Forms of vehicle

What legal form of vehicle is typically used for private equity funds formed in your jurisdiction? Does such a vehicle have a separate legal personality or existence under the law of your jurisdiction? In either case, what are the legal consequences for investors and the manager?

The limited liability partnership (LLP) form is typically used for private equity funds in the People’s Republic of China (PRC, which, for the purposes of this chapter, excludes Hong Kong SAR, Macau SAR and Taiwan). In the PRC, an LLP consists of two to 50 partners, at least one of which is a general partner. An LLP does not have a separate legal personality. Generally, the manager of a private equity fund holds a gene­ral partner interest directly or indirectly through its affiliates, while investors hold limited partner interests.

Private equity funds may also take the form of a limited liability company, a joint-stock limited company or a contractual fund. Both limited liability companies and joint-stock limited companies have legal personality. These forms are not often used as private equity funds for tax and management efficiency reasons. A contractual fund does not have separate existence or legal personality and is managed by managers through fund contracts or other similar agreements. Contractual funds have advantages over LLPs or company vehicles in several respects, such as not being subject to certain administrative registration procedures and having a much higher limit on the number of investors - up to 200 are allowed. Therefore contractual funds have recently been actively used in the formation of private funds. However, contractual funds also have an obvious disadvantage when portfolio companies of the funds seek initial public offerings on the Shanghai Stock Exchange or the Shenzhen Stock Exchange (A-share IPOs). The regulators are very cautious about contractual funds as direct or indirect shareholders of IPO candidates because they tend to believe this structure may easily conceal the actual beneficiaries of the candidate companies. Therefore, private equity funds that consider A-share IPOs to be an important exit strategy may be hesitant to use a contractual fund structure.

Forming a private equity fund vehicle

What is the process for forming a private equity fund vehicle in your jurisdiction?

In the PRC, only private equity fund managers who have registered with the Asset Management Association of China (AMAC) are allowed to raise funds for private equity funds. Therefore, before setting up a private equity fund, a company or partnership will be established as the manager and then be registered with the AMAC.

After being registered with the AMAC, a fund manager may raise funds from accredited investors through private offerings. Before promotion of any specific fund, the fund manager or fund sales agency will review prospective investors and conclude whether their risk tolerance matches the fund’s risk rating. After that, the fund manager will make risk disclosures to such investors and require confirmation with proper evidence that each investor is an accredited investor. The investors will generally be allowed a cooling-off period upon subscribing for the fund, except for several types of professional investors who are exempted from this requirement. During the cooling-off period, investors are entitled to revoke the subscription at any time and the fund manager may not contact the investors. There is no compulsory minimum capital requirement for a private equity fund. However, except for the fund manager itself, its employees and a few types of special investors who are automatically treated as accredited investors under applicable regulations, each investor is required to invest at least 1 million yuan into a private equity fund.

For the last step, the fund manager will apply to the AMAC for filing the fund within 20 business days of the fund’s closing. The AMAC will review the filing application and provide feedback within 20 business days.


Is a private equity fund vehicle formed in your jurisdiction required to maintain locally a custodian or administrator, a registered office, books and records, or a corporate secretary, and how is that requirement typically satisfied?

A private equity fund formed in the PRC is required to maintain a local private equity manager. Unless otherwise specified in the fund contract, the fund will also engage a custodian, such as an AMAC-member commercial bank, to hold cash and assets of the private equity fund. If it is agreed upon in the fund contract that the private fund will not engage a custodian, the fund contract will expressly set forth the rele­vant safeguard measures for the fund assets and dispute settlement mechanisms.

Private equity funds in the form of a limited partnership or company that are formed by registration with a local Administration of Industry and Commerce (AIC) are required to have a registered office, while contractual funds do not have any registered office because they are not considered legal entities. Fund managers are required to maintain records in connection with the investors’ information, risk disclosure statement of the fund and other fundraising materials until 10 years after termination date of the fund. No corporate secretary is required for private equity funds under PRC law.

Access to information

What access to information about a private equity fund formed in your jurisdiction is the public granted by law? How is it accessed? If applicable, what are the consequences of failing to make such information available?

