Research On The Investors’ Rights Protection Of Private Equity In China

Private equity investment is one kind of investment activity, which firstly raises funds from particular institutions or wealthy individuals in a non-public way, then directly gets the equity of portfolio companies, participates in the management of the company, and ultimately acquires the return on investment profits from such exit forms as IPO, mergers and acquisitions, or management buyout.Private equity investors are the providers of private equity capital. Subject to our regulations and policies, in China the capital from wealthy individuals accounts for more than90percent of all private equity funds. Private equity investors meet the risk due to information asymmetry and agency costs in all the stages including the fund raising, the project investment and investment management. Therefore it is very important to protect the private equity investors.There are three ways to protect the investor protection. First, to select a valid form in fund collection forming a limited partnership fund can resolve the problem of information asymmetry and double taxation problem between fund managers and investors in the fund raising stage. Secondly is to set a series of investor rights protection clauses in the stage of project investment, aiming to protect the rights of investors in the portfolio companies. At last in the final stage in the project, is to select suitable exit activity to achieve the purpose of maximizing the interests of investors.However, in China the private equity investment has many problems which make the investors’ rights lack effective protection. For instance, there are lots of laws and regulations to regulate the establishment of limited partnership funds, the usual terms of the protection of the rights of the investors cannot be effectively implemented due to the limitation of regulations, policies and restrictions in the investment process, and the portfolio exit has faced some obstacles. All of these have made our country the rights of private equity investors cannot get the proper protection, and then has a negative impact in the entire private equity investment field enthusiasm and prosperity of the country’s financial market.This article recommends that to set up the regulatory laws and regulations, improve the legal status of the priority rights of private equity investors as well as improve the exit ways for private equity investment, making private equity investors the right to receive due protection.