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EMPEA Guidelines

1. Effective, clear and flexible corporate and securities laws, with the ability to negotiate rights in capital structures.

Private equity investment will be more robust in markets with corporate and securities laws designed to provide liquidity to businesses and their investors, to foster fundraising through public offerings, to encourage local and international listings and to promote the development of local capital markets. Issues particular to private equity investment ideally addressed in such laws include (i) limited liability for investors who provide capital, but do not take an active role in the management of the investment vehicle, (ii) the ability to flexibly negotiate equity and debt interests in both corporate and partnership structures, (iii) mandatory disclosure of directors’ and officers’ conflicts of interest, (iv) directors’ and officers’ fiduciary duties, (v) reasonable protections for minority investors, and (vi) flexibility with respect to share repurchases, treasury shares and distributions of cash and other assets.

 

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Supporting Material

 

Private equity investment will be more robust in markets with clear and concise corporate and securities laws that promote capital growth and encourage good corporate governance.  Corporate and securities laws optimal for private equity investment are designed to provide liquidity to businesses and their investors, to foster fundraising through public offerings, to encourage local and international listings and to promote the development of local capital markets. 

Issues particular to private equity investment preferably addressed in such laws include (i) limited liability for investors who provide capital, but do not take an active role in the management of the investment vehicle, (ii) the ability to flexibly negotiate equity and debt interests in both corporate and partnership structures, (iii) mandatory disclosure of directors’ and officers’ conflicts of interest, (iv) directors’ and officers’ fiduciary duties, (v) reasonable protections for minority investors, and (vi) flexibility with respect to share repurchases, treasury shares and distributions of cash and other assets.  Recommended features include:

1.1 - Promotion of liquidity

  1. Frameworks for that allow for public offerings, including international listings;
  2. The development of local capital markets; and,
  3. The freedom to transfer shares or other interests without significant restrictions or costs.

1.2 - Limited liability for investors

  1. The limitation of liability for investors who provide capital but do not take an active role in  the management of the investment vehicle;
  2. Different forms of legal entities, such as corporations, limited liability companies, limited partnerships, general partnerships and limited liability partnerships that allow for the limitation of liability and corporate or flow-through taxation.

1.3 - Ability to flexibly negotiate equity and debt interests

  1. Different classes of equity securities and debt interests in both corporate and partnership  structures, including preferred shares, whose rights can be freely defined and contractually  defined partnership interests.
  2. Mandatory disclosure of directors’ and officers’ conflicts of interest
  3. Directors’ and officers’ fiduciary duties

1.4 - Reasonable protections for minority investors

  1. The enforceability of customary minority protections embodied in constitutive documents, e.g., shareholders’ agreements, regardless of their governing law;
  2. A mandatory tender offer for all shares following the direct or indirect acquisition of more than 50% of the shares of a public company; and,
  3. Well-defined and enforceable concert party rules.
  4. Reasonable processes to approve and implement corporate actions,
  5. Required timely preparation and adoption of financial statements and reporting of financial  results.

1.5 - Reasonable flexibility with respect to transfer and sale of shares and/or assets

  1. Allowances for share repurchases, treasury shares and distributions of cash and other assets
  2. Clear and fair procedures for winding up legal entities that take account of the interests of all  interested persons, including shareholders and creditors.

 


Continue to 2. Conformity to international standards of business integrity and anti-corruption

Return to EMPEA Guidelines Overview