How Does Private Equity Work?
In order for private equity firms to maximize returns, it is important to succeed during each stage of the portfolio company cycle: identifying the right target, acquiring portfolio items, unlocking earnings growth, and exiting smoothly. At each stage in this process, there are unique legal issues that owners of private equity firms must keep in mind. Priori Legal can connect you with vetted private equity lawyers who have experience across the range of legal issues private equity firms encounter.
Most legal issues that private equity firms face involve making successful deals. Strict legal guidelines apply to private equity firms when structuring, negotiating, and implementing private equity transactions. Private equity firms should ensure that an experienced lawyer scrutinizes all the legal paperwork at each stage of the process, from initial portfolio company acquisition, to intervening add-on investments, divestments and recapitalizations, to the portfolio company’s ultimate disposition or public offering. Private equity firms that make mistakes in their legal paperwork often face costly lawsuits, particularly when negotiating complex transactions like those involving mergers and acquisitions.
Private equity firms face a large number of compliance issues, and a lawyer can help ensure that your private equity firm avoids costly violations. The SEC and state level organizations keep a close watch on private equity firms, so you should be sure to check on your private equity firm's compliance with the following private equity issues regularly.
Many employees in private equity firms should be registered with the SEC as broker-dealers. Those conducting transactions should be registered before ever starting work. In 2013, the SEC suggested that private equity firm employees may now need to register as broker-dealers if they are carrying out other activities, such as fundraising activities conducted by in-house personnel, or if unregistered staff are being paid commissions in connection with securities-based transactions.
General Solicitation Rules
Under the JOBS Act, private equity investment advisers now have the ability to market their funds to the general public. Still, there are limitations on this practice, and private equity firms should undertake such solicitation carefully in order to assure compliance—both with new and old regulations.
All investors, regardless of manner of solicitation, must be accredited for most offerings through private equity firms. Firms have a responsibility to confirm that investors qualify before each transaction. In addition, the definition of an accredited investor has been in flux over the past few years, making it even more important for private equity firms to check for compliance regularly.
Depending on your needs, the cost of hiring a lawyer for your private equity firm can vary. Hourly rates for Priori lawyers who are experienced working with private equity firms range from $225 to $450 per hour. In order to get a better sense of cost for your particular situation, put in a request to schedule a complimentary consultation and receive a free price quote from one of our lawyers.
Is this a comprehensive list of everything private equity firms should discuss with a private equity lawyer?
Unfortunately, no. It would be impossible to touch on every legal issue affecting private equity firms here. That’s why you should get in touch with an experienced private equity lawyer who can provide you with a through understanding of every legal issue private equity firms commonly face —as well as provide special help with any private equity issues that may arise unexpectedly.