Private equity structure
usinfo | 2014-06-09 14:43

The basic organizational form of private equity investment is a limited liability partnership, private equity investment fund established under this system, the investors (limited partners) and investment managers (general partner) contract signed by both parties, the contract clearly states: money supply side commitment segmented investment, retain the option to abandon the investment; against the general partner incentive linked with them to create value; ensure that enterprises to private equity firms invested equity realized to ensure the general partner to return all capital to limited partners Gold gains.

The nature of the tax law limited liability partnership with other organizations in different organizations. It do not pay corporate taxes, but by the limited partners to pay personal income tax; limited partner in the form of securities do not need weapons to get investment income to pay personal income tax, until the securities are sold to become cash. To obtain such a limited partnership tax treatment must meet the following criteria: the fund must have a fixed term, and clearly down in the limited partnership contract; limited partnership equity can not be transferred, which is not the same as shares of listed companies; prior to maturity Limited partners are not allowed to exit the organization; limited partners only negative capital invested limited liability, can not participate in the management of the Fund.

Although the limited partners can not participate in the actual operation of the fund, but also the right to vote on some important issues, such as the partnership agreement amendments, before the expiry of the dissolution of the limited partnership, to extend the term of the Fund, to dismiss the general partner, the asset investment projects assessment. Generally require a limited partner 2/3 of the consent, the above changes to take effect.

Duration of most private equity funds for seven to 10 years, generally extended for one year after the expiration of the Fund's assets include all cash and securities must be liquidated. Limited partner capital injection is not one step, is often the beginning of injection of 25% per year - who later part, if limited partners continue to inject liquidity to abandon, has invested part of the refund only half the proceeds from the investments have generated only can get half。

General partner bears unlimited liability, they may be more losses than they invested funds, but will not actually happen, because private equity investors generally do not lending, there is no risk of excess liabilities net asset value. They also invested private equity funds accounted for 1% of its own funds, but generally do not have the cash, primarily as a management commitment and consideration of tax concessions, the general partner may have accounted for 2.5% of the total private equity fund of funds as they administrative costs, including wages, salaries and office aides cost. But usually the amount of funds, the smaller this ratio. In recent years, with the increase in the supply of money, this ratio on a downward trend. While private equity firms have continued to increase, if not the top ten private equity investment firm, funders are no longer in an awkward dominant position.

General partner involved in the allocation of investment income, and can get 20% of all investment income, which reached 80% of the limited partner's return on investment, different private equity funds have different proportions, usually in the range of 30% to 15% a However, the current trend is to be in (after at least guaranteed) after generating a minimum return on investment, which the general partner is entitled to 20% of personnel benefits.

General partner of a limited partnership must regularly report to the business progress and changes in the asset value of the investment companies, at least once a tripartite meeting held general partner, limited partners and the management of portfolio companies annually. Advisory Committee by the limited partners or their representatives composed mainly provide technical assessment services, such as enterprise asset evaluation, because it is affecting the investor profits from the last key. Some, like the Board of Directors Advisory Board system under the guidance and supervision of the same to private equity investors and private equity investment company's operations.

Some limited partners and the general partner's contract stipulates: General Partner can not use their own funds to invest in private equity funds that invest in companies outside the fund, or get stock from the enterprise; raise additional funds can not be invested in the same name previously Private equity investors invested enterprises, to prevent private investors to raise equity to solve the loss-invested enterprises blindly additional investment, the general partner must be to the next round of fund raising run again after a certain proportion of the fund, such as50% 。

 


 

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