[Direct answer]In the Beijing area, private equity fund managers and private equity fund sales institutions are not allowed to raise funds from units and individuals other than qualified investors, and the total number of investors in a single private equity fund shall not exceed the statutory limit. According to Article 11 of the "Interim Measures for the Supervision and Administration of Private Equity Investment Funds" (implemented on August 21, 2014), the total number of investors in a limited liability company-type or limited partnership-type private equity fund shall not exceed 50, and in a joint stock company-type or contract-type private equity fund, it shall not exceed 200. If the number exceeds the limit, it may constitute illegal fundraising, and in serious cases, it may involve criminal risks such as illegally absorbing public deposits. Investors should verify the product registration and the structure of the holders, and refer to it when necessary.Finance and cross-border businessEvaluate the risks of the column.

I. Problem Background and Typical Scenarios

Such problems are commonly encountered in several situations: first, the manager collects funds from multiple people to invest in the same product through methods such as splitting orders and acting as a nominal holder, with the actual number of people exceeding the limit; second, the contractual fund has a small nominal share but many actual investors behind it; third, the industrial and commercial registration of the partnership fund shows no more than 50 partners, but in reality, there are many nominal holders; fourth, the sales agency splits the shares to raise funds from unspecified targets; fifth, individual products use multi-layered structures to evade the number limit. When handling such consultations in Beijing, we usually first investigate the actual investors and the product structure, and then determine the degree of violation. The recovery of relevant funds can be referred to for reference.Creditor's rights and debts, and enforcement casesFor contract disputes, you can refer to the column for more informationReal estate transactions and construction projectsColumn.

II. Key points of dispute

Focus One: The application of the cap on the statutory number of participants, and the distinction between 50 and 200 participants for different types of funds; Focus Two: Whether the number of participants in joint investment should be calculated through the "transparent method"; Focus Three: Whether exceeding the number of participants constitutes public fundraising, triggering the provisions on public offerings in the Securities Law of the People's Republic of China (effective March 1, 2020); Focus Four: Whether it involves illegal public fundraising, which depends on the four key elements of publicity, sociality, promised returns, and fundraising; Focus Five: Paths for investor loss relief, including civil claims and criminal reporting. The above interpretations are based on current effective laws and regulations and judicial rulings. For contract disputes, please refer to relevant legal provisions for guidance.Business and contract disputes in enterprisesColumn.

III. Professional analysis by Henglue Law Firm

From the practical experience of the lawyers handled by our firm, the essence of raising funds beyond the number of investors is disguised public fundraising, which carries much higher risks than ordinary breaches of contract. When assisting investors in identifying potential risks, our lawyers usually require them to provide product filing information and a list of shareholders to verify whether the actual investors exceed the legal limit. For cases where the number of investors is hidden through proxy holding and fund-pooling, we will trace the actual number of investors based on the fund flow and the proxy holding agreement. In practice, raising funds beyond the legal limit constitutes an administrative violation. If combined with promises of guaranteed principal and interest payments and fund-raising from unspecified individuals, the case may fall under criminal prosecution. Investors should fix the fundraising materials as soon as possible to avoid further losses.

IV. Practical suggestions and legal basis

Action proposal: Firstly, before signing the contract, check the fund's filing and the maximum number of investors. You can refer to the following for reference:Special services and other casesFirst, the platform must not accept proxy orders to avoid becoming a part of the oversized offering chain. Second, it should preserve promotional materials, partnership agreements, and payment receipts to prove the actual fundraising methods. Third, it must promptly report any exceeded investor numbers to the Asset Management Association of China or regulatory authorities. Fourth, if criminal suspicions arise, it should collect evidence of public promotion and promised returns before reporting the case to the police. In terms of legal basis, Article 11 of the Interim Measures for the Supervision and Administration of Private Equity Investment Funds stipulates the maximum number of investors for a single fund; Article 9 of the Securities Law of the People's Republic of China defines that public offerings must be approved by the securities regulatory authority under the State Council; and Article 176 of the Criminal Law of the People's Republic of China (amended on March 1, 2021) stipulates the crime of illegally absorbing public deposits.

