However, there are generally three ways for all private equity funds to substantially punish default LP. The relevant provisions of China's Partnership Enterprise Law clearly stipulate the default of LP's capital contribution. For example, the first paragraph of Article 17 of the Law stipulates: "Partners shall perform their capital contribution obligations in the manner, amount and payment period agreed in the partnership agreement." For another example, Article 65 of the Law stipulates: "Limited partners shall pay their capital contributions in full and on time in accordance with the partnership agreement; If it fails to pay in full and on time, it shall bear the obligation of repayment and bear the liability for breach of contract to other partners. " For another example, the first paragraph of Article 49 of the Law stipulates: "If a partner has one of the following circumstances, it may be removed by resolution with the unanimous consent of the other partners: (1) Failure to perform the obligation of capital contribution; ..... "On the basis of abiding by the basic principles determined by Chinese laws and regulations, in practice, private equity funds in China will generally set up a two-stage punishment procedure of" grace period "and" substantive punishment "for LP's capital contribution default: first, LP will be given a certain grace period for default. Generally speaking, private equity funds will give LP whose capital contribution is in default a grace period of some time, mostly between 15 and 30 days. However, during this grace period, the Fund has started to collect liquidated damages for deferred investment from daily default LP, and the proportion of liquidated damages for deferred investment generally ranges from five thousandths to five thousandths per day. However, if the defaulting LP fulfills its capital contribution obligations within the grace period, LP does not need to bear other liabilities for breach of contract except the liquidated damages for delayed capital contribution. Secondly, substantial punishment is imposed after the grace period. If after the above grace period, the defaulting LP still fails to fully fulfill its capital contribution obligations, the fund company will impose substantial penalties on the defaulting LP. Generally, the executor of substantive punishment for default LP is the managing partner of private equity fund, which is not only because the execution of punishment for default LP itself belongs to a specific partnership execution behavior and needs the care of the managing partner; At the same time, it is because the main body directly damaged by the default of LP capital contribution is the executive partner, which will directly hinder or even make it difficult for the executive partner to actually operate the PE fund. Generally speaking, the entity punishment includes the following ways: First, the default LP is prohibited from making subsequent capital contributions, that is, its rights/obligations to perform current capital contributions and participate in subsequent capital contributions are cancelled, while the default LP without capital contributions has the right to directly remove it. Secondly, punish the paid-in capital contribution of the defaulting LP, that is, GP has the right to unilaterally declare that the defaulting LP has lost a certain proportion of paid-in capital contribution, even ownership. Third: require the default LP to pay a certain amount of liquidated damages. Due to the differences in the game ability between LP and GP in different private equity funds, the substantive penalties for LP default by these funds will generally be more or less different. However, all private equity funds' substantial penalties for default LP are basically different combinations of the above three methods, or have changed to some extent. Generally speaking, for LP that has not made any actual contribution, GP will choose the combination of the first and third methods mentioned above; For LP that has made some practical contributions, GP will choose the combination of the first and second methods mentioned above. In addition, although there may be such an agreement in LPA, requiring private equity funds in China to bear liquidated damages, the general GP will not use this clause in practice. This is because, on the one hand, LP's failure to fulfill its capital contribution obligations shows that it is short of funds. Therefore, even if GP asks LP to pay liquidated damages at this time, LP generally cannot perform it; On the other hand, in the case of LP's non-cooperation, GP can only ask LP to pay liquidated damages through litigation. This judicial solution is not only time-consuming and labor-intensive, but also costs a lot, and it will completely ruin the possibility of future business cooperation between GP and LP. Therefore, generally mature GPs rarely uses this "killer". In addition, there are some details to pay attention to when implementing the default clause of LP capital contribution. First of all, regarding the proportion of loss of rights in the part that has been contributed by the breaching LP, the most serious punishment for the LP that has partially fulfilled its contribution obligation is that GP announces that the LP has actually contributed a part that has lost a certain proportion of rights. At present, in the practice of private equity funds in China, most funds adopt the penalty ratio of 10%-30%, and 15%-20% is the most common one, based on the punitive nature, rationality and the possibility of maintaining future cooperation with LP. In addition, the subject matter of disposal is only limited to the income right of the actual contribution, and the ownership of the actual contribution is still a default LP. Secondly, regarding the handling of unpaid shares of defaulting LP, in practice, unpaid shares of defaulting LP are generally handled in the following ways: First, each defaulting LP and GP has the right to allocate their share of capital contribution according to their original subscription ratio. If a partner waives this right, other partners who are willing to exercise this right will allocate their share of capital contribution according to their original contribution ratio. Secondly, if all non-defaulting partners are unwilling to subscribe for this part of the investment, and there is a situation that a third party other than the original partner wants to enter the private equity fund, then the third party can assume all or part of this part of the investment as a new partner. Thirdly, if all non-defaulting partners are unwilling to bear the share of capital contribution, and there is no situation that a third person wants to enter the private equity fund, then the fund can only reduce the total subscribed capital contribution of the original fund accordingly. In addition, for this problem, LP should pay attention to two points: first, compared with the third party, LP, which did not breach the contract, should of course have the right to subscribe for this part of the capital contribution; Second, after the subscription of this share of capital contribution is completed, LP should ask the fund to go to the industrial and commercial department as soon as possible to handle the registration and filing procedures for the change of partner's share of capital contribution, and make this change of share of capital contribution public to prevent possible contradictions and disputes in the future. In addition, in practice, default LP generally enjoys the rights and interests of capital loss in two ways: one is enjoyed by GP alone, and the other is enjoyed by all non-default partners. Compared with the two, the latter is obviously more reasonable. This is because, from the legal analysis of LPA, because LPA is an agreement formed by all partners through consultation, partners assume mutual obligations and responsibilities, and a partner's breach of contract will affect or even damage all partners who keep the contract, so the partner who breaks the contract needs to compensate all partners who keep the contract, and all partners who keep the contract also have the same right to receive such compensation. Of course, this "same right" refers to the same share with the same right, that is, generally speaking, all non-defaulting partners share this right according to the proportion of their respective capital contributions. Of course, it is reasonable to think that GP alone enjoys this part of the rights and interests. This is because GP is responsible for the specific operation of the fund, especially in the process of fund establishment, which mainly costs time and energy. Therefore, when LP breaches the contract, GP will certainly suffer obvious losses, while other LPs that abide by the contract will suffer little or no actual losses. We should not completely deny the rationality of this proposition. Relatively speaking, it is easier for all non-defaulting partners to share this part of the proceeds, which is conducive to the formation of a harmonious and friendly relationship between GP and LP, and the actual operation is relatively simple. Of course, in practice, GP and LP can also be discussed. According to the different actual losses of all parties, a flexible handling method is designed in which GP gets most benefits and LP only gets a small part. (Shi Yubin, doctor of law? Founder and managing director of the parent company)