Study On Legislation Of Private Investment Funds In China

It has been more 10 years since Private Placement Funds came into existence in China in the early 1990s.In the past more than 10 years of development,the scale of private placement funds has reached more than 9,000 billion Yuan,and with the stock market upturn is still rising. However,this scale of private placement funds are still striving for survive in "semi-underground status".There is hardly any legal provision on private fund,so that it has been drifting on the verge of legal norms,despite that the appealing for its legalization has never ceased.Relevant rights and obligations couldn't be protected and the industry is longing for its legalization.Considering the reality China private placement funds,combining the advanced experience in some Western countries,such as the United States, Britain,Japan,Hong Kong and Taiwan,where private funds is well developed,the author puts forward proposals in an attempt to construct a legal system and supervisory system suitable for China conditions.This paper consists of four chapters apart from the introduction and conclusion.The first chapter is general description.In this chapter,the author first introduced what is investment funds,the classification of investment funds, and private placement funds.By defining the concept of private placement funds,comparing private placement funds and the Public Offering Fund,it is concluded that private placement funds is essentially private issuing and funds operation,and it has five major features:Firstly,the regulatory mechanism is relatively slack;Secondly,the specific target of raising; Thirdly,fully market-oriented manner in investment mode;fourthly, compatible interest between investors and fund managers;Fifthly,flexible operation mechanism.Furthermore,the author made a brief introduction of the emergence and development of private placement,and discoursed upon the current controversial viewpoints in society,"the difference between illegal fund raising and private placement funds "," the difference between illegal absorbing or soliciting public deposits and private funds". ChapterⅡtouched upon the current situation of private placement funds development in China.This chapter consists of four parts:the first part introduced the emergence and development of Private placement funds in China.The second part discoursed on the organizational forms of Private placement funds in China,which have been omnifarious as Private placement funds has not acquired legitimate position in China since existence.There are three major forms,and the first form is Bond Funds, indicating the raise of private capital from and financing for clients through oral agreement,Trust or Commission contracts.Bond Funds can be divided into three operational forms by the nature of bond:individual,studios and Trust Fund.The second form is Partnership Funds.It refers to the funds collected from investors and fund managers,the latter responsible for the day-to-day financing management,while the former only enjoying the investment yield without interference in the management.The third form is Corporate funds,and the biggest difference between it and other forms of funds is that:the new incorporated company is the new bearer of rights and obligations,and participates in securities trade under the new account and name.The third part dealt with the existing problems of Private Placement Fund in China.Owning to lack of related law,Private placement fund not closely supervised by the government,and lack of transparency in operations,may occur inside dealing,market manipulation and other irregularities,which is not conducive to the protection of the investors interests,underlying huge investment risks for the investors while contributing good return,including credit risk,fund managers moral risk, and the huge system risk in the stock market itself.The fourth part argues the necessity of the legalization of private funds,and its significance. Private placement funds is the result of the development of market economy,and its emergence is in accordance with the need of market economy.The existence will prosper financial markets,increase investment channels,and creates economic interests,therefore,the legalization is a must.In one word,Private Funds is irreplaceable by other financial products and its legalization bears great significance,either from the stand of China's long-term healthy development of the capital market,or from the stand of meeting our residents' financial needs. ChapterⅢdescribed the experience of Private Funds development in foreign countries.Private Placement Funds is better developed in western countries,and it's necessary for China to learn their advanced experience in the legislation.As reference to the legislation in China,this chapter introduces the defining standards of Private Placement Fund,management body,raising method,raising target,information disclosure and legal liabilities and other relevant regulations practiced in western countries, mainly based on the practices in the United States,where Private Placement Fund is more developed,and involving those in the United Kingdom,Japan,and Hong Kong and Taiwan regions of China.At the same time,the author tries to anaylise the risk potent in the operation of oversea Private Placement Funds,so as to provide more monitoring experience when building our own Private Placement Funds legal system.ChapterⅣ,as the stress of this paper,put forward some suggestion for the improvement of Private Placement Funds legislation.(1) to improve the legal environment of the legalization of Private Placement Funds.China has formed the external legal environment for the legalization of Private Placement Fund."Securities Investment Fund Law" empowered the legislation right to the State Council,which in turns is able to make the law according to the needs of development of Private Funds at the right time;The re-amending of "Company Law" and "Securities Act" cleared the obstacle;The modification of "Partnership Law" provided legal basis for Private Placement Funds effective organizational form.(2) to form the legislation principle of our own Private Placement Funds.①phased legislation principle of Private Placement Funds:China's Private Placement Funds legislation should be implemented in phases. Legislation is not quick things,and we need do it step by step.The first step is to establish relevant laws to legalize Private Placement Funds;next is to adjust the law timely and improve the legal system while promoting the development of private placement funds.②the relativity and dynamic principle for the adjustment of applicability of system implanting.③the principle of exerting advantage and encouraging initiative.④the principle of equality of the parties' status. (3) Construction the monitoring system of our own Private Placement Funds legal model in line with China situation.First,establish the monitoring system in line with China situation.As Private Placement Funds practice exemption from registration system,it is not required strict information disclosure as Fund Public Offering. However,in order to prevent the issuer making public raising in the form of private placement fund to evade the registration or approval obligations, to prevent the entrance of unqualified investors,and to prevent private funds propagandizing publicly to solicit investors,it is very important for a monitoring body with the knowledge and regulatory powers to exercise forceful supervision.In the past,due to the lack of relative legal provisions,Private Placement Funds existing in complicated and varied organizational forms,and the monitoring under the charge of different departments,the power is too decentralized to supervise.One clear monitoring body is very important for establishing a strong regulatory system,complementary with a series of regulatory measures,to realize the healthy development of Private Placement Funds.Then to improve the monitoring contents of the Private Placement Funds.In order to make Private Placement Funds a good financial channel, we need,according to its characteristics,establish Private Placement Funds market access system,issuer and manager access system and capital trustee system,set restriction over the number of qualified investors,the raising target,raising method,and the capital resources,strengthen information disclosure and risk revealing,to make clear provisions for financial leverage variables,and to establish the limited partnership system of China's Private Placement Funds.