Private equity funds in the form of limited partnership can effectively avoid double taxation, ensure the interests of operators and owners are consistent under the condition of separation of ownership and management rights through reasonable incentive and restraint measures, promote the division of labor and cooperation between general partners and limited partners, and give full play to their respective strengths and advantages; In addition, the limited partnership private equity fund has the characteristics of low threshold, simple establishment procedure, simple and flexible internal governance structure, efficient decision-making procedure and flexible benefit distribution mechanism.
From the legal point of view of limited partnership, limited partnership private equity funds also have the following characteristics:
1. The property of a limited partnership private equity fund is independent of the property of each partner. As an independent unincorporated enterprise entity, limited partnership private equity fund has independent property; For the debts of the partnership, firstly, the partnership's own property is used to pay off the debts, and the insufficient part is borne according to the different status of each partner; During the existence of a limited partnership, each partner may not require the division of the partnership property. Thereby ensuring the property independence and stability of the limited partnership private equity fund.
2. General partners and limited partners enjoy different rights and bear different responsibilities. In a limited partnership, the general partner carries out the partnership affairs, and the limited partner does not participate in the operation of the partnership; Limited partners shall be liable for the debts of the partnership to the extent of their subscribed capital contributions, and general partners shall be jointly and severally liable for the debts of the partnership. This institutional arrangement can urge the general partner to carry out the partnership affairs carefully; For limited partners, it has the advantage of controllable risks.
Company style
The corporate private equity fund has a complete corporate structure and its operation is more formal and standardized. At present, it is convenient to set up private equity funds (such as "certain investment company") in China. Semi-open private equity funds can also operate conveniently in a flexible way, and their investment strategies can be more flexible without strict approval and supervision. For example:
Establish an "investment company" whose business scope includes securities investment;
The number of shareholders of the "investment company" should be small, and the investment amount should be relatively large, which not only ensures the nature of private placement, but also has a large scale of funds;
The funds of the "investment company" are managed by the fund manager. According to international practice, managers charge fund management fees and interest incentive fees to enter the operating costs of "investment companies";
The registered capital of an "investment company" is re-registered once a year at a specific time, and nominal capital increase or share reduction is carried out. If necessary, investors can redeem their investment once a year at a specific time, and at other times, investors can conduct equity transfer agreements or over-the-counter transactions. "Investment company" is essentially a private equity fund of enterprises, which can be raised at any time, but only redeemed once a year.
However, corporate private equity funds have a disadvantage, that is, there is repeated taxation. Methods to overcome the shortcomings are:
Register private equity funds in tax havens such as Cayman and Bermuda;
Register the enterprise private equity fund as a high-tech enterprise (which can enjoy many benefits) and register it in a place with more favorable taxes;
Backdoor, that is, in the establishment and operation of the fund, unite or acquire a company (preferably a non-listed company) that can enjoy tax incentives, and take this as a carrier.
Limited partnership system
Limited partnership is the main organizational form of American private equity funds. On June 1 2007, China's Partnership Enterprise Law was formally implemented, and a number of limited partnership enterprises were established one after another. These limited partnerships mainly focus on equity investment and securities investment.
Trust system
Equity investment or securities investment through trust plan is also a typical form of sunshine private placement.
The core mechanism of limited partnership private equity fund is to establish an effective incentive and restraint mechanism for professional investment talents, improve the operation level and efficiency of the fund and maximize the interests of investors. The main content is reflected in the following aspects:
1, restriction
Private equity investment is a high-risk investment mode, so it is particularly important to limit the investment scope, investment mode and investment ratio of each project. However, due to the complexity and exhaustiveness of investment scope and investment methods, "negative constraints" are often used to control investment risks in practice. For example, it is agreed that the investment in a project shall not exceed 20% of the total subscribed capital contribution, and the investment shall not bear unlimited joint liability, and the bank loan of the partnership enterprise shall not exceed 40% of the total subscribed capital contribution.
Step 2 control
In practice, there are usually two ways: first, management fees include operating costs. The advantage is that it can effectively control operating expenses and control costs. At present, many domestic private equity investment funds have adopted this simple way to attract funds. Second, the management fee is shared separately, and the operating expenses of the limited partnership are collected by the limited partnership as a cost, which is not included in the management expenses of the general partner. This is an internationally accepted way. The amount of management fee is usually 0.5%-2.5% according to a certain proportion of management funds, and the extraction method can be quarterly, semi-annual or annual.
