The development of limited partnership private equity funds in China is relatively tortuous and complicated. The 24th meeting of the China NPC Standing Committee of the Eighth National People's Congress was adopted and promulgated on February 23rd, 1997/kloc-0. 1Article 5 of the Partnership Enterprise Law, which came into effect on August 23, 997, stipulates: "A partnership enterprise shall not use the words" limited "or" limited liability "in its name. In other words, the law at that time prohibited limited partnership as a form of enterprise organization, which also limited the development of limited partnership private equity funds.
Until August 27th, 2006, revised and passed by the 23rd meeting of the Standing Committee of the Tenth NPC, and implemented on June 1 2007, Article 2 stipulates: "The partnership mentioned in this law refers to the general partnership and limited partnership established by natural persons, legal persons and other organizations in China according to this law." The organizational form of limited partnership has been clarified and legalized, and private equity funds of limited partnership have gradually developed.
Adopted and promulgated at the 77th executive meeting of the State Council on August 9, 2009. The Administrative Measures for the Establishment of Partnership Enterprises by Foreign Enterprises or Individuals in China, which came into effect on 20 13/0, further opened the China limited partnership private equity fund market to foreign enterprises or individuals, and the limited partnership private equity fund began to develop rapidly.
But objectively, there are many problems in China's private equity fund, such as short start-up, little practical experience, high risk, asymmetric information and so on, and the relevant laws and regulations are not perfect. The problems in its development need to be solved in combination with market practice. In such a complex market and legal environment, it is extremely important to effectively conclude a limited partnership contract for limited partnership private equity funds.
This paper will simply sort out the ten core clauses in the limited partnership contract of limited partnership private equity funds.
I. Necessary clauses of the partnership agreement of a limited partnership enterprise
According to the provisions of Article 18 of the Partnership Enterprise Law, the partnership agreement of a general partnership enterprise shall specify the following items:
(a) the name of the partnership and the location of the main business premises;
(2) the purpose and business scope of the partnership;
(3) the name and domicile of the partner;
(4) The mode, amount and duration of capital contribution of the partners;
(five) the way of profit distribution and loss sharing;
(six) the implementation of partnership affairs;
(7) Joining and quitting the partnership;
(8) dispute settlement methods;
(9) dissolution and liquidation of the partnership enterprise.
(10) Liability for breach of contract
According to the provisions of Article 63 of the Partnership Enterprise Law, the partnership agreement of a limited partnership enterprise shall include, in addition to the above matters:
(1) Names and domiciles of general partners and limited partners;
(two) the conditions and selection procedures that the executive partner should have;
(three) the authority of the executive partner and the measures to deal with the breach of contract;
(four) the conditions for the removal of the executive partner and the replacement procedures;
(5) Conditions, procedures and related responsibilities for the limited partner to join or withdraw from the partnership;
(6) Procedures for mutual conversion between limited partners and general partners.
The above sixteen items are necessary clauses in the partnership agreement of a limited partnership enterprise, and the parties may also determine the clauses other than the above clauses through consultation according to actual needs and list them in the partnership agreement.
Second, the investment terms of the partners.
Partners may contribute capital in cash, in kind, intellectual property rights, land use rights or other property rights, general partners may contribute capital in labor services, and limited partners may not contribute capital in labor services.
Where a partner contributes capital in kind, intellectual property rights, land use rights or other property rights, it may be determined by all partners through consultation, or it may be entrusted by all partners to a statutory appraisal agency for appraisal. Where the partners contribute capital by labor services, the evaluation method shall be determined by all partners through consultation and agreed in the partnership agreement.
All partners agree on the target amount of capital contribution in the partnership agreement, and complete the capital contribution to the partnership enterprise within the time limit and manner agreed in the partnership agreement. 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 to repay the money and bear the liability for breach of contract to other partners.
After the capital contribution is completed, the general partner shall apply to the enterprise registration authority for the establishment of a limited partnership enterprise and go through the registration formalities. According to the operation of the limited partnership, the general partner may, with the consent of the limited partner, decide to increase the subscribed capital contribution of the limited partnership, and decide in writing the time, amount and conditions of subsequent capital contribution. A partnership enterprise shall set up a register of partners (see the table below for details) to register the names, domiciles, subscribed capital contributions, paid-in capital contributions and other necessary information of each partner; The general partner shall update the list of partners at any time according to the changes in the above information.
