The Legal Research On Share Buy-back Terms In Private Equity Investment

China’s Private Equity Funds(“PE”) play an increasing important role in investment and finance filed. The share buy-back terms is one of the Valuation Adjustment Mechanism(VAM), which are widely used in the investment field for its usage to control risk for the information asymmetries in the assessment of the target enterprise. However, there are still many legal issues about share buy-back provisions on both theory and practice. So it is necessary to discuss and research share buy-back provisions’ legal nature and effect,which will help to solve the poor fulfillment and to promote the effectiveness of the VAM and help to control transaction risk,quick the transaction process and benefit both parties.This thesis will discuss how the courts deal with share buy-back terms in different cases,and how the contract law,corporate law, principles of commercial trial and judicial policy guidance affect the judgments. On the condition that the original shareholders of target company is the party who has the obligation to repurchase shares,then the contract law should be applied. When the subject of repurchase is the target company,then the corporate law and its legislative intent to protect creditor should be applied. Therefore this kind of share buy-back terms are considered valid only under specific condition. Under the current Chinese legal framework this kind of VAM terms has both its legitimacy and certain legal obstacles.This thesis will discuss three typical cases,try to explore the different judgments of different Courts and find the common disputes among the three cases. Analysis these disputes in the view of the application of law and commercial trial principal,and research share buy-back provisions’ legal nature and effect. When discuss the different law enforcement and validity between the shareholder share buy-back term and the target company share buy-back term, we have to take the the principle of autonomy in civil law and the different legal nature between shareholder and creditors on Corporate law. The author will make comments on the imperfect judgments made by the courts among two cases,and make a conclusion about the three cases. Under the current legal framework,the share buy-back term in valuation adjustment mechanism signed in the investment agreement has both its legal ground and legal impediment,so it is necessary to make some operable suggestion on the rational utilization of share buy-back term,which will in favor of avoiding legal risk.