Legal Updates in the Private Equity Industry (August 2025/Issue 90)
Legal Services Updates of the State-owned Assets Fund Research Center
A fund investment contract dispute between an investor and a private equity fund manager, represented by Yang Chunbao's legal team, was heard at the Shenzhen International Arbitration Court.
A repurchase dispute between a private equity fund and an invested enterprise represented by Yang Chunbao's legal team was heard in the Xuhui Court.
The Shanghai Clinical Transformation Seed Investment Fund, with Pudong Venture Capital as a cornerstone investor, has been officially established. Yang Chunbao's legal team provided Pudong Venture Capital with full legal services for this investment, including due diligence, drafting, review, modification and negotiation of transaction documents.
Yang Chunbao, a first-level lawyer, was invited to give a keynote speech on "Attack and Defense of Betting Buybacks" at the "Legal Services in the Industrial Park" event hosted by the Pudong Branch of the Shanghai Association of Returned Scholars in the West.
Various announcements and notices of the association
On August 11, 2025, the Asset Management Association of China (the "Association") issued an announcement stating that, effective August 11, 2025, private equity fund managers who became members of the Association before the second quarter of 2025 will be able to review their member's credit information reports for the second quarter of 2025 through the Association's asset management business integrated reporting platform (the "AMBERS system"). Each private equity fund manager member should ensure that the information submitted is truthful, accurate, and complete. If any questions arise regarding the results of their institution's credit information report, they may submit a written inquiry to the Association within one month.
On August 15, 2025, the Association announced that it had recently been unable to effectively contact seven private equity fund managers, including Zhejiang Bank Juxin (Hangzhou) Capital Management Co., Ltd., through the contact information registered in the AMBERS system. These private equity fund managers must submit a status report through the AMBERS system within five business days of the announcement. Failure to do so will result in the Association deeming them as lost contact, and the association will publicly announce the loss of contact in the "Loss of Contact" section of its official website and identify them in the "Institutional Integrity Information" column. If the failure to complete the report exceeds one month after the public announcement, the Association will deregister the private equity fund manager in accordance with the law.
On August 15, 2025, the association issued an announcement stating that four private equity fund managers, including Shenzhen Haiboxin Venture Capital Co., Ltd., had abnormal operating conditions and failed to submit special legal opinions in compliance with regulations within three months after the written notice was issued. The association will cancel the private equity fund manager registration of the four institutions.
Legal, Regulatory and Judicial Developments
Guiding Opinions on Financial Support for New Industrialization
Recently, the People's Bank of China, the Ministry of Industry and Information Technology, the National Development and Reform Commission, the Ministry of Finance, the State Administration of Financial Supervision, the China Securities Regulatory Commission, and the State Administration of Foreign Exchange jointly issued the "Guiding Opinions on Financial Support for New Industrialization" (the "Opinions"). The Opinions emphasize the need to introduce long-term funds and develop patient capital to accelerate the commercialization of scientific and technological achievements. They support collaboration between financial institutions and technology intermediary service agencies to explore and develop diversified financing service models to revitalize scientific and technological R&D resources and achievements. They will implement a special project on "Integrating Science and Technology Industry Finance," conduct "One Month, One Chain" investment and financing roadshows, and "Thousands of Sails, Hundreds of Boats" to cultivate specialized, innovative, and innovative small and medium-sized enterprises for listing. They will optimize the evaluation system for hard technology attributes, strengthen guidance on listing expectations and policy incentives, and promote social capital investment in early, small, long-term, and hard technology projects. They will encourage venture capital funds to collaborate with national manufacturing innovation centers, universities and research institutes, entrepreneurial incubation platforms, public service institutions for small and medium-sized enterprises, high-level manufacturing pilot platforms, and pilot units for the industrialization of results from national key R&D programs to empower the commercialization and industrialization of scientific and technological achievements. They will develop venture capital secondary market funds, optimize the business processes and pricing mechanisms for venture capital fund share transfers, and promote the coordinated development of regional equity markets and venture capital funds. Encourage entrepreneurial incubators to explore models such as direct investment, funds, property rental equity, and service-for-equity swaps to invest in incubated companies. Support insurance institutions to collaborate with pilot testing institutions on innovative insurance business. Support venture capital funds and other entities to establish themselves in clusters. Develop high-quality, specialized, innovative, and specialized boards in regional equity markets, and strengthen the incubation, guidance, and professional services for companies going public.
Shanghai supports high-quality enterprises
in developing venture capital funds to invest in the field of artificial intelligence
The Shanghai Municipal Economic and Information Commission, in collaboration with relevant commissions and district governments, has formulated "Several Measures to Further Expand the Application of Artificial Intelligence in Shanghai." These measures propose improving the industry's investment and financing system, leveraging the guiding role of the National Artificial Intelligence Industry Investment Fund and the municipal AI Pioneer Industry Mother Fund, while collaborating with district-level investment funds and social capital to invest early, in small, and long-term ventures. These measures support high-quality enterprises in developing venture capital funds, focusing on key elements such as computing power and corpus data, as well as areas such as large models, embodied intelligence, and scientific intelligence. The funds will collaborate with relevant district-level funds to promote the establishment of specialized sub-funds.
Typical cases
Service Contract Dispute between Company 1 and Company 2
[(2025) Hu74 Min Zhong No. 445]
The statutory fiduciary duties of fund managers are not completely non-arbitrary, that is, the principal and the trustee can agree to reduce or exempt some fiduciary duties within reasonable limits. It is not supported for fund managers to charge service fees to the investee companies only for the investment matters of the funds they manage.