There are two primary forms of public access to information about private equity funds formed in the PRC, both of which do not require filing with a public registrar or making a formal written request.

The first form of public access to information is through the AIC, which is, however, not applicable for contractual funds. The establishment, changes and dissolution of a limited partnership or a company are required to be filed with the AIC, and the AIC discloses certain filing information of private equity funds in the form of limited partnerships or companies on a public AIC-managed website. Such publicly available information on the website includes business names, business terms, establishment dates, registered addresses, business scopes, legal representatives, the names of interest owners and occasionally changes made to such information. Where a fund fails to submit filings of such changes within the statutory time limit, the AIC may order the fund to submit the filing or impose a fine. Nevertheless, it should be noted that the establishment date and the business term published by the AIC is not necessarily identical with the actual closing date and the operation term of the fund.

The other form of access to public information about private funds is through the AMAC. The AMAC discloses the following information of fund managers to the public on its official website: fund names, AMAC filing numbers, establishment dates, filing dates, fund types, fund managers, custodians (if any), etc. If a private equity manager fails to update relevant information of the fund to the AMAC as required or provides false information, the AMAC may take self-regulatory measures, such as rejecting the fund manager’s filing applications for any new funds.

Limited liability for third-party investors

In what circumstances would the limited liability of third-party investors in a private equity fund formed in your jurisdiction not be respected as a matter of local law?

As for investors in an LLP fund, limited partners are only liable for the debts and obligations of the limited partnership to the extent of their capital commitment to the LLP, unless they carry out the business of the limited partnership with any third party. Where a third party believes a limited partner to be the general partner of the limited partnership and conducts business transactions on that basis, the limited partner may be deemed to be a general partner and lose its limited liability status with respect to such transactions.

As for a company fund, investors also enjoy limited liability protection under common circumstances. However, if a shareholder abuses the limited liability protection and the separate legal personality of the company for purposes of evading its own debts, and thereby significantly harms the rights and interests of the company’s creditors, such shareholder shall bear joint and several liability for the debts of the company.

Fund manager’s fiduciary duties

What are the fiduciary duties owed to a private equity fund formed in your jurisdiction and its third-party investors by that fund’s manager (or other similar control party or fiduciary) under the laws of your jurisdiction, and to what extent can those fiduciary duties be modified by agreement of the parties?

When private fund managers manage and utilise private equity fund assets, they are required to work scrupulously to fulfil their duties with good faith, care and diligence, and they are also required to covenant to perform these duties to all investors on the first page of fund contracts.

Some concrete fiduciary duties owed by fund managers are also stipulated by relevant statutes as compulsory requirements, including but not limited to:

  • treating different funds under their management fairly;
  • not abusing management duties to seeking benefits for themselves or any third party;
  • not embezzling fund assets; and
  • not disclosing non-public information acquired by taking advantage of their positions, or utilising such information to carry out relevant trading activities, etc.

Fund managers must obey the above principled requirements, while detailed provisions are usually set forth in the fund contract in order to clarify to what extent the fund manager may be engaged in conflicts of interest and who makes decisions on such matters. For example, a fund manager may desire that the fund contract allows it to decide at its sole discretion the allocation of investment opportunities among affiliated funds as well as co-investments, while it is common for investors to seek limitations on such activities.

Gross negligence

Does your jurisdiction recognise a ‘gross negligence’ (as opposed to ‘ordinary negligence’) standard of liability applicable to the management of a private equity fund?

PRC law generally recognises a gross negligence standard of liability. According to the Partnership Law, the general partner and the person engaged to manage the partnership will be held liable if they cause any loss to the partnership owing to gross negligence. According to the Trust Law, which is applicable to contractual funds, the investors have right to remove a fund manager when the fund manager manages the fund with gross negligence. In addition, a gross negligence standard is usually provided for in fund contracts.

Other special issues or requirements

Are there any other special issues or requirements particular to private equity fund vehicles formed in your jurisdiction? Is conversion or redomiciling to vehicles in your jurisdiction permitted? If so, in converting or redomiciling limited partnerships formed in other jurisdictions into limited partnerships in your jurisdiction, what are the most material terms that typically must be modified?

