The Legal Risks And Prevention Of "VAM" In Private Equity Investment

The development of Private Equity investment funds is greatly influenced by the pace of social and economic development.With the expansion of the openness of the financial market,a large number of foreign Private Equity investment funds have entered China's financial market in various ways.They have obtained huge profits by investing in Chinese start-up companies and have driven the development of localized private equity investment in China.Private Equity investment is conducive to expanding the scale of financing for medium-sized enterprise(SMEs)and improving the sustainable development capabilities of SMEs.It provides a new financing channel for various SMEs and enables SMEs to solve the issue of development funds with new exports.Although Private Equity investment can create greater economic benefits for investors,it has significant information asymmetry risks in its investment process.In order to alleviate this information asymmetry,Private Equity investors often require Private Equity financing companies to sign a "VAM"(Valuation Adjustment Mechanism).The emergence of “VAM” can control the risk of investment for Private Equity investors.This type of agreement is becoming more and more common among enterprises.With the popularization of “VAM”,the legal risk is gradually exposed.This article analyzes the possible legal risk of “VAM”,and demonstrates and arguing through related cases.This paper also proposes risk prevention suggestions for these risks,which may cause China's investment and financing companies to face“VAM”.The legal issues provide reference and legislative advice.This article is divided into three parts:In the first part,through the explanation of the basic meaning of the "VAM" in Private Equity investment and the overview of the classification,the author introduces the analysis and discussion of the legal nature of the "VAM" in Private Equity investment,mainly including whether it belongs to the contract.Whether it belongs to the shotgun contract and whether it can be called an option.In the second part,it analyzes the possible legal risk of “VAM”,such as discussing the legitimacy of the “VAM” from the perspective of “Contract Law” and“Corporate Law” in China,and enumerating its special circumstances;The review and disclosure perspectives in the analysis of the legal risks of the “VAM” include the supervision red line of the “clear ownership of equity” and the scope of supervision of the interest protection of the small and medium shareholders.On this basis,the process of listing is analyzed."VAM" does not completely eliminate the possible legal risks;in addition,it also analyzes the legal risks in the judicial adjudication and the overdue interest determination.In the third part,in order to guard against the legal risk of the “VAM”mentioned above,the author first proposed the use of referee standard fillers,specifically including the clear scope of gambling principals,different treatment of equity repurchase terms,and prudent treatment of agreement amendments.There are three aspects of the interest calculation problem;and the author proposes to establish a supervision and ancillary system,such as setting restrictions on equity transfer and setting up a simulated equity change table.