The Supervision Regulation Of The VIE Model

The concept of VIE model is originated from Variable Interest Entities, whichwas introduced and developed on the basis of the practice of Offshore Indirect Listing.The VIE model was created and designed to evade the governmental and legalsupervision on special industries in order to achieve successful listing and financing.Contractual arrangement and equity controlling are common ways for an enterprise(referred to the offshore company under the VIE model) to control the other one(referred to the domestic company under the VIE company), and the most importantdifference between these two ways is whether the offshore company controls thedomestic company through voting rights via equity. The domestic company iscontrolled by the offshore company via contractual arrangement other than equityunder the VIE model, and such contracts include but not limited to assets operationand control agreement, loan agreement, equity pledge agreement, voting rightsagreement.The VIE model was created as a result of evading the rules that forbid or restrictforeign investors from investing some certain industries, such as internet. SINA.COMis the first domestic company that adopts the VIE model and achieve successfulOffshore Indirect Listing. As a result, the VIE model is known as SINA model inChina. This article is divided into five chapters, and begins with introduction of thegeneration and concept of the Offshore Indirect Listing, and further with the conceptof Round-trip Investment and Variable Interest Entity. This article focus onintroducing the generation, concept and practices of the VIE model as well as thelegal status and supervision of the VIE model.