A private equity fund in the form of either a limited partnership or a limited liability company may not have more than 50 investors, while no more than 200 investors may invest in a contractual private equity fund.

When a private equity fund in the form of either a limited partnership or company needs to make changes to its AIC registration owing to investor transfers or withdrawals, the AIC generally requires the signature of each investor on the application documents, which may be time-consuming. Contractual private equity funds are not registered legal entities, so the transfer of fund interests is simpler and more efficient. However, contractual investor lists are not publicly disclosed and are difficult to verify, thus contractual funds usually find it hard to participate in A-share IPO projects or listed company private placements.

Private equity funds formed in the PRC are required to make periodic and emergency information reports to both the competent authorities and investors, as well as conduct equity asset valuations in accordance with AMAC guidelines or as otherwise stipulated in fund contracts.

Private equity funds formed in other jurisdictions are not currently permitted to redomicile in the PRC or to otherwise convert into PRC funds.

Fund sponsor bankruptcy or change of control

With respect to institutional sponsors of private equity funds organised in your jurisdiction, what are some of the primary legal and regulatory consequences and other key issues for the private equity fund and its general partner and investment adviser arising out of a bankruptcy, insolvency, change of control, restructuring or similar transaction of the private equity fund’s sponsor?

If the general partner of a private equity fund enters bankruptcy or insolvency, the fund will need to either find a qualified replacement to serve as the general partner or consider dissolution. A change of control, restructuring or similar transaction involving the sponsor of a private equity fund will not automatically trigger the fund’s dissolution or removal of the sponsor. It has not been a common practice to voluntarily set limitations regarding such events through fund contracts.

When the actual ultimate controller of a private equity fund’s manager changes, the manager is required to file an application for the change with the AMAC by submitting a legal opinion issued by a qualified PRC law firm. Besides this, the change is also required to be disclosed in a timely fashion to the investors of the private equity funds that the manager manages.

Regulation, licensing and registration

Principal regulatory bodies

What are the principal regulatory bodies that would have authority over a private equity fund and its manager in your jurisdiction, and what are the regulators’ audit and inspection rights and managers’ regulatory reporting requirements to investors or regulators?

Since 2013, the China Securities Regulatory Commission (CSRC) has become the supervisory authority for the private equity fund industry in the PRC. Further, the CSRC entrusts the AMAC to take charge of registering private fund managers, filing private funds and forming self-regulatory systems for the investment fund industry. The AMAC is a national and industry-orientated social organisation under the supervision of the CSRC, according to its articles of association. The AMAC and the CSRC (often its local branches) may randomly conduct on-site inspections of private equity fund managers.

Private equity funds are also subject to the supervision and administration of tax authorities. Funds formed as limited partnerships or companies are also subject to supervision of the AIC (in charge of formation registration of legal entities) and the local government financial services office (which is responsible for supervising local financial enterprises in some local areas).

Private equity fund managers are required to submit periodic and emergency reports to the AMAC regarding their operations and funds, to provide periodic and emergency fund reports for fund investors as well as file in an AMAC back-up online system, to report tax-related information of non-residents’ financial accounts to the tax authorities and, if formed as limited partnership or company, to submit a relatively simple annual report to the AIC.

Governmental requirements

What are the governmental approval, licensing or registration requirements applicable to a private equity fund in your jurisdiction? Does it make a difference whether there are significant investment activities in your jurisdiction?

Private equity fund managers in the PRC should register with the AMAC as private fund managers, as equity fund managers or as venture fund managers before engaging in fundraising in the PRC. Once a private equity fund manager closes a new fund, an information filing on the new fund is required to be made with the AMAC within 20 business days of the closing date. A newly registered private fund manager is required to make a filing for its first fund within six months after initially registering with the AMAC.

The PRC authorities only regulate fundraising within the territory of the PRC, according to the Interim Measures for Supervision and Administration of Private Investment Funds (2014 version).

Registration of investment adviser

Is a private equity fund’s manager, or any of its officers, directors or control persons, required to register as an investment adviser in your jurisdiction?