In April 2018, X Fund, Company 2, and its shareholders jointly signed a Capital Increase Agreement, stipulating that X Fund would increase its capital in Company 2 by RMB 30,000,000. In May 2018, Company 1, the managing partner and fund manager of X Fund, signed a Special Service Agreement with Company 2. This agreement stipulated that, in light of the Capital Increase Agreement and Supplemental Agreement to the Capital Increase Agreement signed in April 2018 by X Fund for the capital increase in Company 2, Company 2 would retain Company 1 to provide special services regarding the capital increase. Company 1 had already arranged a RMB 30,000,000 financing arrangement for Company 2. During the service period stipulated in this agreement, Company 1 would continue to provide consulting services to Company 2, including operational management consulting, financing plan consulting, and investment proposal guidance. Company 2 would pay Company 1 a special service fee in accordance with the agreed proportion. Subsequently, Company 2 refused to pay the service fee to Company 1, prompting Company 1 to file a lawsuit. The first instance court ruled that the "Special Service Agreement" was invalid, and Company 1 appealed.
After trial, the first-instance court held that the core content of the Special Service Agreement was that Company 1 provided special services for a 30,000,000 yuan investment in Company 2 by a fund, for which Company 2 paid a service fee to Company 1. The first-instance court declared the Special Service Agreement invalid on the grounds that Company 1 violated the statutory duties of a partner and the fiduciary duties of a fund manager, harmed the interests of fund investors and the partnership, and undermined fair competition in the market and disrupted financial management. The second-instance court held that the first-instance court's findings of fact were correct but its application of law was inappropriate. First, the Special Service Agreement was legal and valid, and the statutory fiduciary duties of a fund manager are not completely non-discretionary. That is, the principal and the trustee may agree to reduce or waive certain fiduciary obligations within reasonable limits. Company 3, as the sole limited partner of the partnership, explicitly stated that it was aware of the signing and content of the Special Service Agreement from the outset of Company 2's investment project and raised no objection. Furthermore, after the liquidation of Company 2's investment was completed, Company 3 still raised no objection. Therefore, Company 1 did not exploit its position as manager to seek illegal gains or embezzle profits that would otherwise belong to the partnership, thereby violating its fiduciary obligations. Finally, considering the objective circumstances surrounding the signing of the Special Service Agreement, its content, and the knowledge and consent of the relevant investors, it does not constitute a violation of the national financial regulatory order. Secondly, regarding whether Company 1 had the right to charge service fees from Company 2 under the Special Service Agreement, Company 1 explicitly acknowledged that after the Fund paid Company 2 RMB 30 million in capital increase, it did not provide any other substantive consulting services to Company 2. Furthermore, as the fund manager, Company 1 had already collected the corresponding management fees within the scope of its fund management responsibilities. Therefore, the second-instance court ultimately rejected Company 1's appeal.
Contract Dispute Case between Urumqi Equity Investment Partnership
Company A and Xinjiang Intelligent Technology Co., Ltd.
[(2025) Xin 01 Min Zhong No. 1572]
In the absence of evidence proving that the invested enterprise is unable to repay its due debts and clearly lacks debt repayment capacity, the private equity fund has no right to require the shareholders of the invested enterprise to bear the repayment responsibility for the invested enterprise's debts within the scope of their uncontributed capital.
In August 2018, Partnership A (the investor) signed an investment contract with Xinjiang Company C (the target company) and its controlling shareholder, Li A. The contract stipulated that the investor would invest 180 million yuan (including equity and convertible bonds) in Xinjiang Company C, becoming a shareholder. The contract also stipulated that the target company and the controlling shareholder, among other entities, must ensure that the target company holds 100% of the equity and intellectual property rights of Shanghai Company D within three months of signing the contract. Failure to do so would entitle the investor to immediately terminate the investment contract and demand the full return of the investment and compensation for any losses incurred. After the contract was signed, Partnership A paid the full investment amount as agreed. However, Xinjiang Company C and Li A and other entities failed to facilitate the transfer of Shanghai Company D to become a wholly-owned subsidiary of Xinjiang Company C, nor to complete the intellectual property transfer. Partnership A then filed a lawsuit, seeking the return of the investment and compensation for losses incurred by Xinjiang Company C. It also sought liability for Xinjiang Company C's debts to the extent of any uncontributed capital contributions from Li A and two other shareholders. The first instance court rejected the claim filed by Partnership A requiring the shareholders of Xinjiang Company C to be liable for the debts of Xinjiang Company C to the extent of their uncontributed capital. Partnership A appealed against the decision.
After review, the second-instance court held that Article 13, Paragraph 2 of the "Provisions of the Supreme People's Court on Several Issues Concerning the Implementation of the Company Law of the People's Republic of China (III)" provides: "Where a company creditor requests that a shareholder who has not fulfilled or has not fully fulfilled its capital contribution obligations assume supplementary compensation liability for the portion of the company's debts that cannot be repaid, within the scope of the unpaid capital and interest, the people's court shall support the request. If a shareholder who has not fulfilled or has not fully fulfilled its capital contribution obligations has already assumed such liability, and other creditors make the same request, the people's court shall not support the request." The literal meaning of this provision indicates that one of the prerequisites for shareholders to assume supplementary liability is that the company's debts cannot be repaid. The underlying legal relationship in this case is the contractual relationship between Partnership A and Company C in Xinjiang. Since the amount of Partnership A's claims has been determined in this case but has not yet entered into enforcement, it is currently impossible to determine whether Company C in Xinjiang can repay its debts. Partnership A also did not provide other evidence demonstrating Company C's demonstrable lack of debt repayment capacity. Therefore, Partnership A's claim that shareholders Li A, Ma, and Chu Shang Ding bear liability within the scope of their unpaid capital contributions, based on Company C's inability to repay its due debts, lacks factual basis and is therefore rejected by the court.
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