Legal Research On Exit Mechanism Of Private Equity Funds

After introduced to China last century, private equity fund (PE) industry had a rapid development in this century. After the period of so-called "national PE", now it has been into the period of deep adjustment. To our delight, deepening reform has been a common view. With the expansion of NEEQ and publishing of preferred shares measures, we can see the broad prospects of private equity funds.The operation of private equity funds can be summarized into four parts:raising a fund, investing, management and exit from enterprise, in which exit from enterprise is the most important to assure investment income. Now in our country, study on field of private equity fund, especially the research on exit mechanism from the point of view of law, was far from perfect, which constraints the development of PE.According to the current situation of PE, combining with several recent reform measures and learning from advanced experience, the article tries to carry out legal research on exit mechanism of PE, so as to provide helpful suggestions for perfect exit mechanism of PE.The article is divided into four chapters:The first chapter makes an overview of private equity fund and its exit mechanism, and introduces the development of private equity fund industry in China. It states the importance of exit mechanism for private equity funds.The second chapter analyzes obstacles in the period of exit for China private equity funds. There are four kinds of exit mechanism for PE:Initial Public Offering, Mergers & Acquisition, Buy-back and Write-off. The article respectively makes deep analysis. With respect to IPO, the stringent provision of law and imperfect capital market makes huge obstacle for domestic and oversea listing; As for M&A, the expansion of NEEQ and development of Private Equity Secondary Market make a new opportunity for PE exit, but there are still many problems to be solve; As for Buy-back, target company buy-back and target company shareholder buy-back should be distinguished to determine the effectiveness of buy-back clause; As for Write-off, it is needed to put the new launched preferred stock experiment to cover common unlisted company, and complete relevant design.The third chapter mainly investigates legal system design of exit mechanism for PE in the United States, so as to find reference for PE in China. I think the multilayered capital market system and design suitable for each layer and interaction among layers provides good surrounding for PE to exit. And flexible legal design such as company can buy back share also provide security.On the basis of study on China’s problems and America’s advanced experience, the fourth chapter gives several suggestions on China’s exit mechanism of PE. It is imperative to make a unified law that guide the development of PE. At the same time we should perfect the multi-layered capital market with faster speed. With respect to specific legal provision, we should perfect the rule of stock locking and equity transfer, protect effect of investment agreement and improve feasibility of write-off.