Equity investment through private equity fund is regarded as one of the best solutions for newly established or small companies in need for fund raising. Since 2000, total of 270 billion Euros were invested in over 56000 companies in Europe through private equity professionals.
At the moment, we don’t have specialized legislation regarding to establishment and operation of private equity fund in Mongolia. Although Article 26 of Law on Securities market regulated basics of collective investment vehicle and mutual fund, as long as private equity funds deal with buyout of equities of private companies, above mentioned provision shall not apply to establishment and operation of Private equity fund in Mongolia. However, it does not mean you cannot establish Private equity fund in Mongolia. So how do you establish private equity fund in Mongolia? This is the basics.
When you are considering about establishing private equity fund in Mongolia, then you should have following players:
– Equity fund manager /will be management company and responsible for managing fund and representing it/
– Investor /will be individuals and entities. They will receive dividends as par to its contribution from a specified projects/
Private equity funds can be incorporated as limited liability partnership in Mongolia. In this regards, equity fund manager will be general partner of partnership and according to section 2 of article 28 of Law on Partnership, it will enjoy right to manage fund and represent it. Other investors will be limited partners and under section 4 of article 28 of Law on Partnership, they will be freed from obligation of participation in its day to day activities.
General partner and limited partners are subject to Partnership agreement, which is equivalent to participation agreement. Unless all partners refused to continue participation in partnership, then refusal to continue participation in partnership by any limited partner shall not be ground for liquidating partnership.
When it’s time to invest in equities of potential companies, limited partnership will incorporate new company of which total share shall belong to the limited liability partnership.