Research On The Legal Issues Concerning Investment Protection Of Private Equity Funds

In recent years,with the growth of China's capital market,China's private equity investment has entered a period of rapid development.At the end of 2015,the State Council issued the Implementation Opinions on Further Significantly Increasing the Proportion of Direct Financing and Optimizing the Financial Structure and emphasized the need to focus on five areas of work in 2016,among which,piloting private equity financing is one of them.The Two Sessions of 2016 also fully affirmed the status of private equity financing.In addition,the proposal of “mass entrepreneurship and innovation” has spawned a large number of private capital to enter the private equity industry.The number and amount of private equity transactions have risen steadily,showing a prosperous scene.The booming development of high-tech and consumer-related industries has led to the development of mergers and acquisitions in related investment industries,resulting in particularly high equity investment.However,the risk of private equity investment cannot be ignored.In general,compared to ordinary residents' financial investment,the cycle of private investment is relatively long and the amount of funds required is also large.Due to the different claims of their respective rights and interests,the invested company,the controlling shareholder and the actual controller also reflects the game of the two parties' rights and interests.In view of the asymmetry of the information between the two parties,how to provide the invested company with the necessary funds to support its rapid development,while restricting the relevant behavior of the invested company itself or even the controlling shareholder and the actual controller,and ultimately achieving a win-win situation for both parties involved in the transaction is the problems that private investment institutions have always faced.I intend to,based on the analysis of the reasons for the existence of private equity investment risks,introduce investor protection related terms from the perspective of investment practice(i.e.based on two different stages: investment stage and exit stage),including but not limited to valuation adjustment mechanism,right of first offer,right of first refusal,anti-dilution,preferential dividend rights,and protective clauses,drag-along,tag-along,redemption as well as liquidation preference so as to rationalize the rights of investors,maintain and protect the interests of investors.In addition,based on the existing limitations of the PRC laws and regulations on investor protection,I put forward some suggestions on improving the existing PRC laws and regulations.