As mentioned above, a private equity fund manager should register with the AMAC as a private fund manager before it raises any funds within the PRC.

A private equity fund manager that provides investment advisory services to third parties is also required to register with the AMAC (detailed rules not applicable right now) as an investment adviser, and to register as an adviser to the third-party funds which it advises.

Further, private equity managers must meet certain additional CSRC requirements to provide investment advisory services to securities and futures operating institutions for private asset management (such as fund management companies set up by securities companies). These requirements include becoming an AMAC member, having no record of significant violations and having appointed at least three qualified investment managers.

Fund manager requirements

Are there any specific qualifications or other requirements imposed on a private equity fund’s manager, or any of its officers, directors or control persons, in your jurisdiction?

Requirements to register as a private equity fund manager include the manager’s business name, business scope, capital contributions, workplace, facilities and management systems and so on. The manager’s business name and business scope must contain ‘fund management’, ‘investment management’, ‘asset management’, ‘equity investment’, ‘venture capital investment’ or equivalent terms, and may not include any business activities that would conflict with those terms. The contributed capital of the manager should be able to cover operating costs for at least six months. The fund manager should have an actual workplace for business operations, proper office facilities and efficient mana­gement systems, as well as an adequate number of employees (at least five) with relevant work experience.

Political contributions

Describe any rules - or policies of public pension plans or other governmental entities - in your jurisdiction that restrict, or require disclosure of, political contributions by a private equity fund’s manager or investment adviser or their employees.

There are no rules or requirements in the PRC that particularly restrict or require disclosure of political contributions by a private equity fund or its manager, investment adviser or their employees. Such contributions are, however, subject to anti-bribery laws.

Private equity funds invested in by government entities are usually requested by their governmental sponsors not to provide any sponsorships or donations to any third party (except for approved public welfare donations).

Use of intermediaries and lobbyist registration

Describe any rules - or policies of public pension plans or other governmental entities - in your jurisdiction that restrict, or require disclosure by a private equity fund’s manager or investment adviser of, the engagement of placement agents, lobbyists or other intermediaries in the marketing of the fund to public pension plans and other governmental entities. Describe any rules that require a fund’s investment adviser or its employees and agents to register as lobbyists in the marketing of the fund to public pension plans and governmental entities.

Currently, there are no restrictions or special disclosure requirements for marketing funds to public pension plans and governmental entities. However, public pension plans and governmental entities often request special disclosure requirements, investment restrictions and other special terms and conditions in fund contracts with respect to fund operations in order to comply with special laws.

Bank participation

Describe any legal or regulatory developments emerging from the recent global financial crisis that specifically affect banks with respect to investing in or sponsoring private equity funds.

Funds of commercial bank wealth-management products in the PRC are not allowed to invest directly in non-listed companies, although in practice these funds previously invested in private funds through indirect channels such as trust plans or other asset management plans. Since April 2018, however, a series of new asset management regulations have resulted in great changes in the PRC market. According to the new regulations, commercial banks are not allowed to use any types of asset management plan as investment channels for purposes of circumventing statutory limitations, but, at the same time, privately offered commercial bank wealth-management products managed by qualified subsidiaries of commercial banks are permitted to invest in certain private funds directly. Special requirements for these private funds have also been established. For example, the manager of such funds is required have been registered with the AMAC for not less than one year and be a regular member of the AMAC, and it shall have no records of serious illegal conduct or irregularities.


Tax obligations

Would a private equity fund vehicle formed in your jurisdiction be subject to taxation there with respect to its income or gains? Would the fund be required to withhold taxes with respect to distributions to investors? Please describe what conditions, if any, apply to a private equity fund to qualify for applicable tax exemptions.

Private equity fund vehicles formed in the PRC are subject to different tax treatment based on their legal form with respect to income and gains. Private equity funds formed as companies pay enterprise income taxes on income, while private equity funds formed as partnerships or contractual funds are not subject to income tax obligations at the fund level.

With respect to withholding obligations, corporations are legally obligated to withhold taxes for individual investors. Partnerships in practice are also usually required by the authorities to withhold taxes for individual investors. For now, contractual funds are generally considered not liable to withhold taxes.

