Private Equity Law: Everything You Need To Know
Private equity law deals with company assets that cannot be traded publicly in the stock exchange.3 min read
Updated November 25, 2020:
Private equity law deals with company assets that cannot be traded publicly in the stock exchange. These investments can help grow the business, create a new product, or manage daily operations. Some of the more common strategies used include:
- Leveraged Buyout: This happens when a private equity firm purchases the control over another existing firm.
- Venture Capital Investment: This usually occurs when investors put money into firms that are still growing in the business market. They may do this to get another firm to take interest in the startup business. This type of investment may be high risk for the investor, but the payoffs in the long-run may be very high.
- Mezzanine Capital: This is debt that may not harm the business's capital structure, but it is greater than the common equity. Small companies use this to borrow more money. Anyone who has this kind of capital comes with a higher risk and needs higher returns for the investment.
There are also various government agencies and acts on private equity laws:
- ABA — Committee on Private Equity and Venture Capital: This committee looks at any problems with national and international lawyers who may have private equity.
- Bank Holding Company Act: Formed in 1956, the act helps regulate bank holding companies that wanted to own both banking and non-banking businesses.
- Private Fund Investment Advisors Registration Act: This act requires private investment fund advisors to be registered with the Securities and Exchange Commission, follow the Advisors Act, and keep records.
- Securities and Exchange Commission (SEC): This was formed to protect investors and keep markets fair and in order.
Organizations Related to Private Equity Law
- Emerging Markets Private Equity Association (EMPEA): This association is a nonprofit seeking to help those in Africa, Asia, Europe, Latin America, and the Middle East to understand private equity and investing.
- Federal Deposit Insurance Corp. (FDIC): Formed by Congress, this agency helps keep the country's financial system stable through the management of various areas of finance.
- Federal Trade Commission (FTC): This agency takes care of the American economy by protecting the consumer and supervising broader sectors. It seeks to enforce laws according to its policies and educate the general public about various financial aspects, while also maintaining national and international agencies.
- National Association of Investment Companies (NAIC): This organization is for firms that have invested in the United States Emerging Domestic markets, or EDM for short. These members usually invest privately in companies that have a high rate of return.
Publications Related to Private Equity Law
- Angel Investor News: This resource provides news and information on angel investors, small-business funding, private investors, and other related categories.
- Private Equity Hub: This online forum helps people in the private equity industry interact on a global scale, including foundations, venture capitalists, and MBA candidates. It aims to help those within the industry work better by sharing all types of worldwide knowledge.
- The Deal LLC: Established in 1999, this company takes care of any deal-making through economic cycles and leaders in business. It offers news, information, and original ideas to other investors and advisors both in print and electronically.
- Wall Street Journal — Private Equity Beat: This international newspaper is printed daily and focuses on national and international financial news and issues.
Private Equity and Investment Management
Business investments are typically managed by private equity and investment companies. Lawyers that help manage investments have two important functions: help the firm negotiate terms with investors on how the funds will be used and help the firm later to either buy or sell investments. They may also specialize in other sectors, such as hedge funds, mutual funds, and real estate investment funds.
Private equity lawyers have various responsibilities when handling a deal, including:
- Helping clients raise funds through preparation of materials, partnership agreements, and other arrangements
- Creating organizational documents to form the investment fund
- Letting clients know when issues arise, and when regulations and laws change
- Advising clients on the daily
Legal Team of Private Equity Firm
Private equity firms, due to their small size, use an external legal team when necessary.
If you need help with private equity law, you can post your job on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.