The Private Equity Limited Partnership in China: A Critical Evaluation of Active Limited Partners

Journal of Corporate Law Studies, Vol. 13, No. 1, pp. 185-217, April 2013

33 Pages Posted: 5 May 2013

See all articles by Lin Lin

Lin Lin

National University of Singapore (NUS) - Faculty of Law

Date Written: 2013

Abstract

Although current academic thinking tells us that private equity investors are generally passive in the management of funds, Chinese private equity market is dominated by funds whose investors are relatively active. The interference of limited partners in a fund’s management triggers internal conflicts between partners. This article examines the legal and practical reasons for this phenomenon. Based on extensive interviews with market participants, it is found that the agency problems, the legal weaknesses of limited partners under Chinese law and several regulatory constraints on China’s private equity industry have influenced the decisions of investors to pursue active strategies in funds. This article also examines the effectiveness of the control rule and a few of the common private contractual arrangements in addressing the agency problem in the context of Chinese private equity funds, and suggests strategies to mitigate the problem.

Keywords: Private Equity, Limited Partnership, China

Suggested Citation

Lin, Lin, The Private Equity Limited Partnership in China: A Critical Evaluation of Active Limited Partners (2013). Journal of Corporate Law Studies, Vol. 13, No. 1, pp. 185-217, April 2013. Available at SSRN: https://ssrn.com/abstract=2260544

Lin Lin (Contact Author)

National University of Singapore (NUS) - Faculty of Law ( email )

469G Bukit Timah Road
Eu Tong Sen Building
Singapore, 259776
Singapore

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