Legal Issues Of The Companies With Red-chip Structure Back To Mainland Market

In general, the so-called “Return of the red-chip companies” mainly could be divided into two cases: one kind is called the “Return of red-chip stocks”, which means the oversea-listing companies owned by Chinese capital want to go public within Chinese territory; the other kind is called the “Return of”, which means the companies already set up with red-chip structure but failed to go public, would like to fulfilled the conditions of domestic listing and go public in the domestic capital market through dismantle the red-chip structure. The article makes a conclusion about the legal issues of the return of companies with red-chip structure.Since the promulgation of the No.10, it’s almost impossible for the domestic companies to seek financing by listing on the oversea stock market through setting up red-chip structure. Affected by the financial crisis, the oversea capital market got into depression since 2009. At the same time, the Chinese concept stock was countered into the credit crisis and suffered a lot of frustration. With the constantly improving of the domestic capital market, more and more companies with red-chip structure set about dismantle the former structure and turn to domestic capital market to go public. in recent years, with the continuous reform and opening-up of China’s capital market, the reform of non-tradable shares was accomplished, the Growth Enterprise Market and New Three Board were established, the China(Shanghai) Pilot Free Trade Zone come into existence, the Shanghai-Hong Kong stock connect was activated, which were marked as the increasingly mature of the China’s capital market. In the meantime, our country actively explored and established the International Board, accelerated the transitional course from Approval system to Registration system, which aimed to integrate the domestic capital market with the International capital market, and enhance the attraction of the China’s capital market. China Securities Regulatory Commission(“CSRC”) holds an open attitude to the companies who want to return, but in consideration of the convenient and effective regulation, the CSRC demands the domestic actual controller, whose company with red-chip structure plans to offer public shares in A-market, to transfer his oversea equity to the territory and return the company into domestic enterprise or sino-foreign joint venture. Besides, the company must meet the standards of the listed subject and conditions made by China’s laws and CSRC’s regulations, such as the certain continuous period of operation and the specified profitability. Then the relevant proof documents shall be submitted to the CSRC, and the applying company could offer public shares when the CSRC approve the application.Under this circumstance, this article analyzed the possibility of the red-chip structured companies to return to the domestic capital market from the perspective of legal system and market regulation, and illuminated the legal requirement with respect to the domestic IPO and the emphasis focused by the supervision department during the returning progress. Through the oversea set-up and dismantlement of the two different kinds of red-chip structure companies, the writer attempted to summarize the red-chip structure companies’ legal process to return to domestic IPO. This article made a specific analysis of the cases of 263 Network and Avcon Stock, and explained the set-up and dismantlement of the red-chip structure, the domestic IPO and the concerned issues by the CSRC and the corresponding solutions.The return of the red-chip structure companies is a complicated corporate restructure progress, which involves the domestic and foreign equity transfer, registration of foreign exchange, tax planning, alteration of the company’s nature, dispose of the special purpose vehicle. In addition, the companies shall meet the following conditions: invariability of the actual controller, legitimacy of fund source, the comprehensive timely accurate information disclosure, the legal returning progress. This article analyzed these questions on the basis of the audit requirements of the supervision department and specific practice, and puts forward relevant proposals. In the last part of the article, it’s mentioned that our country will gradually change from Approval system to Registration system, which means the resistance, faced up when the red-chip structure companies aimed at the domestic IPO, shall be decreased. However, it’s still inevitable to figure out the obstacles about foreign exchange, tax and information disclosure.