapidly with unhealthy competition and over reliance on VAM in the aspect of risk control. After the launch of the GEM, the team of founders has high expectations on the valuation, and makes a high offer due to the blind comparisons with listed companies and neglect of their own viability. This thesis lists the cases of improper application of VAM. The author believes that legislative provisions to the preference shares should be added, and the limits on the private equity institutions should be relaxed, and more flexible measures should be adopted in the company share changes already listed on the market but still banned to sell. The author also recommends the establishment of industry self-regulatory organizations and strengthening regulation of the information disclosure.