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Study On The Legal Risks And Regulations On VIE Structure

Posted on:2017-02-02Degree:MasterType:Thesis
Country:ChinaCandidate:T XuFull Text:PDF
GTID:2296330503959510Subject:Law
Abstract/Summary:PDF Full Text Request
VIE, standing for Variable Interests Entity, was presented by US Generally Accepted Accounting Principles(US GAAP) in the first place for the purpose of combining accounting statements. Offshore company intents to control and gain profits from a domestic company through a set of contracts instead of holding shares. With VIE structure, the offshore company can be listed publicly and the domestic entity achieves indirect listing.Since the capital market in China is still in developing stage and it is difficult for newly-rinsing enterprises to raise fund. These enterprises have to seek financing overseas. Indirect listing has become the best choice since direct listing will be investigated and supervised by CSRC and other governmental departments.In the last few years, because of the Ali-pay Transfer and many other events, the risks of VIE structure became more obvious and more people started to concern about the negative influence. Scholars and experts have come up with the idea of building a set of supervision measures. As well, Chinese government has also realized that it is necessary to supervise VIE structure. Recently, the draft Foreign Investment Law(the draft)has been issued by the Ministry of Commerce. The draft intends to create a united supervision system.Since the Ministry of Commerce issued the draft Foreign Investment Law for comments earlier this year, discussions have reignited over the validity of VIE structure. The draft law has provided that the law will apply to the control of domestic enterprises by foreign investors under the VIE structure and also provided an institutional path for addressing the long-debated compliance issue of VIE structure.There are three chapters in this article which covers the concept, advantages and disadvantages of VIE structure, and analysis about the draft.Chapter One is the general overview of the VIE structure including the concept, background, development. In this chapter, Sina.com has been taken as an example to show every step to form the intact VIE structure. Those steps mainly include setting up Special Purpose Vehicle, setting up WOFE, signing a series of contracts.Chapter Two is mainly about the risks exposed after ten years of development. This chapter starts with two kinds of risks, the first one is the risk of validity of VIE structure and the second one is the breach of VIE agreements. This chapter focuses on four cases involving VIE structure and the necessity of regulation. Abroad securities regulatory authorities have made declaration about the risks, which shows that abroad regulators have realized their investors may suffer from the risks of VIE structure.Chapter Three focuses on the current regulatory system which consists of several rules and legal documents that can not be regarded as a complete and effective system and the trend of VIE regulations since the draft has been published. The second section in this chapter covers advices from many scholars and experts on improvement of VIE supervision. The third section is analysis of the draft Foreign Investment Law and the possible effects on VIE structure after the draft becoming into an efficient law. Introductions of the background of the draft Foreign Investment Law, the main stipulations concerning VIE structure, including the identity of investors, actual control, information reports, national security review and negative list, and the different path for VIE structure to develop are covered in this section. On the base of these analysis, the writer made a few comments on the draft.In the end of this article, the writer expresses the expectation on the future of VIE structure when the Foreign Investment Law becomes into force.
Keywords/Search Tags:VIE structure, Risks, Supervision, Foreign, Investment Law(draft for comments)
PDF Full Text Request
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