Any limited partner who fails to pay all or part of the paid-in capital contribution before the expiration of the agreed capital contribution date and fails to remedy it in time within a reasonable period given by the general partner constitutes a payment default, and the general partner may declare the limited partner as a "defaulting partner". In practice, the common way to investigate the liability for breach of contract is to pay a certain percentage of the overdue amount to the partnership as liquidated damages from the day after the reasonable period given by the general partner expires. At that time, the general partner will send a written reminder to these defaulting partners. During the reminder period, these defaulting partners shall fulfill their capital contribution obligations and pay the corresponding liquidated damages. If the above defaulting party fails to fulfill its payment obligations within the reminder period, it constitutes a fundamental breach of contract. A partner who violates the contract shall be liable for the losses caused to the partnership and other partners by his breach of the contract. The limited partner who is declared or recognized as the "default partner" by the general partner has no voting right at the partner meeting.
Three. Responsibilities and powers of general partners
A limited partnership enterprise shall be established by more than two partners and less than fifty partners, consisting of a general partner (GP) and a limited partner (LP). There shall be no less than one general partner, but wholly state-owned companies, state-owned enterprises, listed companies, public welfare institutions and social organizations shall not become general partners.
Article 67 of the Partnership Enterprise Law stipulates: "In a limited partnership enterprise, the general partner carries out the partnership affairs. The executive partner may require that the remuneration and remuneration extraction method for executive affairs be agreed in the partnership agreement. "
Only the general partner of the partnership can be the partner of the partnership's executive affairs, and can represent the partnership externally when carrying out the partnership affairs of the partnership. In practice, the responsibilities of general partners are usually summarized in the partnership agreement as follows. The executive partner has the right to conclude contracts and make other agreements and commitments in the name of the partnership, and to manage and dispose of the property of the partnership in order to realize the partnership purpose.
Private equity investment in China, as a new industry, has not yet perfected its industry norms and social credit system. In the process of conclusion and performance of partnership agreement, the rights of general partners are often amplified, and there is a large number of abuse of power by general partners, so the prevention of moral hazard has a long way to go. The United States Joint Limited Partnership Act gives the general partner of a limited partnership the right of agency and management, and at the same time, the general partner also has a "trust" obligation to the limited partnership and other partners. Although the guarantee mechanism of strengthening trust can not play an effective role in China at present, it is worth learning from.
Based on the principle of good faith, the general partner should actively fulfill his obligations to the partnership and limited partners, exercise his rights under the contract, and invest necessary time in the business and operation of the partnership to ensure the proper management of the partnership. If the general partner causes losses to the partnership or any limited partner due to intentional or gross negligence, he shall be liable.
When the property of the partnership enterprise is insufficient to pay off all the debts of the partnership enterprise, the general partner shall bear unlimited joint liability for the debts of the partnership enterprise and other partners. After the cancellation of the partnership, the original general partner shall still bear unlimited joint liability for the debts of the partnership during its existence.
Four. Responsibilities and powers of limited partners
The first paragraph of article 102 of the United States Uniform Limited Partnership Act (200 1) stipulates that "limited partnership" refers to a partnership entity established by two or more persons in accordance with this law, with one or more general partners and one or more limited partners. The third chapter of China's Partnership Enterprise Law has made corresponding provisions on "limited partnership enterprise" and "limited partner". A limited partnership enterprise has more than two partners and less than fifty partners, and consists of at least one general partner and one limited partner. After the general partner withdraws from the partnership for some reason in the course of operation, if the limited partnership has only limited partners, the partnership shall be dissolved. During the operation of a limited partnership, if there are only two general partners left after the limited partners quit for some reason, the partnership shall be converted into a general partnership.
Limited partnership private equity fund is characterized by the combination of personnel and capital, and the combination of specialty and capital. The general partner is a professional institution or person with rich experience in private equity investment, providing professional support for limited partnership enterprises in equity investment; Limited partners have abundant funds, but suffer from lack of investment experience or investment projects. General partners and limited partners combine their majors with capital in order to achieve the partnership purpose stipulated in the partnership agreement. It should be noted here that limited partnerships are usually managed by private equity fund managers. Regardless of whether the general partner has rich investment experience or not and the prospect of the investment project, the private fund manager shall not promise investors that the investment principal will not be lost or the minimum income will be promised.
The main obligations of the limited partner are: to pay the capital contribution in full and on time according to the partnership agreement; If it fails to pay in full and on time, it shall bear the obligation to repay the money and bear the liability for breach of contract to other partners. The registered items of a limited partnership enterprise shall specify the name of the limited partner and the amount of capital subscribed.
A limited partner may not represent the limited partnership externally without performing the partnership affairs, and any limited partner has no right to sign documents or act on behalf of the partnership. In order to protect the rights of limited partners and prevent the abuse of the power of general partners, limited partners have the right to make suggestions and vote on major decisions of limited partnership enterprises; Have the right to know the operating conditions of the partnership and to obtain the benefits of the partnership; Supervise the general partner to carry out partnership affairs; When the interests of the limited partners in the partnership enterprise are infringed, they have the right to claim rights or bring a lawsuit against the responsible partners; When the general partner is lazy in exercising his rights, he has the right to urge him to exercise his rights or bring a lawsuit in his own name for the benefit of the partnership.
