A Study On The Legal Problems Of Red-Chip Enterprises' Backdoor

The international economy develops at a low rate because of the financial crisis in 2008.The crisis also leads to the turbulence of the global capital market.With the rapid development of China's economy,as the world's second largest economy,China's capital market is also showing a larger growth space.It is meaningless for some red chips to stay in the foreign capital market because short-sellers frequently short them.Therefore,the red chip companies set off a wave of privatization delisting.The red chip companies put more importance on the domestic capital market and actively look for a path to return to A shares.There are three reasons for this.One,China's multilevel capital market system has gradually formed and become more and more perfect.Two,the amendment of "Securities Law" and"foreign investment law" has been put on the agenda.Three,the "Industrial Catalog for foreign investment" of the 2016 edition has prompted China's capital market to be gradually international and open.The reverse takeover is one of the ways.This paper analyzes the behavior and reason of the red chips being overseas listed by VIE structure from privatization delisting to reverse takeover.From the perspective of legal adviser,this paper offers some suggestion to possible legal problems during the whole process from privatization delisting to reverse takeover.In addition to the introduction,this paper is divided into five parts.In the introduction,combined with the domestic academic achievements in this field,this paper mainly introduces the background of this paper and highlight the ideas and methods,innovation and deficiencies.Besides,this paper also expounds the purpose and value of writing.The first part is an overview of red chips' returning by reverse takeover.In the related concepts of red chips' returning by reverse takeover,this paper makes an important explanation about red chips,VIE,privatization,shell resources and reverse takeover.I n the analysis of the reason why the red chips choose to be back to A shares by reverse takeover,this paper is from the point of red chips' privatization and reverse takeover.This paper mainly analyzes these reasons,such as red chip enterprises are underestimated in the overseas market,controlling shareholders or the managers of red chip companies prevent a hostile takeover,red chip enterprises need privatization if they want to make strategic adjustments,they can borrow the media to improve their market value through reverse takeover,IPO approval system has some disadvantages and and so on.The second part mainly introduces the problems of architecture of VIE when red chip companies choose to be back to A shares by reverse takeover.Because the effect of VIE architecture is still in the state of legal uncertainty,and there are also many default risk problems in the practice,overseas investors are faced with the problem of how to exit during the process of the removal of VIE architecture,this paper makes an suggestion that the red chip enterprises should remove VIE architecture or improve VIE architecture.The third part mainly introduces the foreign exchange administration when red chip companies choose to be back to A shares by reverse takeover.This paper presents these problems that the red chip enterprises will be faced,such as red chip enterprises can finance by listing overseas,then they choose to invest the domestic market,in the process of privatization and equity payment they will face foreign exchange registration issues.Besides,this paper also elaborates the issue whether the process or even the success of red chip enterprises will be influenced by major violations of the law in the aspect of foreign exchange management.Therefore,this paper suggests that red chip enterprises should handle foreign registration according to law,and foreign exchange administration should also improve supervision measures.The fourth part mainly introduces the legal problems of tax when red chip companies choose to be back to A shares by reverse takeover.This paper illustrates the drive of tax interests on the privatization and the legitimacy of taxing of red chip companies from the perspective of tax interest and tax law theory.At the same time,some taxes are also involved in this paper.The red chip enterprises shall fully carry out tax planning,tax avoidance.The fifth part mainly introduces the information disclosure when red chip companies choose to be back to A shares by reverse takeover.According to the difference between China and the USA securities market system,some red chip enterprises are faced with issues of false information disclosure and insider trading during the red chip companies' listing,the daily operation and the privatization of delisting.This paper suggests that enterprises shall strengthen information disclosure,relevant departments shall establish a sound system of civil compensation of insider trading,and intensify the crackdown on the disclosure of false information.