As described above, private equity fund vehicles in the form of partnerships and contractual funds are not themselves subject to income taxes and thus there is no need to apply for a tax exemption. Private equity fund vehicles in the form of companies are required to pay enterprise income taxes and are not eligible for a tax exemption. However, income that qualifies as tax-exempted income under the PRC Enterprise Tax Taw can be deducted from the taxable income of such companies. For example, income from interest on government bonds and equity investment income such as dividends between qualified resident enterprises are considered tax-exempt income.

Local taxation of non-resident investors

Would non-resident investors in a private equity fund be subject to taxation or return-filing requirements in your jurisdiction?

Non-resident enterprises are subject to withholding of income taxes at a rate of 10 per cent on PRC-source income from private equity funds if the income is not connected with a permanent establishment in the PRC. Otherwise, the non-resident enterprises may be subject to a tax rate of 25 per cent for its taxable income (tax incentive policies and exemptions apply in some cases). For non-resident investors of private equity funds organised as LLPs, taxation remains unclear and local tax authorities may apply different withholding tax rates in practice.

Non-resident individuals are subject to income tax exclusively on their PRC-source income. Private equity funds in the PRC are mostly organised as LLPs, which are tax flow-through vehicles, and non-resident individuals in LLP private equity funds will be subject to taxation on distributions at rates similar to those of resident individuals.

Local tax authority ruling

Is it necessary or desirable to obtain a ruling from local tax authorities with respect to the tax treatment of a private equity fund vehicle formed in your jurisdiction? Are there any special tax rules relating to investors that are residents of your jurisdiction?

The PRC has not generated a uniform special tax treatment for the private equity fund industry at the national level, except that individual investors in a venture capital fund that chooses accounting based on a single investment fund can enjoy a preferential income tax rate of 20 per cent on equity transfer income and income from bonuses and dividends. Considering that by now there still remains uncertainty regarding tax treatment of private equity fund vehicles, especially in the form of LLPs, obtaining a confirmation of taxation ruling in respect of such funds from the local tax authorities could be useful in dispelling such uncertainty.

Organisational taxes

Must any significant organisational taxes be paid with respect to private equity funds organised in your jurisdiction?

There are no organisational taxes in the PRC with respect to private equity funds.

Special tax considerations

Please describe briefly what special tax considerations, if any, apply with respect to a private equity fund’s sponsor.

Private equity fund sponsors, when making tax considerations, usually take into account the following questions:

  • which legal form of private equity investment vehicle to use in order to minimise overall tax liability;
  • where to form such private equity investment vehicle to enjoy more favourable local tax treatment; and
  • how to structure the carry vehicle and the management entity to ensure that carried interest and management fees will be subject to the lowest tax rate.

For the above taxation questions, most answers change from time to time along with changes in tax policies at either the national or local level, especially tax treatment for individual investors.

Tax treaties

Please list any relevant tax treaties to which your jurisdiction is a party and how such treaties apply to the fund vehicle.

As of 1 October 2018, the PRC has had double taxation agreements with Hong Kong SAR and Macao SAR in effect, and has double taxation treaties under the OECD guidelines in effect with Albania, Algeria, Armenia, Australia, Austria, Azerbaijan, Bahrain, Bangladesh, Barbados, Belarus, Belgium, Bosnia and Herzegovina, Brazil, Brunei, Bulgaria, Cambodia, Canada, Chile, Croatia, Cuba, Cyprus, Czech Republic, Czechoslovakia, Denmark, Ecuador, Egypt, Estonia, Ethiopia, Finland, France, Georgia, Germany, Greece, Hungary, Iceland, India, Indonesia, Iran, Ireland, Israel, Italy, Jamaica, Japan, Kazakhstan, Korea, Kuwait, Kyrgyzstan, Laos, Latvia, Lithuania, Luxembourg, Macedonia, Malaysia, Malta, Mauritius, Mexico, Moldova, Mongolia, Montenegro, Morocco, Nepal, Netherlands, New Zealand, Nigeria, Norway, Oman, Pakistan, Papua New Guinea, the Philippines, Poland, Portugal, Qatar, Romania, Russia, Saudi Arabia, Serbia, the Seychelles, Singapore, Slovenia, South Africa, Spain, Sri Lanka, Sudan, Sweden, Switzerland, Syria, Tajikistan, Thailand, Trinidad and Tobago, Tunisia, Turkey, Turkmenistan, Ukraine, the United Arab Emirates, the United Kingdom, the United States, Uzbekistan, Venezuela, Vietnam, Zambia and Zimbabwe. The PRC has entered into double taxation treaties with Angola, Botswana, Gabon, Kenya, the Republic of the Congo and Uganda that are not yet effective. Exemptions or reductions in PRC taxes may be offered under these tax agreements or treaties for non-resident investors of the PRC private equity funds, if applicable.