Some people think that once a limited partner participates in the management and investment decision-making of a limited partnership enterprise, the limited partner is suspected of carrying out partnership affairs. According to the principle of fairness in civil law, a limited partner shall assume the obligations of a general partner and unlimited joint liability for the debts of a limited partnership. In order to clarify the nature of the limited partner's behavior, the Partnership Enterprise Law stipulates that the limited partner participates in the decision of the general partner's admission and withdrawal; Put forward suggestions on enterprise management; Participate in the selection of accounting firms to undertake the audit business of limited partnership enterprises; Obtain the audited financial accounting report of the limited partnership; In case of self-interest, consult the financial information such as the financial accounting books of the limited partnership enterprise; When the interests in the limited partnership enterprise are infringed, claim rights or bring a lawsuit to the responsible partner; When the executive partner is slow to exercise his rights, he shall urge him to exercise his rights for the benefit of the enterprise or file a lawsuit in his own name; The act of providing guarantee for an enterprise according to law shall not be regarded as the execution of partnership affairs.
In the aspect of debt commitment, unlike the general partner's unlimited joint liability for the debts of the partnership, the limited partner is only liable for the debts of the partnership to the extent of its subscribed capital contribution, and the newly-admitted limited partner is liable for the debts of the limited partnership before joining the partnership to the extent of its subscribed capital contribution.
Verb (abbreviation for verb) investment terms
Under normal circumstances, the general partner will occupy a dominant position in the fund operation process. In order to improve the investment decision-making procedure, protect the rights of limited partners and improve the corporate governance structure of limited partnership enterprises, limited partnership enterprises may set up an investment decision-making committee (hereinafter referred to as the "voting committee"), which is mainly responsible for the final decision-making of fund investment plans, and its members are composed of representatives appointed by general partners, representatives appointed by limited partners and industry experts. The voting committee shall have a chairman, who shall be elected by the members of the committee according to the principle of simple majority.
In addition to the decision-making committee, a limited partnership enterprise may set up an investment advisory committee. The investment advisory committee pre-selects the project, puts forward investment opinions and submits them to the decision-making committee for investment decision.
Private equity investment has the characteristics of high risk. In order to protect the interests of all parties, limited partnership enterprises should limit the scope and mode of investment. However, in practice, the investment scope and investment methods are varied and endless. It is suggested that relevant clauses should be formulated in the limited partnership agreement, and the investment risk should be controlled by "negative list" constraint. For example, without the deliberation of the investment advisory committee and the consent of the investment decision-making committee, a limited partnership enterprise may not absorb deposits or absorb deposits in disguised form; No unlimited joint and several liability investment; Shall not engage in guarantee business; Do not invest in real estate for non-self-use purposes; Do not invest in publicly issued stocks, etc.
The expenses borne by a limited partnership
In the process of establishing and operating a limited partnership, there will be corresponding expenses, which mainly include: the daily operating expenses paid by the general partner for managing the limited partnership, which are fixed expenses in most cases and calculated according to the percentage of the total paid-in capital of the limited partnership; Fund custody fees, agency fees for intermediary services, annual membership fees of partners, taxes and fees, and unconventional expenses such as litigation, arbitration, execution and announcement with limited partnership as the main body.
Seven. Profit distribution and loss bearing clause
The profit of a limited partnership mainly refers to the distributable cash obtained after the limited partnership invests in the project, which can be distributed to the general partners and limited partners after deducting the expenses that should be borne by the limited partnership. The order and mode of profit distribution of a limited partnership enterprise may be agreed upon by both parties. The autonomy of partners in a general partnership is limited in profit distribution and loss sharing. According to Article 33 of the Partnership Enterprise Law, the partnership agreement of a general partnership enterprise shall not stipulate that all profits shall be distributed to some partners or all losses shall be borne by some partners. Limited partnership and general partnership have different legal provisions on profit distribution. According to Article 69 of the Partnership Enterprise Law, a limited partnership enterprise may not distribute all its profits to some partners. However, unless otherwise agreed in the partnership agreement. That is, in principle, a limited partnership enterprise is not allowed to distribute all profits to some partners, but if all partners agree to distribute all profits to some partners through consultation in the partnership agreement, it shall be implemented in accordance with the partnership agreement.
The cash income obtained during the operation of a limited partnership is usually not used for reinvestment, and the general partner shall distribute it to the partners according to the contract after obtaining the cash income. The general partner shall distribute in cash as far as possible; However, if, according to the independent judgment of the general partner, it is considered that non-cash distribution is more in line with the interests of all partners, with the consent of all partners, the general partner may make distribution in a non-cash manner.
