On The Legal Regulation Of VIE Structure

In 2003,the FASB first proposed the concept of "variable interest entity" in Explanatory Note No.46.After the VIE structure is applied to China,it has a new meaning.In essence,it refers to a legal framework for indirect overseas listing.A series of agreements between overseas listed entities and domestic operating entities was signed to enable overseas listed entities to effectively control domestic operating entities and enable domestic businesses to be listed overseas for financing.In April 2000,Sina used the VIE structure to list on the NASDAQ in the United States,opening the curtain for China's domestic companies to use VIE structure to raise funds overseas.China has a high threshold for domestic listing and financing.Some industries prohibit or restrict the entry of foreign capital,which restricts the indirect overseas listing of domestic enterprises through the traditional way of equity control and provides a fertile ground for the birth of the VIE structure.In 2006,the promulgation of the "Regulations on Acquisition of Domestic Enterprises by Foreign Investors" further expanded the scope of application of the VIE structure,which clearly stipulated that: Acquisition of domestic affiliates by foreign-funded enterprises must be reported to the Ministry of Commerce for approval.This provision will undoubtedly greatly increase the difficulty of mergers and acquisitions of Domestic Affiliates by foreign-funded enterprises.It makes protocol control mode from the scope of restrictions on foreign access to the industry extended to all industries,become the mainstream of the legal framework under the red-chip mode.Due to the complexity of the structure itself,the imperfect system of domestic capital market and many other factors leading to the development of the VIE structure is not smooth,frequent occurrences in recent years,such as Baosheng Steel event,Alipay storm are all exposed to the risk of VIE structure.Domestic and foreign scholars and investors are also trying to explore the regulatory agencies of our country VIE structure legitimacy held.In March 2017,the Supreme People's Court announced the final verdict of "Yaxing Company v.Ambow Company ".As the first case of VIE in China,it set off another round of discussions on the VIE structure.The first chapter of this article takes the case of "Yaxing Company v.Ambow Company" as an entry point.Through analyzing the case,it explains the concept of VIE structure,the origin and motivation in China,the construction process,related agreements,etc.,and through analyzes the case dispute to focus on the legitimacy of the VIE structure in practice.The second chapter begins with the legal theory,analyzes the legal validity of the VIE structure from the perspectives of jurisprudence,dismissal behavior theory,and economic law,and seeks legal theoretical support for the legitimacy of the VIE structure.The third chapter combines many VIE structural risk cases in practice in recent years and analyzes the attitude of China's regulatory authorities towards the VIE structure.Through analyzing the legal regulation of China's VIE structure at present,we find out its shortcomings.The fourth chapter,based on the foregoing analysis,proposes feasible suggestions for the perfect supervision system of VIE institutions.