Private Equity Funds | Compliance Issues and Countermeasures Regarding Exit via Share Reduction by Investment Funds from Listed Companies — Lock-up Period of Shares

Pursuant to the Measures for the Administration of Securities Issuance and Underwriting (2023 Revision), strategic investors participating in strategic allocations during initial public offerings (IPOs) must hold the allocated securities for no less than 12 months, with the lock-up period commencing on the date the publicly offered securities are listed. Accordingly: If a private equity fund participates in the strategic allocation of an IPO as a strategic investor, the lock-up period for the allocated securities is 12 months from the listing date. Scenario Five: The shareholder is the controlling shareholder or actual controller, or acts in concert with the controlling shareholder or actual controller. Pursuant to the Administrative Measures for Registration-based IPOs of Stocks, the controlling shareholders, actual controllers, and their relatives of the issuer must disclose a lock-up arrangement under which the shares they hold may not be transferred for 36 months starting from the date the issuer’s stock is listed. According to the Stock Listing Rules of the relevant stock exchanges, shares held by controlling shareholders and actual controllers may not be transferred for 36 months from the date the issuer’s stock is listed. Further, pursuant to the No. 17 Securities and Futures Legal Application Opinion (for IPOs), shares held by the controlling shareholders and actual controllers of the issuer may not be transferred for 36 months from the listing date; shares held by their relatives and persons acting in concert shall be subject to the same lock-up requirements. Extension of the lock-up period: Pursuant to the CSRC’s Opinions on Further Advancing the Reform of the New Share Issuance System, if, within six months after listing, the closing price of the company’s stock remains below the offering price for 20 consecutive trading days, or if the closing price on the last trading day of such six-month period is lower than the offering price, the lock-up period shall be automatically extended by at least six months. Lock-up rules applicable where the company is unprofitable at listing: For companies listed on the ChiNext or STAR Market, the profitability status of the company at the time of share reduction affects the timing and extent of such reduction. Pursuant to the Shenzhen Stock Exchange ChiNext Stock Listing Rules (August 2023 Revision), if the company was unprofitable at the time of listing, its controlling shareholders, actual controllers, and their concerted parties may not reduce pre-IPO shares during the first three full fiscal years following listing. During the fourth and fifth full fiscal years following listing, annual reductions of pre-IPO shares may not exceed 2% of the company’s total share capital, and must comply with relevant provisions of the Reduction Rules. Pursuant to the Shanghai Stock Exchange STAR Market Stock Listing Rules (August 2023 Revision), if the company was unprofitable at listing, its controlling shareholders and actual controllers may not reduce shares for three full fiscal years following listing; during the fourth and fifth fiscal years, annual reductions may not exceed 2% of the company’s total share capital. After the company becomes profitable, controlling shareholders and actual controllers may reduce shares on the day following disclosure of the annual report for that year, subject to applicable regulations. Accordingly: If a private equity fund serves as the company’s controlling shareholder, actual controller, or a person acting in concert with either, the shares it holds in the company shall be locked up for 36 months from the listing date. If, within six months after listing, the stock price falls below the prescribed threshold under specified circumstances, the lock-up period shall be automatically extended by at least six months. If the company is listed on the ChiNext or STAR Market, attention must also be paid to the company’s profitability status at the proposed reduction timing; if the company remains unprofitable, the reduction ratio will be restricted.

Specific Operational Procedures and Tax Treatment for Targeted Share Reductions by Partnership Enterprises

Divergent intentions among partners regarding share reduction—i.e., some wish to reduce while others do not—is a common practical scenario in employee stock ownership plans (ESOPs). We understand such reduction to constitute ‘partial withdrawal of a partner’ rather than ‘profit distribution’. Through mechanisms stipulated in the partnership agreement, partners wishing to reduce may do so on a targeted basis and exit, while those unwilling to reduce remain unaffected. 01 Conventional Practice of Listed Companies Based on publicly disclosed partnership agreements of listed-company ESOP platforms, typical operational mechanisms are as follows: Step One: Submission of reduction application. A partner wishing to reduce (e.g., a limited partner) submits a written reduction application to the general partner, specifying the number of shares intended for reduction, the reduction price (which may be a designated price or market price), and the intended timing. The general partner then executes a targeted reduction of the shares corresponding to that partner’s economic interest, within the legally permissible reduction quota. Step Two: Execution of targeted reduction by the partnership enterprise. The partnership enterprise sells the corresponding number of shares on the secondary market and receives the proceeds. Crucially, the shares sold are specifically attributable to the applying partner—not proportionally shared among all partners. Step Three: Targeted distribution of reduction proceeds. After deducting transaction taxes and fees, as well as partnership operating expenses, the proceeds from the reduction are distributed exclusively to the partner who submitted the application; other partners not submitting applications do not participate in this distribution. Step Four: Corresponding reduction of capital interest or withdrawal. Following the targeted distribution, the withdrawing partner’s capital interest in the partnership is correspondingly reduced; if the partner elects full withdrawal, formal withdrawal procedures are initiated and the remaining capital interest is returned. Partnership agreements typically expressly provide: ‘If, after expiration of the lock-up period, the partnership enterprise reduces only part of the shares held indirectly by certain partners, and such partners request withdrawal or profit distribution following the reduction, other partners may not thereby demand profit distribution or return of capital interests from the partnership.’ Step Five: Tax treatment. When distributing reduction proceeds to partners, the partnership enterprise must first withhold the taxes payable by the respective partner and remit personal income tax on their behalf. 02 Illustrative Example of Tax Treatment The partnership enterprise itself does not pay income tax; instead, the ‘distribution-then-taxation’ principle applies: taxable income from the reduction is first calculated at the partnership level, then allocated to individual partners, who each pay income tax accordingly. For natural-person partners, proceeds received from the partnership enterprise arising from share reduction are fully classified as ‘business income’, not ‘property transfer income’, and are taxed at progressive rates ranging from 5% to 35%. The formula for calculating taxable income is: Taxable Income = Reduction Proceeds − Original Cost Basis of Shares − Reasonable Expenses (e.g., VAT, stamp duty, brokerage commissions). We illustrate with an example. An employee stock ownership platform (a limited partnership) holds shares of a prospective listed company. It has three natural-person partners—A, B, and C—with respective capital contributions of 50%, 30%, and 20%. The partnership holds 1 million shares, acquired at a cost of RMB 5 per share; the current market price is RMB 20 per share. Currently, only Partner B applies to reduce his/her corresponding 30% stake (300,000 shares); Partners A and C decline to reduce. Tax treatment proceeds as follows: Step One: Calculate the partnership-level taxable income.

Two Seas Capital LP Reduces Holdings in Calumet, Inc. $CLMT

4 days ago

Two Seas Capital LP reduced its stake in Calumet Specialty Products Partners by 20.2% in Q3. Despite a quarterly loss, the company reported a 40.8% revenue increase and trades near its 52-week high.

MarketBeat

2026-03-30

Adams Asset Advisors LLC Holds $102.46M Stake in Calumet, Inc.

2026-03-30

Calumet (NASDAQ:CLMT) Given New $60.00 Price Target at HC Wainwright

2026-03-31

H.C. Wainwright Raises Calumet Stock Price Target to $60 from $33

2026-04-02

Calumet (NASDAQ:CLMT) Director Daniel Sajkowski Sells 3,310 Shares

2026-04-05

Calumet, Inc. Receives Consensus 'Hold' Rating from Brokerages