When the limited partnership suffers losses, the limited partner shall be liable for the debts of the limited partnership only with the amount of capital contribution subscribed, and the newly-admitted limited partner shall be liable for the debts of the limited partnership before the occupation with the amount of capital contribution subscribed. When the property of the partnership enterprise is insufficient to pay off all the debts of the partnership enterprise, the general partner shall bear unlimited joint liability for the debts of the partnership enterprise and other partners. After the cancellation of the partnership, the original general partner shall still bear unlimited joint liability for the debts of the partnership during its existence.
VIII. Conversion of the identities of general partners and limited partners.
In principle, the transformation of a general partner into a limited partner, or a limited partner into a general partner, should be unanimously agreed by all partners, but there may be other provisions in the Limited Partnership Agreement, that is, it can be agreed in the Limited Partnership Agreement that the identities of the general partner and the limited partner can be changed with the consent of some partners.
Where a limited partner is transformed into a general partner, it shall bear unlimited joint and several liability for the debts incurred by the limited partnership during its term as a limited partner. Where a general partner is transformed into a limited partner, he shall bear unlimited joint and several liabilities for the debts incurred by the partnership during his tenure as general partner.
IX. Accession, Withdrawal and Delete Clauses
With the consent of all partners and the signing of a written agreement, new partners may join the partnership. The general partner has the obligation to inform the new partner of all the real business and financial conditions of the limited partnership. The new general partner shall bear unlimited joint and several liability for the debts of the partnership before joining the partnership; The newly admitted limited partner shall be limited to the amount of capital contribution subscribed by him, and shall bear limited liability for the debts of the partnership enterprise before joining the partnership.
In any of the following circumstances, the partners of a limited partnership may withdraw from the partnership: the reasons agreed in the contract appear; It is difficult for partners to continue to participate in the partnership enterprise; Other partners seriously violate the obligations stipulated in the partnership agreement, which makes it impossible for the observant partners to achieve the partnership purpose; Or with the unanimous consent of all partners. If a partner has one of the following circumstances, he/she will of course quit the partnership: (1) The natural person as a partner dies or is declared dead according to law; (2) the individual loses the ability to pay off debts; (3) A legal person or other organization as a partner has its business license revoked, ordered to close down, revoked or declared bankrupt according to law; (four) the law or the partnership agreement stipulates that partners must have relevant qualifications and lose their qualifications; (5) All the property shares of the partners in a limited partnership enterprise shall be enforced by the people's court.
Under any of the following circumstances, the partner may be removed by resolution with the unanimous consent of other partners: (1) failing to fulfill the obligation of capital contribution; (2) Causing losses to the partnership enterprise due to intentional or gross negligence; (3) There is misconduct in the execution of partnership affairs; (4) The reasons agreed in the partnership agreement appear. The resolution on the removal of a partner shall be notified in writing to the removed celebrity. The expulsion takes effect on the day when the expelled celebrity receives the expulsion notice, and the expelled celebrity withdraws from the partnership. If the removed celebrity refuses to accept the resolution of removal, he may bring a lawsuit to the people's court within 30 days from the date of receiving the notice of removal.
X. Dissolution and liquidation clauses
The dissolution of limited partnership is mainly based on the following circumstances: the partnership term of limited partnership expires and the partners decide not to operate any more; The reasons for dissolution agreed in the partnership agreement appear; All partners unanimously decided to dissolve; When the general partner terminates, there is no new general partner to take over; Limited partners fail to reach a quorum within a certain period of time; The partnership purpose agreed in the partnership agreement has been achieved or cannot be achieved; Its business license is revoked, it is ordered to close down or it is revoked.
When the partnership enterprise is dissolved, it shall be liquidated by the liquidator. The liquidator shall be all partners; With the consent of more than half of all partners, one or more partners or a third person may be appointed as liquidator within 15 days after the cause of dissolution of the partnership arises. The main contents of the affairs executed by the liquidator during the liquidation period are: cleaning up the partnership property and preparing the balance sheet and property list respectively; To handle the unfinished business of the partnership related to liquidation; Pay off the taxes owed; Clean up creditor's rights and debts; Dispose of the remaining property of the partnership after paying off its debts; Participate in litigation or arbitration activities on behalf of the partnership.
When the property of a limited partnership enterprise is paid off and distributed, the liquidation expenses must be paid first; Pay employees' wages, social insurance fees and statutory compensation; Pay the taxes owed; Paying off the debts of the limited partnership; If there is any surplus, it shall be distributed among the partners according to the limited partnership contract. Where the property of a limited partnership enterprise is insufficient to pay off the debts of the partnership, the general partner shall be jointly and severally liable to the creditors.
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