12 LPs Sue to Dissolve Fund That Controls a Listed Firm; Court Dismisses Case

Over the past year, multiple cases of private equity (PE) funds taking controlling stakes in listed companies have emerged in the capital markets. However, attention to the subsequent exit strategies of these funds has been limited. A review of relevant cases this year by Securities Times reporters reveals that a dispute over the liquidation and exit of a PE fund upon maturity—one that held a controlling stake in a listed company—has drawn widespread industry attention.

In March of this year, the Beijing Third Intermediate People's Court issued a final ruling, dismissing a dissolution lawsuit jointly filed by 12 limited partners (LPs) of Beijing Zhidu Depu Equity Investment Center (Limited Partnership), the controlling shareholder of Zhidu Co., Ltd. (formerly "Sida High-Tech"). This marks the first case in China where LPs collectively sought the dissolution of a fund established to control a listed company.

When a fund's term expires but its shares in a listed company remain unsold, an inevitable game over "exit" begins. Legal experts note that this issue not only involves control of the listed company but also serves as a cautionary tale regarding governance after a fund takes control of a listed company.

The Full Story of the LPs' Collective Request for Fund Dissolution

In 2014, Beijing Zhidu Depu Equity Investment Center (Limited Partnership) was established, with Beijing Zhidu Depu Investment Management Co., Ltd. serving as its general partner (GP). Over the following years, Zhidu Depu gradually acquired control of Zhidu Co., Ltd. through multiple rounds of investment, becoming a typical example of a PE fund controlling a listed company on the A-share market.

However, the fund's filing expiration date was December 9, 2024. When the term expired, the fund's holdings in the listed company were far from fully reduced. On September 5, 2025, 12 LPs of Zhidu Depu (with a combined capital contribution ratio of 19.82%) filed a lawsuit with the Beijing Shunyi District People's Court, requesting the dissolution of Zhidu Depu. The plaintiffs' reasoning was straightforward: the partnership term had long expired, yet the executive partner had not proceeded with dissolution and liquidation.

According to information from Tianyancha, all 12 LPs are natural persons. After two trials spanning six months, the LPs' request was completely rejected. In a March announcement, Zhidu Co., Ltd. stated that the company maintains a fully independent production and operation system, all business activities are proceeding normally, and the lawsuit has not yet impacted the company's current profits or future profits.

Commenting on the final judgment, Chen Chaoming, Senior Partner at Beijing Yingke (Shenzhen) Law Firm and Director of the Capital Market Legal Affairs Center, told reporters that the outcome of the Zhidu Depu case holds significant reference value. Both the court of first instance and the court of appeal held that the lawsuit "does not fall within the scope of civil cases accepted by the People's Courts" and dismissed the lawsuit.

"This judicial reasoning warrants in-depth analysis," Chen said. Courts tend to believe that the dissolution of a partnership should be resolved primarily through internal mechanisms stipulated in the partnership agreement, and judicial intervention should remain restrained. This creates a subtle tension with Article 85 of the Partnership Enterprise Law, which lists the expiration of the partnership term as a statutory ground for dissolution. However, judicial practice is forming a review pattern: first, check whether internal remedies have been exhausted.

He further pointed out that, based on experience handling similar cases, LPs seeking dissolution solely on the grounds of "term expiration" face slim chances of success. Cases that truly receive judicial support typically involve three elements: "term expiration + persistent deadlock + inability to resolve through other means."

The Exit Predicament for LPs in Controlling Funds

Zhidu Depu's control of a listed company is not an isolated case. Over the past two years, instances of PE funds taking control of listed companies have frequently occurred. A fund under Qiming Venture Partners acquired Tianmai Technology, with the transfer completed in January 2026. Ruicheng Hongtu Fund, managed by Hefei Ruicheng Private Equity Fund—the CVC platform of the Chery Group—acquired 25% of Honghe Technology's shares for RMB 1.575 billion, becoming its controlling shareholder, with the transfer and board restructuring completed in December 2025.

According to statistics from Wenyi Fuxin, a financial advisory firm specializing in M&A transactions, 11 cases of A-share listed company control changes involving PE fund entities were announced in 2025. Of these, 8 have been completed, while the rest are ongoing. Buyers include local state-owned capital, industrial capital, and market-oriented investment institutions. In terms of funding sources, state-owned capital is the main driver, covering municipal guiding funds, provincial-level industrial special funds, district-level platforms, and state-owned venture capital institutions. Additionally, some acquisition funds come from the personal or related-party funds of the fund manager's actual controller.

