Study On The Legal Regulation Of VIE Mode

VIE Mode is also named Contractual Control Mode which is transformed from traditional Red Chip Mode. The basic meaning of VIE Mode is to allow a enterprise to control another enterprise by an agreement or a contract among two or more enterprises, but not the method of equity or assets. Compared with other overseas financing methods, the main character of VIE Mode is that it can simplifies marketing approval and permitting procedures. It has initiated a new way for listing financing overseas which is different from traditional Red Chip Mode. So VIE Mode can be considered as “milestone” in the development of capital market. It not only solves the problem of small and medium sized enterprises which is difficult to finance overseas due to high threshold and meets their demand for fund, but also brings advanced management theories and technologies of foreign enterprises. Internet industry has ushered in “Golden Decade” which suggested that VIE Mode has benefited China’s economical development a lot.Generally, when Chinese private enterprises use VIE structure to listing in foreign market, there must be similar advice in prospectus supplement which is added by lawyers: VIE Mode is not suitable for the provisions about merger in Provisions on the Merger and Acquisition of Domestic Enterprises by Foreign Investors which was published by Commercial Department and other six departments(hereinafter referred to as “No. 10 Document”). So the VIE contract is valid without the agreement of Commercial Department and CSRC. However most scholars think the interpretation is so stiff that it can not change the nature of VIE Mode which is to avoid supervision. Due to the vague legal status, VIE Mode contains plenty of huge risks. In the paper, the author firstly distinguish the meaning of VIE and Contractual Control, then introduce VIE Mode’s character, limitation and cause of formation. After that, the paper analyses two legal risks that VIE Mode faces, basing on the research of theory and practice.For a long time, national supervisory department has taken a strict regulatory strategy for financing overseas. But VIE Mode is a special case. The attitude of regulator to VIE Mode is blurred, while Foreign investment law of the people’s Republic of China(exposure draft) can be breakthrough. The paper introduces the relevant supervision and points out the shortages of these regulations, Then the paper analyses that the draft admits that VIE Mode is a form of foreign investment and establishes that we use “actual controller” as standard to recognize whether a company is foreign enterprise or not. If the draft comes into law, it must influence VIE Mode. “Strengthen the supervision” will make the space of avoiding law become smaller and smaller. The advantage of VIE Mode to avoid complex permitting procedures will be weaken until be history.Although VIE Mode avoid the supervision of China’s law and regulations, it also makes lots of contribution to the development of China’s economical development. It is difficult for supervision system to decide whether “leave ” or “remove” VIE Mode. With the development of domestic market, VIE Mode received some breathing space. The dynamic supervision for VIE Mode decides the process of researching related laws and regulations to VIE Mode is updating all the time.