SLP virtual currency

At present, in the practice of domestic private equity RMB fund (adopting the limited partnership mode), one structure is the combination of management company (hereinafter referred to as MC) and unlimited partner (hereinafter referred to as GP, both of which are in the form of limited liability company), MC usually has to meet certain requirements of registered capital (for example, to register a domestic equity investment fund management company in Beijing needs at least 30 million yuan of registered capital). At the same time, GP usually invests in partnership according to market practice, for example, the investment accounts for 1% of partnership partners' total subscription. This structure has its own advantages, because the shareholders of GP / MC are only responsible for the debt of GP / MC within the limit of their capital contribution, and will not bear unlimited liability because of GP's unlimited liability to partnership, unless something leads to the application of the principle of piercing the corporate veil. In terms of liability, shareholders of corporate GP are obviously better than general partners of partnership GP
in addition, under this structure, the necessary incentive for the management team can be realized directly based on the profits and management fees obtained by GP from partnership. However, the problem faced by this structure is that MC and GP are mixed together. If GP undertakes unlimited legal liability for operating partnership affairs, its profit as GP, the management fee charged as MC and its registered capital will be eroded
the way to solve the above problems is to separate GP and MC effectively in law. Under this structure, MC and GP are independent limited liability companies. The management team operates at Mc level, and the establishment of MC meets the requirements of certain registered capital. At the same time, GP usually invests in partnership according to market practice, so GP also needs certain capital. GP's investment in partnership can be solved by MC's capital
under the premise of meeting the company law, GP can be set as long as the board of directors makes investment decisions through MC's investment decision-making committee. The management cost of GP is relatively small. At the same time, GP's unlimited liability to partnership does not affect MC's interests (provided that the principle of piercing the corporate veil is not invoked). In addition, in terms of tax planning, since GP's income can be regarded as dividends between resident enterprises and exempted from tax when it is distributed to MC, the tax burden borne by MC's shareholders under structure B is the same as that under structure a. If the structure is designed under the Chinese legal system, it will have the following characteristics:
(I) MC and GP are both limited liability companies
(II) GP makes a small amount of cash contribution to partnership (if there are special requirements in local regulations, such as Shanghai and Tianjin), or makes contribution by labor instead of cash. Special limited partners (SLP) make cash contributions to partnership to meet the requirements of other limited partners for risk sharing of managers
(III) MC usually meets the requirements of certain registered capital, while GP can be set up at a lower cost
(IV) MC appoints directors to GP, and GP's board of directors can form the investment resolution of partnership, so GP's management cost is low
(V) GP is responsible for the operation of partnership, and GP's revenue share can flow back to MC through dividend. Because the registered capital of GP is not large, the income of GP will not suffer too much loss e to unlimited liability
(VI) SLP also collects management fees as MC
(VII) compared with structure a and B, shareholders of MC bear the same tax burden
(VIII) e to joining SLP, its rights and obligations in partnership need to be specially stipulated
this model is not uncommon in mature international private equity funds (although there are some disputes), but it may face challenges in the current Chinese market. One is whether LP will agree to this arrangement, and whether it thinks this arrangement is an evasion of GP's unlimited liability. In addition, whether the approval authority can accept the SLP setting. For these reasons, structure C needs to be accepted by the market and approved by the approval authority
in the end, GP's behavior will be punished by the market. Excellent GP is very cautious about their own track record. At present, some structural settings (such as structure a) are reasonable based on the current market situation. However, after the initial stage of PE practice in China, GP situation and market understanding of partnership culture should be further developed, and new structure setting may occur