Legal Study Of Private Equity Funds In China

Private equity funds, as a tool for direct investment, has become an important part of China’s financial system in the background of excess liquidity. In order to better develop private equity, perfecting related laws and regulations is a necessity. Since the implementation of new "Law on Partnership Enterprises" in2007, the form of limited partnership has attracted a lot of investors to adopt this new model. However related laws and regulations still have loopholes which hampered the development of limited partnership form of private equity.This article studies related laws concerning limited partnership form of private equity, including partnership law, corporate law and related laws in securities industry. The article also referred the successful case of U.S. private equity which shed some lights on the legislation in China. The article further discusses the loopholes in Chinese PE legislation and made some suggestions. There are four chapters in this article:Chapter one introduces the basic concept of private equity. There are three sections in this part:section one discerns the PE concept from others; section two discusses three main forms of PE—corporate, trust and limited partnership, through comparing the pros and cons of the three forms, the article concludes that limited partnership should be the major form of developing private equity.Chapter two introduces the legal frame of limited partnership private equity in China, and the defects in the current legal frame——investment scale is limited, imbalance of rights and obligations between general partners and limited partners and the insignificant advantage in taxation.Chapter three mainly centered on the successful case of PE in the U.S., introducing its legislation and supervision system.The last chapter presents legislation suggestions, including enlarging limited partnership scale, establishing partner qualification and PE manager incentive system, strengthening fiduciary duty of PE manager and promulgating preferential tax policies.