The Legal Study Of VIE Structure In Foreign Investment

Variable Interest Entities Structure(hereinafter referred as VIE Structure) has been widely applied in foreign investment and financing areas during the past decades. The core kernel of this structure is a series of contract arrangements made between an enterprise listed abroad and a company registered in mainland China, by which the listed company could obtain virtual controlling power of the domestic company, then indirectly participate in its daily operation and acquire interests, dividends and other bonus. As a result of the immature venture capital investment market, strict requirements and rough procedure of direct overseas listing, and limited domestic financing channels, some domestic enterprises, especially those newly developing internet companies, have no better choice but to pursue sources of funds in way of applying VIE Structure to get indirectly listed overseas eventually. Since first and creatively utilized by Sina(NASDAQ SINA) in 2000, a leading internet technology company, VIE Structure has been repeatedly applied and helped hundreds of Chinese companies to get successfully listed overseas. Besides, industries where enterprises have applied VIE Structure have manifested a trend of broadening, from traditional internet service providers to diverse industries.Despite the upsurge, VIE Structure has brought about massive questions and disputes. In January 2015, Ministry of Commerce of PRC(hereinafter referred as MOFCOM) has promulgated a new draft of Foreign Investment Law and its annex documents to ask for opinions of the whole society. This draft discussed the legality issue of VIE Structure for the first time, showing the incipient attitudes of relevant supervising departments in mainland China toward VIE Structure. Therefore, this dissertation is to emphasize legal study of VIE Structure applied in foreign investment and financing area, and to throw out reasonable and practical suggestions for each legal issue analyzed in this dissertation. Meanwhile, based on the newly altered attitude of supervisors, this dissertation will also make predictions of development of VIE Structure in a near future.Except for Introduction and Conclusion, this dissertation is to be divided into five parts as follows.PART I will introduce the fundamental concepts frequently used in VIE Structure, basic structure and its establishment procedure, and then a brief analysis of current situation of VIE Structure in China.PART II will mainly focus on the legality issue of VIE Structure. By sorting out the regulations of PRC in effect with regard to legality of VIE Structure and analyzing their defects, this part will later address a specific regulatory reform to solve the ambiguity of legality of VIE Structure.PART III will explain and analyze the validity issue of series of contracts signed under the application of VIE Structure. By discussing the validity of separate contracts and contracts as a whole from the different perspectives of jurisprudence, civil law, economic law, and commercial law, this part will then propose practical suggestions toward the validity issue.PART IV will discuss legal risks appeared during the practical daily operation of VIE Structure with examples from legal practice and influential cases. Later this part will introduce the establishment of information report system to reduce the aforesaid risks.PART V will primarily address the possible development of VIE Structure and all kinds of factors influencing such development in a near future according to a more friendly and less protectionist attitude toward foreign investment reflected in recently published law and regulations, in the interest of pointing out more strategic resolutions for enterprises applied or ready to apply VIE Structure.