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Keywords: NDRC, guidelines, RMB funds, fund
management companies
China's National Development and Reform Commission (NDRC)
has recently taken further steps to regulate and standardise
fundraising by private equity funds and the operation of fund
management companies in China.
Circular 253
NDRC issued Circular No. 253, dated 31 January 2011 (Circular
253), which requires, among others, that each private equity fund
set up in Beijing, Tianjin, Shanghai and several leading provinces
with commitments of RMB 500 million or more register with NDRC
after such fund has registered with the local Administration of
Industry and Commerce (AIC) and successfully completed fundraising,
except where (i) the fund has registered with NDRC as a venture
capital enterprise under separate regulations, or (ii) all its
capital is contributed by one institutional or individual investor,
or by two or more investors that are wholly owned subsidiaries of
one institutional investor.
NDRC Guidelines
Subsequently, on 21 March 2011, NDRC made available on its
website a series of guidelines and template documents (the
Guidelines) to provide further guidance on the registration process
and the fundraising and operations of private equity funds. The
Guidelines include private placement guidelines, guidelines for
required information in private placement memoranda and
constitutive documents of the private equity fund and fund
management company, and other fund documents, including management
agreement and custodian agreement. The Guidelines also specify the
content of the PRC legal opinion in connection with the NDRC
application as well as recommended forms for the application
letter.
Issues to Note
The Guidelines exempt from NDRC registration funds with
capital commitments of less than RMB 500 million
capital commitments of more than RMB 500 million, of which less
than RMB 100 million has been called and contributed
Accordingly, the trigger for registration with NDRC is (i) a
private equity fund (ii) already registered with a local AIC (iii)
capital commitments of at least RMB 500 million and (iv) capital
contributed of more than RMB 100 million.
In addition to restrictions for private placements set forth in
Circular 253, NDRC recommends for the first time that the threshold
investment amount for each investor in a private equity fund should
be at least RMB 10 million, and with respect to any individual
investor, requires the fund to obtain documentary evidence of such
individual investor's assets, as a way to ensure such investor
has sufficient ability to understand and bear the risks related to
such investment. The Guidelines prohibit the use of nominee
investors in private equity funds and effectively require each
investor in a private equity fund to invest in its own name.
Circular 253 and the Guidelines represent the NDRC's latest
effort to regulate the development of private equity funds in
China. Such regulations provide guidance and, to certain extent,
legality for the private equity industry in China.
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This article provides information and comments on legal
issues and developments of interest. The foregoing is not a
comprehensive treatment of the subject matter covered and is not
intended to provide legal advice. Readers should seek specific
legal advice before taking any action with respect to the matters
discussed herein. Please also read the JSM legal publications
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