Studies On Laws And Regulations Of VIE Entity Return

VIE?Variable Interest Entity?structure,also named“Sina Mode”.It was originated from indirect listing and limitation towards foreign investment in some business area.It is a business structure with offshore company separated with domestic operating entity.But at the same time,the offshore company controls domestic entity through a series of agreements.This domestic entity is called VIE of offshore company,while offshore company is called Red Chip.After this structure was made,it is deemed to be at the edge of the law with no consent or any denial from the government.The law position of this structure is vague.But actually Chinese government has tried their efforts to settle it down in order to lessen the exceeding flow out of high quality companies.On 6^th June,2018,The Measures for the Administration of Offering and Trading of Depositary Receipts?for Trial Implementation?and a series of regulations has been adopted to support the Innovative Enterprises listing and offering of Depository Receipts within China.Actually some Red Chips are also trying to seek ways to be listed within China because large margin of share value inside and outside China.Thus,the return of Red Chips becomes the focus of recent media.There are four chapters in this article.Chapter one covers the concept of VIE structure,background and development purpose.VIE structure has been through a booming development after it was made by sina.com.The high requirement of IPO and the limitation towards foreign investment in some business areas caused this situation.The essential part of this structure is to seal a series of agreements through mutual understanding.In this way,the domestic company is controlled by the offshore company.Since VIE structure is not based on shareholding but on loan agreements,the executing of VIE shall totally depend on the commitment and executing of the agreement.Thus,VIE structure is not totally safe.Chapter Two is mainly about current situation,reasons of VIE enterprise return and ways of return.Actually the main reason of return is undervalued shares in overseas market.With the change of laws and regulations,the ways of return varied.At present,there are mainly four ways of return which are going private,spin-off,Mergers&Acquisitions and Depository Receipts offering.Chapter Three tries to illustrate the laws and regulations of VIE structure after the enterprise goes private in overseas market.Also describes in detail of the CDR price offering,VIE structure declaration and AB shares in CDR offerings current regulations.Under the regulations of CDR,VIE's law position was settled.Red Chips who want to return to domestic market don't have to go private in overseas market and remove VIE structure.This is a great news towards Red Chips.Since CDR comes from ADR and going private needs laws and regulations in overseas,thus,this chapter shall deal with rules and regulations of ADR and going private in USA,also something about HK Stock exchange new regulations.This chapter also illustrates the current legal risks of VIE entity return which is through the way of going private.The government shall check stability of share holders',tax issues and foreign exchange issues.Chapter four focuses on the improvement of laws and regulations about VIE return.Since CDR was just implemented,there are many rules and regulations which need to be drafted.Also,the limitation towards foreign investment should be loosen,register system needs to be applied in near future and the delisting system should be improved.Till then,VIE structure shall be a history product.