General Office of the National Development and Reform Commission, Circular on Promoting the Compliant Development of Equity Investment Enterprises

Issued: November 23 2011
Effective: as of date of issuance

Main contents: An equity investment enterprise established in the form of a limited liability company or company limited by shares may manage itself through the establishment of an internal management team or entrust the management of its assets to another equity investment enterprise or equity investment management enterprise. The capital of an equity investment enterprise may only be raised privately from specific qualified investors that have risk identification capabilities and risk bearing capabilities. The parties responsible for raising capital must fully disclose to investors the investment risks and the potential investment losses and may not guarantee investors that they will recover their investment principal or obtain fixed returns. Equity investment enterprises are limited to investing in non-publicly traded equity (Article 1).

An equity investment enterprise may not provide security for an enterprise other than an investee enterprise. With respect to investments in affiliated persons, it shall implement a system of avoidance of affiliated persons in its investment decision-making. Its assets shall be placed in the custody of an independent custodian, unless such custody has been bypassed with the unanimous consent of all of the investors. If the entrusted management organisation is a wholly foreign-owned or Sino-foreign equity joint venture, the assets of the equity investment enterprise shall be placed in the custody of an independent domestic custodian with legal personality (Article 2).

The Circular clarifies the duties of entrusted management organisations. An entrusted management organisation shall treat the property of different equity investment enterprises under its management in an equitable manner, and may not use the property of an equity investment enterprise to seek benefits for a third party other than the equity investment enterprise. It shall open a separate account for each different equity investment enterprise, and manage each account separately (Article 3).