What is the legal liability associated with private equity investments?

Private equity investments involve high risk and come with complex legal liabilities. Generally speaking, private equity investors are faced with fiduciary duties and obligations that can arise from the terms of the contract or other securities laws. In California, private equity investors are expected to exercise due care, loyalty and good faith when making investment decisions, with a duty to the portfolio company and its investors. Investors should also be mindful of legal risks, including potential litigation, when it comes to their investments. These can stem from an investor’s or the portfolio company’s actions and/or omissions. Furthermore, private equity investors may also face taxation liability under federal and state tax laws. This can include taxes related to the sale of portfolio companies, carried interest, or capital gains. Private equity investors should have a good understanding of the applicable tax laws so they can accurately assess the associated risks. In addition, private equity investors may be exposed to potential liability under the Securities Exchange Act of 1934, the Employee Retirement Income Security Act (ERISA) and other federal or state securities laws. The Securities Exchange Act of 1934 imposes certain disclosure requirements on all public and private companies, and all investors should be sure to comply with these regulations. ERISA regulates the conduct of private equity investors with respect to employee benefit plans and other retirement accounts. Lastly, private equity investors should understand any potential liability from contractual obligations, such as fiduciary duties and other investor rights. It is important that these issues be addressed prior to entering into a private equity agreement.

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What is the legal liability associated with private equity investments?

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