CHINA Law and Practice Contributed by: Alan Du and Yiwei Shi, King & Wood Mallesons
their subscribed capital – ie, their capital com - mitment. Contractual Funds Though a contractual fund, as a legal form, is frequently used for setting up most private secu - rities investment funds, and occasionally for pri - vate equity funds, there is essentially no explicit law dealing with contractual funds. According to the Securities Investment Fund Law, investors of public funds and private secu - rities investment funds shall only be liable for the debt of the fund to the extent of their invest - ments, which is read as applicable to a private securities investment fund in the form of a con - tractual fund. Also, the authors tend to believe that such limited liability protection shall apply to investors of a private equity fund in the form of a contractual fund. Limited Company Funds For a fund in the form of a limited company, investors (ie, shareholders) are liable to the extent of their subscribed capital. 2.1.4 Disclosure Requirements In the PRC, private funds are subject to ongoing disclosure obligations. Fundraising Information Disclosure Marketing documents such as the private place - ment memorandum must include basic informa - tion on: • the fund and the manager; • custody arrangements (if any): • investment of the fund; • distribution of proceeds; and • performance fee arrangements, etc.
The content of these should be substantially the same as the fund contracts. In addition, a risk disclosure document is required to be signed by investors as a filing document, which must fully disclose various risks of the fund. Fund Operation Information Disclosure Periodic reporting obligation The content and frequency of disclosure require - ments differ according to the type of fund. For private securities investment funds, monthly reports must be submitted to the AMAC, dis - closing information on the fund size, unit net val - ue and investors. However, private equity funds are only required to report quarterly in respect of the net asset value, and key financial and invest - ment information. Disclosure requirement on specific events When certain events occur, disclosures are required to be made to investors in a timely fashion. According to the AMAC’s rules, such events would normally have a significant impact on investors’ interest, including: • change of investment scope of the fund; • change of the fund manager or the custodian; and • significant related-party transactions. Consequences of failure to fulfil disclosure requirements The AMAC conducts inspections on fund infor - mation disclosure from time to time and may take disciplinary actions against the responsi - ble person, depending on the seriousness of the case. If a private fund manager fails to submit periodic reports in a timely manner, the AMAC may sus - pend the fund manager’s application for filing a new fund until such obligation is fulfilled.
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