Realization Of Private Equity Funds Liquidation Exit From Corporation

The typical process for private equity funds includes advance financing, projectselection, exit target company and re-investment. How successfully exit targetcompany is the most important thing for private equity investors, because sound exitmechanism is to ensure private equity funds run healthily and repeatedly. Due to thelack of appropriate legal system, there are a lot of obstacles in Chinese private equityfunds exit mechanism, thereby constraining the development of private equity fundsmarket. This article aims to discuss under liquidation type exit scenario, how privateequity investors minimize their loss and get off target company.The paper is consisted of five chapters.The first chapter introduces the basic theory of private equity. Since the researchtopic is the distribution rights of property, I believe it’s better to clear some basicrelevant theories. In this chapter, I define the concepts firstly. Make clear that“liquidation” is equal to “realization of assets”, means shareholders selling theirshares to obtain money. Secondly, I summarize the importance of private equityfunds’ exit. Further, there is a brief introduction about private equity funds liquidationtype exit including share purchases, dissolution and bankruptcy.Chapter Two, Three, Four respectively discuss three types of private equityliquidation exit (share purchases, dissolution and bankruptcy). These three chaptersmainly analyze how private equity shareholders achieve their property distribution rights, and point out possible legal problems they may encounter. As to share purchaseexit strategy, the main legal issues include the effectiveness of the company’s decisionand repurchase provisions; the money used for purchase their own shares; the legalreasons trigger share purchase. As to dissolution exit strategy, mainly discuss whatshould private equity shareholders do under the situation the company would not bedissolute based on articles of incorporation; whether private equity shareholders havepriority right to vote for dissolution and the effectiveness of liquidation preferenceclause. When it comes to bankruptcy exit strategy, the essay discuss the effectivenessof liquidation preference provision, the possibility of tax preference and allowingprivate equity funds recover part of its loss.Chapter Five selects United States to draw a lesson for the current liquidation exitsituation in China. United States, as the birthplace and the most developed country ofmodern private equity industry, the system design is also the most perfect. After thepresentation and discussion of American related rules and regulations, and combinethe defects in China, then make some suggestions. It’s believed that private equitywould be effectively supported and reasonably regulated.