What requirements must be met to establish a private equity fund?

The establishment of a private equity fund is possible only when certain qualification and structural requirements are met.

Under the Financial Investment Services and Capital Markets Act, requirements such as the composition of investors, the management structure, and the registration requirements must be satisfied, and to establish such a fund, the following requirements must be reviewed step by step.

① Requirements for the Managing Entity (GP)

The most important element in establishing a private equity fund is the managing entity.

In general, a private equity fund is structured so that the GP (general partner) manages the fund, and the GP must be a corporation registered with the Financial Services Commission.

In addition to meeting certain capital requirements, the entity can be registered only when it satisfies both the personnel and physical requirements, such as full time management staff and internal control standards.

② Requirements for the Composition of Investors (LP)

Because a private equity fund uses a 'private placement' method, there are limits on the number and qualifications of investors.

In principle, it is composed of no more than 100 final investors (no more than 49 where subscriptions are solicited from the general public), and a general investor must be a 'qualified investor' who meets the contribution requirement of at least 300 million won.

Because the level of regulation by the financial authorities may vary depending on the composition of investors, a prior review is essential.

③ Requirements for Contributions and Structure

When establishing a private equity fund, a minimum contribution structure must be in place, and articles of association (an LPA) or a contract that specifies the rights and obligations between the GP and the LP must be clearly established.

A process of designing a legally secure profit structure is necessary, including the investment purpose, the method of asset management, and the profit distribution (waterfall) structure.

④ Reporting and Registration Procedures with the Financial Authorities

The establishment of a private equity fund itself operates under a system of registration and subsequent reporting rather than authorization, but the reporting obligations vary depending on the fund track chosen (a general private equity fund or an institutional private equity fund).

In particular, it is important to secure legal completeness so that there are no defects in the reporting procedure to the financial authorities, which takes place within two weeks after establishment.

If structural design or a review of financial regulations is required, the Corporate Legal Group of Daeryun Law Firm can support the stable establishment of a fund through comprehensive legal advice, including the design of the management structure, the review of investor composition, and responses to financial authority regulations.