A Comparative Study Of Preferred Shares In Private Equity Investment

Private equity investment has developed twenty years in our country. With the process of deepening reform in financial market, there have been many successful cases in the current investment practice, providing a new financing channel for small and medium enterprises, enriching the investor’s investment varieties, greatly promoting the economic development. Our country "Partnership Enterprise Law”, “Securities Investment Fund Law”, “The trial measures for the administration of preferred shares”, as well as the new three board and the gem board, providing a further support for the development of private equity investment law and policy.At present, the development of the private equity increases in the number of total funds and new funds year by year.Limited by the lack of preferred stock legal system in our country, PE often use Valuation Adjustment Mechanism(VAM)in the agreement of risk prevention at present, rather than the convertible preferred stock which foreign PE investment often adopt. The VAM is great risk, easily causing the instability of ownership structure, damaging the interests of minority shareholders. There are a lot of controversies in the inequality of the rights and obligations. At present, The Securities Regulatory Commission denies the VAM, not agree the VAM existing in the listed companies’ equity agreement, should be ruled out or discontinued before IPO. Coincide with China’s private equity investment in difficult, The Securities Regulatory Commission issued the trial measures for the administration of preferred shares, allowing company to issue preferred stocks. This paper is the time to fit our preferred stock on a trial basis, comparative studying on the system of private equity investment in preferred stock. Through summarizing the reasons of risk in private equity, analysis the role of preferred shares in preventing these risks, reference the advantages of foreign preferred shares system, put forward suggestions on the optimization of the preferred stock system in our country.This article is divided into three parts, the content of each part describe as follows:The first chapter explains the legal characteristics of private equity, and then argues that the legal nature of private equity is the legal attribute of the trust. The trust legal attribute private equity risks down to two core reasons: interest conflicts and asymmetric information between the main bodies. Then the article introduce the practice often used to guard against the risk of investment, which leads to the feasibility analysis of preferred stock in preventing the risks of private equity investment.The second chapter discusses the necessity of introduction to the preferred shares in private equity investment. Through the analysis of private equity priority, this paper argues that preferred shares in private equity are applicable on the legal risks in our country. As the trial measures of the administration of the preferred stock enacted, there have been establishing the system of preferred stock in our country, but limited by the shortage of preferred stock system, it limited our country using preferred stock as an investment tool in the private equity.The third chapter contrasts the characteristics of foreign mature system of preferred stock, and then points out the direction of our country private equity investment in the preferred stock system optimization. According to the national conditions in the financial markets, this paper argues that protecting the interests of the investors as the benchmark, then through six aspects, discussing the realization of the preferred stock system optimization path in our country.