The PRC has signed tax information exchange agreements with Argentina, the Bahamas, Bermuda, the British Virgin Islands, the Cayman Islands, Guernsey, the Isle of Man, Jersey, Liechtenstein and San Marino. The PRC has also signed a multilateral competent authority agreements to implement the OECD Standard for Automatic Exchange of Financial Account Information (ie, the Common Reporting Standard (CRS)). Private equity funds are required to comply with registration, due diligence and reporting requirements related to the CRS.

Other significant tax issues

Are there any other significant tax issues relating to private equity funds organised in your jurisdiction?

Venture capital funds enjoy certain special preferential tax treatments. To register as a venture capital fund, the fund generally needs to meet certain investment strategy criteria, limited duration and other compliance or registration requirements.

To be specific, where venture capital funds hold investments in qualified small to medium-sized companies with high-tech qualification certificates for a period of at least two years, corporate venture capital funds and corporate partners in LLP venture capital funds are permitted to apply 70 per cent of their total investment amount in such qualified companies to offset their taxable income, with any excess carried forward to subsequent years.

High-tech qualification certificates are, however, not easy to obtain in practice. Therefore, venture capital funds are further entitled to similar preferential tax treatments for investments in technology-orientated enterprises at the seed or early stages. This tax incentive, piloted in 2017 and rolled out nationwide in 2018, is notable especially for individual income tax incentives for individual partners of venture capital funds formed as LLPs. For individual partners, 70 per cent of the equity investment in such qualified investments can be deducted from the related taxable income obtained from such venture capital funds, with any excess carried forward to subsequent years.

Selling restrictions and investors generally

Legal and regulatory restrictions

Describe the principal legal and regulatory restrictions on offers and sales of interests in private equity funds formed in your jurisdiction, including the type of investors to whom such funds (or private equity funds formed in other jurisdictions) may be offered without registration under applicable securities laws in your jurisdiction.

Any fundraising within the PRC is required to be conducted by AMAC-registered private fund managers or AMAC-member institutions that have been registered with the CSRC and hold fund sales business quali­fications (Fund Sales Institutions). Fund managers and Fund Sales Institutions may raise funds from no more than 200 accredited investors in accordance with relevant rules regarding the offer and sale of private investment fund interests. Accredited investors refer to those entities and individuals with corresponding ability to identify and tolerate risk who invest in private funds an amount not less than 1 million yuan and meet one of the following requirements:

  • with respect to entities, their net assets are not less than 10 million yuan; and
  • with respect to individuals, their financial assets are not less than 3 million yuan or their personal average annual income in the last three years is not be less than 500,000 yuan.

Also, certain look-through rules will apply to investors without a legal personality and whose capital is collected from a number of investors, such as partnerships or contractual funds. Certain types of investors are automatically regarded as accredited investors, such as investment plans duly established and filed with the AMAC.

Nevertheless, the newly published Guiding Opinions on Regulating the Asset Management Business of Financial Institutions have brought certain changes to the identification standards of accredited investors and clarification is needed to determine whether these new standards apply to private equity investment funds.

Types of investor

Describe any restrictions on the types of investors that may participate in private equity funds formed in your jurisdiction (other than those imposed by applicable securities laws described above).

In the PRC, certain types of investors are under some restrictions regarding participation in private equity funds.