Notably, the model of "co-transfer and equity participation" in acquiring listed company shares is gradually emerging. For example, in March of this year, the actual controller of Yingtong Communication and its concert parties signed a share transfer agreement with Chenyue Fund, planning to transfer 5% of the listed company's shares for a total consideration of RMB 160 million. The transferee, Chenyue Fund, was established on January 28, 2026, with Fortune Capital (Dachen Caizhi) serving as its executive partner.

In fact, VC/PE institutions taking control of listed companies is not new. From early players like IDG Capital, Jiuding Investment, and Zhongke Zhaoshang, to more recent ones like Qiming Venture Partners and Meihua Capital, such strategies have been deployed. Chen Chaoming analyzed that the strategic intentions of GPs in acquiring control of listed companies include: using the listed company as a capital operation platform to inject projects previously invested by the GP, achieving "primary and secondary market linkage"; and improving the listed company's fundamentals to boost market value, then exiting through share reduction or negotiated transfer.

However, the misalignment of interests between GPs and LPs constitutes the most vulnerable link in such funds. GPs typically derive income from management fees and carried interest (Carry), with Carry realization dependent on exits, and the timing of exits often controlled by the GP. LPs want a quick exit to lock in profits, while GPs may prefer to hold on or wait for higher valuations. When the fund term expires and the GP is unwilling to liquidate, conflict becomes inevitable.

"From the perspective of capital market practice, cases where PE funds hold controlling stakes in listed companies for the long term and deeply participate in industrial operations are extremely rare," Chen Chaoming stated. More often, control is merely an interim arrangement, with the ultimate goal still being an exit—only the exit method shifts from passive IPO or equity transfer to an active "backdoor-style exit." However, this model faces an inherent contradiction: fund terms are typically 5 to 7 years, while the cycles required for industrial integration and value enhancement of listed companies are often longer. Term mismatch is a structural flaw in such transactions.

Four Layers of Risk and Five Key Takeaways

The legal conclusion of the above case has not quelled industry inquiries: In cases where PE funds control listed companies, when the fund expires and assets remain unsold, how can LP interests be protected? In Chen Chaoming's view, such transaction structures face at least four overlapping legal risks:

1. Internal Governance Risk of the Partnership: The term stipulated in the partnership agreement is a hard constraint. If an effective extension resolution cannot be reached upon expiration, the partnership faces statutory grounds for dissolution. Chen suggests that managers should design flexible term structures at the fund's inception, such as "7+3+2" or "6+3+3" arrangements, and pre-establish disposal mechanisms and voting rules for post-expiration scenarios.

1. Information Disclosure and Related-Party Transaction Risk: After a PE fund takes control of a listed company, using the listed company as a platform to acquire projects previously invested by the GP constitutes a related-party transaction. This requires the listed company to continuously enhance information transparency and will face stricter look-through review requirements.

1. Control Stability Risk: PE funds often acquire control of listed companies through arrangements like negotiated transfers plus voting rights delegation, rather than directly holding over 30% of shares. The stability of such "control arrangements" is far weaker than direct shareholding. If disagreements arise between the original controlling shareholder and the PE fund, or if the voting rights delegation is unilaterally terminated, control can be lost instantly.

1. "One-Way Street" Exit Path Risk: Exit paths are significantly narrowed—secondary market reductions are subject to regulatory restrictions, negotiated transfers require finding a buyer with sufficient capacity, and transferring overall control of a listed company is far more difficult than transferring minority stakes. If the fund cannot exit upon maturity, LP dissatisfaction will directly translate into lawsuits or arbitration against the GP.

Based on these risks, Chen Chaoming summarized the following takeaways from the case for PE funds and LPs considering similar models:

• First: The term clause in the partnership agreement must include a pre-set "exit mechanism," not just a "term of existence"—in practice, many partnership agreements isolate the term clause, merely stating "the partnership term is X years" without supporting post-expiry disposal provisions.
• Second: The fund-level extension resolution mechanism must be "operable," not just a formality on paper.
• Third: When taking control of a listed company, an "exit expectation alignment mechanism" needs to be established between the GP and LPs.
• Fourth: For GPs considering the "PE + listed company" model, industrial operation capability is a more fundamental constraint than capital operation capability. Both LPs and the listed company must assess whether the GP truly possesses the industrial capability to improve the listed company.
• Fifth: LPs should have a clear understanding of the liquidity of "control-type funds" before making capital contributions.

Proofreader: Wang Jincheng