Research On Legal Regulation Of PE Participation In Pre-IPO Financing

Private Equity Fund, PE for short, is a kind of investment fund that raises the fund fromminority institutional investors or individuals by private way, which is used to invest shares ofthe listing corporation, and finally get reward by the aimed corporations listed, merged, orbrought back by management team. Now, PE is one of the international mainstream financingtools, and develops fast in our country. The development of PE plays an important role forenriching the structure of capital market of our country, providing financial support of hightechnology, improving the finance environment of minor enterprise, promoting the newindustries stronger, perfecting the structure of the companies, and promoting the adjustment ofindustries of our country. After several years’ development, PE is more and more standardizedin our country. But the problems also come out at the same time.The supervision for PE is almost none in our country, especially the law for finances oflisted companies the PE taking part in. Because there is little legislation for Pre-IPO periodthe PE taking part in, the problems come out: principal part of supervision is not clear, thefinance income is not standardized, the disclosure is not consummated, and the principal partof law is not proper, the independence of companies is influenced often and so on. If thatcan’t be changed, for sure it causes the disorder of PE market and damage of investors’ profit.Now the measures for the administration of equity investment fund (draft) is published,waiting for the state council’s approval. From this we can tell this is laid store by, and it alsoreflects the serious law problems.In this article we mainly discuss the law problems about the period before listedcompanies taking part in finance. The PE in our country tends to invest the aimed companiesbefore getting listed (Pre-IPO). Through this kind of investment is less risky, breaking awayfrom PE is the essential attribute of venture capital and value investment, which heavilyweakens PE’s finance function on supporting new industries and high technique industries.PE’s “value discovery” and “value creation” is weakened. This kind of single way to earnbenefit is not good to our country’s financial market development, and it also contains marketand law risk. The author think, behind PE taking parting in the getting companies listed, it isthe fund investors’ bad speculation mentality. This irrational investment action will havenegative influence to our capital market, especially lack of effective supervision. Necessary law standard is needed for PE taking part in the finance. There for, the government shouldcreate relative laws to guide PE to pay more attention to inner value of the companies, toencourage to get in the companies earlier, to give aimed companies finance support andappreciation services, which is to achieve PE’s true “value discovery” and “value creation”.This article’s whole idea is written as find problems, analyze problems, refer experienceand solve the problem. According to introduce the concept, characteristics, operationmechanism of PF’s finance action for the companies before listed, we discuss the positive andnegative influence the PE’s finance has to our country’s market, and analyze the lawproblems of the PE’s finance in this special period and how necessary to create law standard.Finally, referring to foreign law experience and supervision model and combining with ourcountry’s PE development and market situation, we propose scientific, reasonable andefficient advice to PE supervision system, and propose the detail law rules and regulationsadvice PE taking part in finance before companies get listed. It’s important to make PEregulation in our country to develop healthily, especially to PE’s finance action before thecompanies get listed.