Insurance companies’ investments in private equity funds are required to comply with certain regulations published by the China Banking and Insurance Regulatory Commission. For instance, insurance companies are required to comply with internal control and solvency adequacy ratio requirements, and shall insure that investments made in these funds comply with such requirements. Fund managers are also required to fulfil certain requirements with respect to registered capital, qualifications of senior management personnel, management scale and so on. There are also restrictions on fund sizes and their portfolios, etc.

Commercial banks are generally prevented from investing in non-bank financial institutions and enterprises. However, as mentioned in question 16, it may be possible for wealth management subsidiaries of commercial banks to invest in private equity funds with wealth management funds, after complying with the relevant requirements of the Measures for Administration of Wealth Management Subsidiaries of Commercial Banks issued on 2 December 2018.

Except for the above specific restrictions on insurance companies and commercial banks, asset management products offered by financial institutions, such as commercial banks, trust companies and securities companies, can invest in other asset management products, which management products are not allowed to reinvest in other asset management products, other than public security investment funds.

Identity of investors

Does your jurisdiction require any ongoing filings with, or notifications to, regulators regarding the identity of investors in private equity funds (including by virtue of transfers of fund interests) or regarding the change in the composition of ownership, management or control of the fund or the manager?

Yes. Fund managers of a private equity funds are required to update private equity fund-related information of their managed funds on the AMAC website within 10 business days after each quarter, including the number of investors. In addition, fund managers are required to update their shareholder or partner information and the number of investors in the private equity funds under its management within 20 business days after the close of each calendar year. Private fund managers are required to file a report with the AMAC within five business days if a fund contract is materially revised or a private fund manager is changed.

If the controlling shareholder, actual controller or general partner who executes the partnership affairs of the private fund manager is replaced, the private fund manager shall report to the AMAC within 10 business days, and application of such change shall be accompanied by a legal opinion issued by a qualified PRC law firm.

Additionally, managers and funds in the form of a limited partnership or company are also required to file with the AIC with regard to any changes in the partners or shareholders of such entities.

Licences and registrations

Does your jurisdiction require that the person offering interests in a private equity fund have any licences or registrations?

Yes. As mentioned in question 24, only registered private fund managers and registered Fund Sales Institutions can offer and sell private fund interests in the PRC. Entities must first apply to the AMAC to register as a fund manager before setting up private funds, and then the fund managers may entrust a Fund Sales Institution to jointly sell fund interests. Fund Sales Institutions are required to register with the CSRC, obtain fund sales business qualifications and become AMAC members before offering and selling any private fund interests.

In addition, individuals who are engaged in fundraising business on behalf of private funds are also required to obtain fund practice qualifications.

Money laundering

Describe any money laundering rules or other regulations applicable in your jurisdiction requiring due diligence, record keeping or disclosure of the identities of (or other related information about) the investors in a private equity fund or the individual members of the sponsor.

Fund managers and Fund Sales Institutions are required to fulfil obligations with respect to anti-money laundering. The Anti-money Laundering Law sets out comprehensive requirements for financial institutions to fulfil anti-money laundering obligations, while allowing for the further formulation of rules regarding what and how special non-financial institutions (including fund managers and Fund Sales Institutions) may perform and comply with anti-money laundering obligations.

In practice, to comply with anti-money laundering obligations, the fund manager typically requires investors to promise in writing that:

  • the investor’s subscription to the fund does not involve money laundering or other illegal funding sources; and
  • during the business term of the fund, the investor agrees to provide the fund manager with any reasonable, necessary or appropriate information to fulfil anti-money laundering requirements.

Exchange listing


Are private equity funds able to list on a securities exchange in your jurisdiction and, if so, is this customary? What are the principal initial and ongoing requirements for listing? What are the advantages and disadvantages of a listing?

So far, only one private equity fund manager, Jiuding Capital, has been listed on the Shanghai Stock Exchange. Several other private fund managers have listed on the National Equities Exchange and Quotations (NEEQ), which is the national over-the-counter equity exchange. No private equity funds have listed on the stock exchanges or NEEQ in the PRC.