5. Henglu Law Firm's Advice

Risk Warning: Firstly, collecting funds exceeding the authorized number often involves disguised public fundraising, with both administrative and criminal risks. Secondly, proxy holding and group purchasing are not only illegal but also pose potential ownership risks, and investors may end up losing out on both fronts. Thirdly, whether a crime has been committed depends on four elements, and exceeding the authorized number does not necessarily constitute a crime. Fourthly, civil claims and criminal reports can proceed concurrently, but the focus of evidence collection differs. Fifthly, it is also important for investors to make honest declarations. For contract review, you can refer to the following materials:Business and contract disputes in enterprisesColumn. It is recommended to entrust a professional lawyer to evaluate the legal path and fix the evidence as soon as possible.

VI. Frequently Asked Questions

Q1: What should we do if we recruit more people than the target number?

How to handle the situation of exceeding the number of investors recruited depends on the circumstances. At the administrative level, if the manager violates the number limit, the regulatory authorities shall order the manager to make corrections and impose penalties on him/her; at the civil level, investors may claim that the manager violates the obligations of appropriateness and compliance and seek compensation. If the act meets the requirements of public promotion, promise of returns, and raising funds from unspecified individuals, it may be suspected of illegally absorbing public deposits, and a criminal report should be filed. Investors should distinguish between violations and crimes, and choose the path of complaint, civil litigation, or criminal reporting, and fix the evidence of the fund-raising process.

Q2: What evidence do we need to collect to prove that the number of attendees exceeded the limit?

The following items should be collected: the fund registration certificate and the list of shareholders, which can prove the actual number of investors; evidence of agency holding agreements or group investment arrangements; promotional materials and publicity records; payment receipts and fund transaction records; communication records with the fund manager; and written or audio recordings of promises to guarantee principal and interest payments. These documents are used to prove the violation of fundraising regulations and the exceeding of the investment quota, and serve as the basis for administrative complaints, civil claims, or criminal reports. The earlier the evidence is fixed, the more beneficial it will be.

Q3: How much does it cost to handle the oversubscription of applications?

The fees vary depending on the legal path. Administrative complaints generally do not incur fees; for civil claims, the attorney's fees are negotiated based on the amount of the claim, and the litigation fees are charged in stages according to the amount of the claim; criminal reporting itself is free of charge, but recovering the stolen money and mitigating losses depend on the investigation. The specific amount is determined based on the amount of the loss and whether an evaluation is needed. It is recommended to first assess the evidence and legal path before determining the budget to avoid making blind investments.

Q4: How long does it usually take to resolve such issues?

The processing period for administrative complaints depends on the regulatory procedures and may take several months to half a year. For civil litigation, the first-instance ordinary procedure generally does not exceed six months, and the second-instance procedure takes about three months. The time for criminal case filing and investigation is even longer, and the recovery of embezzled funds and mitigation of losses often span multiple years. The key is to secure evidence of illegal fundraising and exceeding the number of participants as soon as possible to avoid exceeding the time limits for exercising relevant rights and the statute of limitations for prosecution.

Q5: What should I do if I find that the number of applicants exceeds the recruitment quota?

The first step is to immediately verify the product registration and the actual number of people to confirm whether it exceeds the limit. The second step is to collect evidence of promotion, agency holding, and payment. The third step is to file a complaint with the Fund Industry Association or the regulatory authorities. The fourth step is to assess whether there is a criminal involvement and prepare the materials for reporting the case. The fifth step is, if necessary, to entrust professional lawyers to coordinate the administrative, civil, and even criminal procedures. For reference, please refer to the following materials:Beijing Henglue Law FirmFor similar columns on the official website, choose the most reliable solution based on your own evidence.

The above answer is based on the judicial practice in the Beijing area. The adjudication guidelines in other provinces and cities may vary. For specific cases, please refer to the local rules and evidence situation.

If you are facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the evidence materials, so as to avoid missing the statutory time limit. →Financial capital legal services·Beijing Henglue Law Firm

Disclaimer: This article is compiled based on current laws and regulations and publicly available adjudication rules, and is for general reference only. It does not constitute a formal legal opinion on specific cases. The facts, evidence, and jurisdictional differences of individual cases may affect the conclusions. If you encounter disputes, please consult a practicing lawyer in time.