Since venture capital (VC) fund is established in the forms of company and limited partnership, the newly-amended Company Law and Partnership Law have basically met the demands of VC fund that is featured by company and limited partnership basis and the newly-revised Securities Law has also served as a legal basis for the private placement of VC fund (i.e. private issue). In this sense, it is fair to say that the fundamental laws concerning the development of VC fund in China are relatively full-fledged. In particular, Provisional Regulations on the Administration of Venture Capital Enterprises (hereinafter referred to as the Regulations) has provided a special legal protection in nine aspects when it comes to the establishment and operation of VC fund in the form of company.
For instance, as part of the efforts to provide rules with maneuverability for the private equity investment of VC enterprises and to ensure that the private equity investment only involves investors who are highly capable of identifying and resisting risks, the Regulations stipulates that the number of investors engaging in a VC enterprise shall be no more than 200 and that the contribution from an individual investor to a VC enterprise shall be no less than RMB1 million. In doing so, it is relatively hard for the VC enterprise to engage with public investors in its private equity investment.
Another case in point is that in order to address the waste in capital in the operation of VC enterprises as a result of idle fund, the Regulations has put forward an innovation rule for the system of committed contribution for the VC enterprise in light of the principle of “abiding by Company Law and adapting to the features of VC fund”, that is, “paid-up capital shall be no less than RMB30 million, or the initial paid-up capital shall be no less than RMB10 million and all investors undertake to reinforce the paid-up capital to RMB30 million in the coming five years after the registration of the enterprise”. In this connection, VC enterprises could be established in the first place by a large scale of committed capital and a certain amount of paid-up capital. After establishment, funds could be added to the paid-up capital according to the commitment agreement and investment needs. Every increase in the capital amount will lead to the change in the registered capital, so it doesn’t run counter to Company Law. According to the rule, when it comes to establishing a RMB1 billion VC fund, only RMB10 million in capital investment is needed in the first stage and the remaining RMB990 million could be supplied in the next five years after the company is founded according to Committed Contribution Agreement.