NEEQ sets out several special requirements for listing and trading of private fund managers, including sources of income, operation performance, good faith, capital contributions, etc. The Shanghai Stock Exchange and Shenzhen Stock Exchange have no special requirements for the private fund industry at present. In conclusion, owing to relatively tight regulations, it is difficult for private equity fund managers to list on PRC stock exchanges or NEEQ.

Restriction on transfers of interest

To what extent can a listed fund restrict transfers of its interests?

As described above, private equity funds are not permitted to list on PRC stock exchanges. Transfers of private equity fund interests are not restricted to any special types of investors, so long as the transferee is a qualified investor, such transfer complies with the fund contract and relevant regulations (such as Qualified Foreign Limited Partner regulations if the transferee is a foreign investor).

Participation in private equity transactions

Legal and regulatory restrictions

Are funds formed in your jurisdiction subject to any legal or regulatory restrictions that affect their participation in private equity transactions or otherwise affect the structuring of private equity transactions completed inside or outside your jurisdiction?

Private equity funds may face certain explicit or implicit AMAC regulatory restrictions, including but not limited to investment scale of listed stocks or other non-equity assets and limitations on leveraged investments. For example, private equity funds are required to invest substantially in equity assets other than debt assets, and managers are often restricted in the scale of bridge loans and convertible bonds that come along with an equity investments; private equity funds have only limited means to make investments in publicly listed stocks, usually by means of non-transaction transfers such as private placements and block trades (while venture capital funds tend to be restricted from investing in public listed stocks).

Funds formed in the PRC that aim to invest in industries regulated under the negative list for access of foreign investments must carefully consider direct and indirect foreign investors. If their investment strategies contain foreign restricted industries or prohibited industries, private equity fund managers may consider establishing parallel vehicles to raise capital and make investments in order to separate the foreign fund resources from non-foreign fund resources.

A-share IPOs, one of the most profitable exit strategies, impose numerous restrictions on structuring and money-sourcing of private equity funds. Contractual funds, asset management schemes and trusts (together, Restricted Beneficiaries) usually have multiple tiers and highly leveraged structured arrangements, and the actual bene­ficiaries behind those structures tend to be more complex and lack transparency compared with companies and partnerships. Therefore, the A-share IPO approval authority is more cautious about the issue of equity transparency and stability of IPO candidates that have direct or indirect Restricted Beneficiaries. Managers who consider A-share IPOs as a target exit strategy are very cautious when accepting any investors whose structures contain direct or indirect Restricted Beneficiaries.

Compensation and profit-sharing

Describe any legal or regulatory issues that would affect the structuring of the sponsor’s compensation and profit-sharing arrangements with respect to the fund and, specifically, anything that could affect the sponsor’s ability to take management fees, transaction fees and a carried interest (or other form of profit share) from the fund.

Other than the tax considerations described in question 21, a general partner, if not also a management company to the private equity fund, usually cannot directly collect management fees in the name of the general partner. However, in practice, such fees can be paid to the general partner as consulting or other fees. Except as described above, generally speaking there are no particular legal or regulatory issues that would affect the structuring of the sponsor’s compensation and profit-sharing arrangements with respect to private equity funds.

Update and trends

Recent developments

Updates and trends

Asset management products were once regulated separately under their respective supervisory authorities, which resulted in certain lapses in oversight. Relevant regulators have started to unify the regulatory framework for asset management business with the recent implementation of a series of new regulations. Although not explicitly listed as an asset management product, private equity funds, which have many characteristics in common with other types of asset management products, must also follow the rules for asset management products where no specific private fund-related regulations exist. In addition, asset management products were once very important investors in private equity funds. Thus these changes in the asset management industry have had a significant impact on both the fundraising and operation of private equity funds.

With respect to asset management, look-through supervision has been strengthened to supervise the compliance of ultimate investors and underlying assets; the qualified investor standards have been unified; and multi-tiered structures have been further restricted. Therefore, restricted investors such as the wealth management products of commercial banks can no longer invest in private equity funds through channels such as trusts or other products. However, these rules leave some uncertainty as to their application for private equity funds, and the market is expecting specific rules from regulators to provide further clarification. The AMAC implemented stricter rules for the registration of private fund managers in December 2018 and is expected to release new rules regarding fund filings soon.