Sino-us Securities Private Placement The Legal System

Securities private placement is regarded as one of the most important financing resources for enterprises in mature capital markets. With the development of the Chinese capital market for almost twenty years, there has been a certain scale of private placements in practice, which is often stipulated as "non-public offering" in relevant laws and regulations of recent years. However, as an emerging capital market without a complete set of regulatory systems, our current legal framework regulating the securities private placement is essentially different from that of a mature capital market. For instance, a private placement is still subject to examnination and approval by the relevant authorities in China, while exempted from registration requirements in the United States. In addition, the relevant regulatory systems for private placement in China are either incomplete or lack of enforceability in practice. The above issues have impeded the development of private placement as a both efficient and convenient financing channel and have weakened its positive effects on the nation's economic development. Through introduction and analysis of the legal frameworks in terms of private placement in the United States and Taiwan Province of China, and always with a view to balance the financing needs of the issuers and the protection of the investors, this article primarily aims to establish a complete set of regulatory systems for private placement in China on the basis of the current non-public offering rules of our country.This article is mainly composed of five chapters:Chapter One discusses the standards and elements to be considered to define a private placement in contrast to a public offering. It introduces the relevant securities legislations, case law and the report of the American Bar Association, which have played important roles in the definition of a private placement and summarized four key elements to define a private placement, i.e., offeree qualification, availability of information, manner of the offering and absence of redistribution. Based on the applicable laws and regulations and reference to these standards adopted in the United States and Taiwan Province in terms of the definition of a private placement, this chapter also comes up with a set of standards eligible for China.Chapter Two discusses the qualification of investors in a private placement and the number limit on such investors. It mainly introduces the relevant U.S. legislations of accredited investors and non accredited investors and its recent amendment draft in this regard, as well as the rules on eligible investors for private placement in our Taiwan Province. This chapter also recommends a scope of qualified investors and the number limit of such investors eligible for China, based on the applicable Chinese laws and regulations and reference to the rules of the United States and Taiwan Province.Chapter Three focuses on the exemptions granted to private placements. It introduces the exemption for private placement from registration requirements in the United States and the exemption from examination and approval requirements in Taiwan Province, and suggests that we should abolish the current examination and approval requirements and adopt an approval exemption for private placement in China.Chapter Four addresses the information disclosure rules of the private placement. By introduction of the relevant rules on information disclosure in the United States and Taiwan Province, this Chapter conceives the rules of information disclosure for private placement in China and suggests we should consider different information disclosure rules to institutional investors and non institutional investors, given the different self-protection ability of these two kinds of investors.Chapter Five discusses the resale rules on securities obtained from a private placement. It primarily introduces the relevant rules on resale restrictions and resale exemptions for the restricted securities, as well as the most recent amendments to the resale rules in the United States, which has been launched in order to cope with the global economic downturn. Based on the applicable laws and regulations on resale restrictions in China and reference to these rules adopted in the United States and Taiwan Province, this chapter finally comes up with several advices to the construction of the resale system in our country, including the restrictions on holding periods and the qualification of the buyers in a resale of restricted securities.