A Study On Objects Of The Private Placement In China

Compared with public offerings, private offering obviously has many advantages: relatively more simple procedure, lower costs, greater feasibility, which helps issuers raise capital quickly. The small and medium enterprises (SME), which have difficulties in financing in the public market, could benefit from the private offering.However, China present private offering system is far from perfect. Sometimes, the issuers, in order to evade the supervision, try to make public issuance in the name of private offering. Whether the offerees are specified or not is the decisive factor in distinguishing the private placement from the public placement. But the law does not clearly define "specified objects." Therefore, from a comparative law point of view, with the analysis of the capital market, the author try to identify the criteria in defining of "specified objects " and to clarify the scope of"specified objects". The author asserts that there are three categories of specified objects in China: professional investors, affiliates of the issuer and investors with knowledge in financial and business to evaluate the merits and risks of the prospective investment. Professional investors refer to the institutional investors, including securities investment funds, securities company, QFII, venture capital, national social security funds, etc. These investors have rich knowledge and experience of investment, so they are able to defend themselves even without the protection of securities regulation. An affiliate of the issuer refers to (1) a person that directly or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the issuer; and (2) the directors, supervisors and other officers of the subjects involved in the foregoing term. Affiliates of the issuer are able to get as much information as the securities regulation required the issuer to open in public offering. Affiliates of the issuer include: directors, supervisors, and senior managers of an issuer; shareholders who hold more than 5% of the shares of a company as well as the directors, supervisors, and senior managers thereof, or the actual controller of a company as well as the directors, supervisors, and senior managers thereof; and the holding company of an issuer as well as the directors, supervisors, and senior managers thereof. The third kind of specified objects are natural persons and legal entities that possess enough financial knowledge and wealth to assume the investment risk. Limitation on number of this kind of purchasers should be observed.The private placement is different from the directional issuance. In essence, the private placement, in many aspects, differs from the issuance towards the employees, towards the legal entities, or towards the securities investment funds, such as the manner of the offering, the offerees, and the purpose of regulation.