The Establishment Regulation Of Private Equity Fund In Our Country

Private equity fund, the counterpart of public equity fund, refers to a pooled investment vehicle used by issuers which is associated with particular investors and traded privately.It springs up at an increasing rate in China and has already surpassed public equity fund both in scale and in market influence, which we attribute to its advantages like relatively convenient issuance, low cost and flexible operation, as well as a close relationship between investors and issuers which ensures fund flow. However, a lack of legislation in private equity fund area results in a series of problems such as irregular operation, chaotic regulators, illegal manipulation and so on. Regulators’ laissez-faire attitude toward private equity fund has left it in a vacuum of regulation for a long time. But in recent years, regulators attached importance to it again and promulgated several regulations. The growing stock market and legislation progress serve as insurance of the legislation in private equity fund. Regulators can also draw lessons from the development of private equity fund in other countries. There are different approaches to the regulation of private equity fund and one part of them is enactment regulation, which includes requirement, procedure and audit. Establishment requirement includes organizational form, establishment agreement, capital standards, and membership. Organizational form includes contract, corporation and limited partnership. Establishment agreement means that parties agree on the contents of private equity fund especially that it can’t be traded by advertisements or in a public conference. Capital standards include equity standard and profitability standard. Membership requires the number and qualification of people from both parties. Establishment procedure involves application, information disclosure and report record. Issuer has to apply ro regulators for establishment of private equity fund if that’s demanded. According to the diverse qualification of investors, regulators will set for issuers different requirements of information disclosure accordingly. After establishment of a private equity fund, a report in time is needed to regulators for the sake of their supervision. Establishment audit happens after a private equity fund meets the establishment requirement, when regulators check if it can be established. It includes1) the auditor, namely the regulator,2) style, which includes registration system and approval system, and3) exemption which applies to some private equity funds that can be established directly without registration. Legislation in the above three areas is still vacant in our country while complete in other countries and regions. This thesis tries to offer some suggestion for the legislation in private equity fund in our country by introducing some rules and practices from other county and regions and then combining them with the actual situation in China.