On Legal Regulation Of The VIE Model

VIE mode means enterprise controlled through a series of agreements.It is used by a number of innovative enterprises in China to avoid supervision of foreign mergers and acquisitions for listing overseas indirectly.Since Sina first used in 2000,although domestic financing environment is poor,many enterprises,especially the development of Internet companies got much money by this way.But in the course of development,its defects are frequently exposed,such as uncertain legality,imperfect dispute resolution mechanism,difficulty to protect the investors,the tax loss and disruption to the order of foreign exchange.After Alipay incident,the integrity of crisis and the fall of Chinese stocks,have aroused widespread concern.Its connotation,historical background,advantage,current situation,necessity of supervision,and how to improve the supervision of it will be studied in this article.The first part is an overview of VIE mode.The article first introduces the background and meaning of VIE mode.And then introduced the concept of VIE mode,and its operation,the relevant agreement.Finally,it discusses the advantage of VIE mode,such as solving the domestic financing problem,breaking the entry barrier of foreign investors,avoiding the fussy system of administrative examination and approval,favoring to perfect the management of company and reducing the tax.The second part introduces the necessity to regulate VIE mode.The article argues this subject in five aspects.First,VIE mode can`t protect the investors` interest owing to the risk of legality,risk of breach of contract and moral risk causing by bad management of company.Second,VIE mode will lead to monopoly easily.Third,VIE mode will disrupt the order of tax.Forth,VIE mode will disrupt the order of foreign currency.Fifth,VIE mode will threat the security of economic in our country.The third part discusses the state of legal supervision and shortcomings of VIE mode in our country.Through the review of the examination of foreign mergers and acquisitions,the security review of foreign mergers and acquisitions,antitrust and other aspects of the system,we can find the problems of VIE mode legal supervision in our country.One is the regulatory norms fuzzy;the second is the high entry barrier of foreign investor;the third is the lack of information disclosure system;Fourth,the lack of post-mortem supervision and punishment;Fifth,the lack of cross-border cooperation supervision.The fourth part introduces the overseas supervision system.Knowing the regulations in Hong Kong and the US securities markets let us found that both of them affirm the VIE mode`s legality.Also,both of them reduce risk by the prior review and information disclosure system.The fifth part puts forward the idea of perfecting the legal supervision of VIE mode.This paper argues that perfecting the legal supervision of VIE mode should establish a unified foreign investment supervision system as soon as possible,redefine the standard of foreign capital entry,strengthen information disclosure,improve the punishment mechanism,establish the post-mortem supervision,establish cross-border cooperation supervision system.The sixth part is the conclusion of this article.Although the VIE model reflects the shortcomings of the financing environment in our country,but it can`t be denied that the VIE mode has a great impact on the development of innovative enterprises in our country.Therefore,both the legality of VIE mode and the construction of regulatory ideas are not the all-or-none problem.The best way is fully fixing the regulation and catching on the historical context of VIE mode,careful establish the regulation of VIE mode according with the market demand.