What Is Private Equity Law (Explained: All You Need To Know)

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What is Private Equity Law?

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What Is Private Equity Law

Private equity law refers to the body of laws relating to various funding transactions, fund formations, the purchase of a controlling interest in private companies, venture capital investments, disposition of investments, and so on.

Private equity firms are organizations formed by investment professionals who deploy capital on behalf of other organizations such as pension funds, hedge funds, or high-net-worth individuals.

For example, an organization looking to acquire another by way of a leveraged buyout should have a good understanding of private equity laws to ensure that the transaction is structured properly.

In essence, private equity laws refer to the laws and regulations applicable when investing in a private company for profit or upside returns.

Attorneys in private equity will deal with mergers and acquisitions, investment management, or a combination of both.

Typical mandates in private equity can relate to the formation of investment funds, advising funds on applicable laws and regulations, acquisition or disposition of minority or majority interests in other organizations, and so on.

Keep reading as I will further break down the meaning of private equity laws and tell you why they are important.

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Why Are Private Equity Laws Important

Private equity laws are very important allowing individuals and organizations to invest their money in different ways.

The main objective of private equity laws is to ensure that individuals and companies invest in other organizations or sell their positions in compliance with the law.

Structuring an acquisition or financing transaction can be quite complex, involving many parties, and require regulatory disclosures, and time-sensitive actions to be taken.

Private equity laws consist of a set of laws allowing organizations to structure an acquisition or financing deal, assess its tax consequences, determine the optimal legal structure, and ensure regulatory compliance.

Private equity consists of an investment class that is not listed on a public exchange.

As a result, parties engaged in private equity transactions are those directly investing in private companies where they will take up an equity interest.

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Issues Relating To Private Equity Law 

Private equity laws are typically involved with complex transactions such as leveraged buyouts, bolt-in acquisitions, private placement, and many others.

In this context, there are many issues that may arise in the context of a private equity transaction where you have many parties involved, complex transactions being performed, and complex laws applicable to the transaction.

Issues can arise with investors, company managers, individual investors, regulatory bodies, financial institutions, and many other stakeholders.

Private equity lawyers must not only have a good understanding of the private equity laws but should also be familiar with other areas of the law such as corporate law, intellectual property law, employment law, partnership law, securities law, competition law, and more.

Successful private equity attorneys are able to carefully negotiate with different stakeholders, manage parallel workstreams, and ensure that a particular transaction is completed within the required timelines.

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Private Equity Law FAQ

What are some private equity law strategies?

Private equity laws are those applicable to private equity transactions with private companies.

There are many private equity law strategies that can be used to acquire minority ownership, a controlling interest, or for funding transactions, such as leveraged buyouts, venture capital investments, mezzanine capital, and more.

What are the government agencies dealing with private equity transactions?

There are different agencies, organizations, or acts relating to private equity transactions in the United States, such as:

• ABA – Committee on Private Equity and Venture Capital
• Bank Holding Company Act 
• Private Fund Investment Advisers Registration Act
• Securities and Exchange Commission (SEC)
• Emerging Markets Private Equity Association (EMPEA)
• Federal Deposit Insurance Corp. (FDIC)
• Federal Trade Commission (FTC)
• National Association of Investment Companies (NAIC)
• Dodd-Frank Wall Street Reform and Consumer Protection Act
• Securities Act of 1933
• Know-Your-Customer Rule
• Anti-Money Laundering Laws

Who needs to know about private equity laws?

Anyone looking to invest in a private company, acquire an equity interest, acquire a controlling interest, or fund a private company will need to know about private equity laws.

Typically, private equity lawyers will advise international funds, venture capitals, private equity firms, hedge funds, real estate investment trusts, fund-of-funds, exchanges, and other private investment funds.

Private equity laws apply to companies in the seed stage, later stage funding, or any private company selling equity securities to investors.

Where do private equity laws come from?

In the United States, private equity transactions are regulated by the Securities and Exchange Commission.

Typically, investment firms engaging in private equity transactions are required to register themselves with the SEC to have the right to make private equity investments.

You also have the Securities Act of 1933 which requires registration and mandatory disclosures to protect investors.

In addition, you have the Securities Exchange Act of 1934 that governs what organizations must do to offer securities to investors.

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Takeaways 

So there you have it folks!

What does private equity law mean?

In a nutshell, private equity law refers to the set of laws dealing with private investment financing.

In other words, private equity law regulates the funding of companies that are not publicly traded.

Investment firms, venture capitalists, angel investors, and other investors that provide capital to a private company in exchange for shares are engaging in private equity transactions.

Private equity laws will typically govern private equity transactions when shares are being sold or bought, the required disclosures that must be made, the reports that must be issued, and the private equity transaction process.

Dealing with private equity law requires that lawyers also have a good understanding of securities laws, corporate laws, IP laws, competition laws, and other acts and statutes.

Now that you know what private equity law means and what it includes, good luck with your research!

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