Legal Analysis And Evaluation Of Valuation Adjustment Mechanism

The Valuation Adjustment Mechanism, commonly known as "Gambling Agreement" in our country, originated and developed from the western countries with developed market economy. As a tool of private equity investment and financing, it entered our market in the early 20 th century when a large number of foreign capitals entering the market in our country. In financing and valuation of enterprises, the valuation adjustment agreement serves two main functions: one is that it can safeguard the rights and interests of investors’ investment; the other is that it can inspire managers of the target enterprise with prudent operations. The legislation in incorporates the private funds in The Securities Investment Fund Law Of The People’s Republic of China,implemented on June 1st, 2013(hereinafter referred to as "the securities investment fund law"). This legislation gives a special chapter setting principal provisions for the private equity funds. Another legislation, The Interim Measures For The Supervision And Administration Of Private Equity Investment Fund(order no. [105] of the CSRC), implemented on August 21 th 2014, stipulates the corresponding administration measures of the investment fund private raised in our country. These two legislations have clearly established the legal status of private securities investment fund in our country, but there is a pity that both two legislations have not incorporated regulations about the private equity investment, neither the valuation adjustment agreement. Therefore, this article embarks from the legislative status quo of our country; the author did research on the private equity valuation adjustment and the relevant legal issues of this agreement.This paper could be divided into three parts, including introduction, text and epilogue. Among them, the text part includes the following five chapters:The first chapter illustrates an overview of the valuation adjustment agreement. The research object is the valuation adjustment in private equity investment agreement. To start with, the author gives the concept of the valuation adjustment agreement and differentiates this concept with the "gambling agreement". After that, the author introduces the classification of valuation adjustment agreement.The second chapter elaborates the legal structure of valuation adjustment agreement. This chapter using traditional legal relation perspective as a breakthrough, analyzes the subject, object and contents of the valuation adjustment agreement; Then the author analyzes the contract requirements and characteristics of the valuation adjustment agreement from the viewpoint of contract law, from which could conclude that the valuation adjustment agreement has the nature of the equity investment guarantee and is a typical aleatory contract.The third chapter explains the legitimacy and rationality of valuation adjustment agreement. First of all, this chapter points out that we lack of the legislation about the valuation adjustment agreement at present. Then this chapter responses to four core contentions about the valuation adjustment agreement, and points out that the valuation adjustment agreement existing in the capital markets has its rationality.The fourth chapter demonstrates the legal obstacles and risk prevention of the valuation adjustment. On the basis of the former three chapters, this chapter combines the valuation adjustment agreement and the relationship between the private equity financing, and points out that the legal obstacles lies in the process of initial public offerings and stock transfers. Then the author puts forward the corresponding measures of risk preventions.The fifth chapter gives some suggestion on the operation of the valuation adjustment agreement. The author makes some suggestions in practice related to the restriction of the valuation adjustment agreement, the uncertainty of both the investment and financing party, as well as the problem of information, from both the macroscopic and microscopic aspects.The valuation adjustment agreement has been increasingly widely used. The capital inflow provisions, adjustments provisions and capital outflow provisions, as core terms of this agreement, play an active role in protecting the interests of the private investment and encouraging entrepreneurs to create enterprises benefit. The author looks forward to our legislation could incorporate the valuation adjustment agreement and properly solve the incompatibility with the current legislative situation. It is of great significance that solving the difficulties of small and medium-sized private enterprise on financing and establishing multi-tier system of capital market.