Research On Legal Supervision Of Domestic Operating Companies Under The VIE Structure

As an important means of indirect listing of Domestic operating companies overseas,the VIE structure is frequently used,and the risks associated with it can not be ignored.The VIE structure covers many countries including China,offshore legal domain and the host country of overseas listing.Its purpose is to bypass China’s foreign investment access restrictions,obtain overseas financing,and save taxes and fees to be indirectly listed overseas.At present,China has many shortcomings in terms of the legitimacy of foreign investment access,safety assessment and cross-border regulatory cooperation of domestic operating companies under the VIE structure,which not only brings uncertainty to the overseas listing of Domestic operating companies,but also endangers China’s national security and economic interests.This means that the establishment and improvement of the relevant regulatory system for domestic operating companies under the VIE structure is imminent and must be paid attention to.This thesis takes the legal supervision of domestic operating companies under the VIE structure as the research object,which is divided into five chapters.The first chapter differentiates the relevant concepts and operation mechanism of the VIE structure,and discusses the necessity of supervision of domestic operating companies under the VIE structure.In China,the VIE structure is an operation mode in which domestic operating companies are indirectly listed overseas by setting up shell companies overseas and actually controlling domestic operating companies by contract,so as to meet the requirements of consolidated financial statements in American accounting standards.Since its initial purpose is to bypass China’s national supervision,it will bring great risks to China and the host country of overseas listing.Therefore,it is very necessary to regulate it.The second chapter studies the legitimacy of foreign investment access of domestic operating companies under the VIE structure.Although the source of capital of the operating company under the VIE structure and the actual control right of such operating company come from foreign investors in the shell companies listed overseas,the operating company under the VIE structure is not treated as a wholly foreign-owned company in the Foreign Investment Law of the People’s Republic of China.This has resulted in the ambiguity of the legitimacy of foreign investment access of domestic operating companies,bringing uncertainty as to whether or not domestic operating companies are able to attract foreign investment through the VIE structure,and also bringing challenges to the supervision by domestic regulators.The third chapter focuses on the safety assessment of domestic operating companies under the VIE structure.At present,the operation scope of Domestic operating companies indirectly listed overseas through the VIE structure involves various fields of China’s economic life,including some related to energy,finance,Internet and other fields related to China’s people’s livelihood.As China’s security assessment procedures for domestic operating companies under the VIE structure are unclear and the assessment period is short,this will seriously endanger the security of all fields involved in domestic operating companies under the VIE structure.The fourth chapter mainly discusses the cross-border regulatory cooperation of domestic operating companies under the VIE structure.Due to the lack of effective crossborder cooperation mechanism,the information disclosure of domestic operating companies is not accurate and timely.In addition,the cross-border cooperation between China and the United States remains to be improved in the recognition and enforcement of judicial decisions,and in the collection of evidence by foreign regulatory authorities from PRC financial audit institutions.Therefore,there is an urgent need for the two countries to improve their cross-border regulatory cooperation of operating companies in China.The fifth chapter provides responses to the above issues,including affirming the legitimacy of foreign investment access of domestic operating companies from the legal perspective,strengthening the safety assessment for domestic operating companies,and improving the cross-border cooperation regulatory mechanism for domestic operating companies under the VIE structure.