A Study On Limited Partners' Derivative Action

Limited partnership has become a good choice for venture capital industry,science and technology innovation enterprises and family enterprises because of its advantages of the coexistence of limited liability and unlimited liability,flexible and efficient internal governance structure,and convenient exit channels.After the introduction of limited partnership system into China,it is especially popular in the venture capital industry and widely used in the field of private equity funds.In the limited partnership private equity fund,the two identities of general partner and fund manager are united.The superposition of two decision-making powers,fund management power and partnership affairs execution power,results in the monopoly of decision-making management power of limited partnership by general partners.In practice,due to the insufficient restriction of internal power in limited partnership,fund managers often abuse decision-making power or neglect to perform their duties,which not only damages the interests of investors,but also disrupts the market order of private equity funds.In order to balance the interests between the limited partner and the general partner and to curb the abuse of power by the executive partner,the law has established various channels to relieve the limited partner,among which the limited partner derivative litigation system is one.Limited partnership derivative litigation refers to: "When the legitimate rights and interests of a limited partnership are infringed unlawfully,if the executive partner is not willing to exercise his rights to safeguard the interests of the enterprise,the qualified limited partnership has the right to bring a lawsuit in his own name according to the legal procedures,and the interests of compensation obtained by winning the lawsuit belong to the litigation system of the limited partnership enterprise".Comparing the advantages and disadvantages of various alternative remedies for the rights of limited partners,we can find that the derivative litigation system has great advantages and potential in balancing the abuse of management rights by executive partners and preventing the damage of external infringers.However,judicial practice shows that due to multiple factors,such as the limitation of legal environment and the defect of system design,the right to initiate derivative action of limited partners often falls into the dilemma of being restricted.When the rights of limited partners are infringed internally or externally,it is difficult to find economic and efficient relief channels.Therefore,we should reconstruct the derivative litigation system of limited partners in China to facilitate investors to use this system to safeguard their legitimate rights and interests.This paper is divided into four parts.The first part introduces the dilemma of legal remedy for limited partners in China.This paper focuses on the analysis of the current situation of frequent damage to the rights and interests of private equity investors,and summarizes the specific reasons for this situation into two aspects: internal control deficiencies and legislative deficiencies.This paper analyses the deep reasons why the limited partners' rights can not be effectively remedied,and draws the conclusion that the root cause lies in the lack of remedial channels.The second part is the path choice of legal remedy for limited partners.This part aims to clarify the focus of the power game within the limited partnership and compare the advantages and disadvantages of various alternative paths for the remedy of the rights of the limited partnership.Through comparison,it is found that the relief channels provided by the current law can not fully protect the legitimate rights and interests of limited partners,so it is urgent to supplement the derivative litigation system.The third part is the reference of the beneficial experience of the extraterritorial derivative litigation of limited partners.Through sorting out and studying the legal origin and the latest development trend of derivative litigation of limited partners in the United States.It is proposed that,while drawing on the advanced experience of the United States,we should also make the best choice according to the imperfect credit system and the high moral hazard of the market in our country.The fourth part puts forward some suggestions on the reconstruction of the derivative action system of limited partners.Firstly,this paper expounds the differences between derivative litigation in the field of limited partnership and corporate justice,and puts forward the basic principles that should be followed in the system construction.According to the characteristics of limited partnership,a derivative litigation system adapted to the typical governance structure of limited partnership enterprises is tailored.The author puts forward concrete ideas on the construction of the derivative action system of limited partners from four aspects: the necessary and limited restraint mechanism,the burden of proof and the burden of litigation costs,and the introduction of the special litigation committee system.