3. Distribution and incentives
The general partner and limited partner of a limited partnership enterprise can flexibly agree on the distribution method of investment income; Generally speaking, for the part within the expected investment income, both parties can agree that the general partner can enjoy the income at a lower proportion; The general partner can enjoy a higher proportion of the income beyond the expected income; The higher the investment income, the higher the proportion that the general partner enjoys as a reward for the limited partner, which can promote the general partner to actively, effectively and beneficially carry out the partnership affairs. In domestic practice, in order to attract investors, some private equity investment funds often adopt "priority recovery mechanism" and "callback mechanism" to ensure that the general partner can enjoy the profit distribution after the limited partner recovers the investment, so as to ensure that the interests of the general partner and the limited partner are consistent.
(1) About "Priority Recovery Mechanism"
The so-called "priority investment recovery mechanism" means that when the fund expires or an investment project is liquidated, the limited partner must first ensure that the investment has been fully recovered or reached the minimum rate of return before the partnership enterprise is distributed. For example, you can agree to the following income distribution methods:
First, the limited partner gets back all the investments invested in the fund;
Secondly, calculate the internal rate of return. If the IRR is less than 8%, all investment income will be distributed to all partners according to the proportion of capital contribution, and the general partners will enjoy the income according to the proportion of capital contribution.
Thirdly, if the IRR is higher than 8% but lower than 10%, the part below 8% will be distributed to all partners according to the proportion of capital contribution, the part above 8% will be distributed to the general partners first, and the remaining 80% will be distributed to all partners according to the proportion of capital contribution;
Finally, if the IRR is higher than 10%, the income within 10% will be distributed according to the above principle, and 25% of the income above 10% will be distributed to the general partner first, and the remaining 75% will be distributed to all partners according to the proportion of capital contribution.
(2) About "callback mechanism"
The so-called "callback mechanism" refers to the mechanism that the general partner takes out a certain proportion of funds from the management fees received and the profits distributed after the withdrawal of the investment project when the fund or some investment projects lose money or fail to reach the minimum income, and deposits them in a specific account to make up for the losses or make up for the gains. For example, in a limited partnership private equity fund, it is agreed that the general partner will keep 40% of the income, which will be used to make up for the loss or income when the fund loses or fails to reach the minimum income of 8%.
To sum up, we can see that both the "priority investment recovery mechanism" and the "callback mechanism" reflect the difficulties of domestic general partners in raising funds and the compromises and concessions made in the distribution of benefits in order to attract funds.
4. Ways for limited partners to join or withdraw from the partnership and restrictions on the amount of capital contribution transferred.
After the establishment of limited partnership private equity fund, new limited partners can still be allowed to join; Generally speaking, the access of limited partners is decided by the general partners, but some restrictions will be set, for example, limiting the new limited partners to qualified institutional investors and corresponding capital requirements. In addition, it is also necessary to clarify the calculation method of the rights and interests of newly hired limited partners or the compensation scheme for the original partners. Regarding the withdrawal of limited partners, in practice, the partnership agreement requires limited partners to ensure that they cannot withdraw during the existence of the partnership.
In order to ensure the stability of limited partnership private equity funds, limited partners are usually restricted from transferring the capital contribution of the partnership. The transfer of the limited partner's contribution to the partnership can be divided into two forms: self-transfer and entrusted transfer. "Self-transfer" refers to the way that the limited partner finds the transferee by himself, and the general partner reviews and assists the transfer. "Entrusted transfer" refers to the way in which the limited partner entrusts the general partner to find the transferee and the general partner assists in the transfer. Under normal circumstances, when the limited partner transfers his capital contribution, the general partner requires to pay a certain fee, and the rate is different according to the different forms of transfer; The commission rate of self-transfer is low, for example, it can be 65438+ 0% of the transferred capital contribution, and the commission rate of entrusted transfer is high, for example, it can be 5% of the transferred capital contribution; By charging a certain transfer fee, limited partners can be controlled to frequently transfer their capital to the partnership. The fees collected can be regarded as the income of the partnership. If the general partner provides intermediary services, he may also extract a certain percentage of intermediary remuneration.