VIE Agreement Holdings, the full name of "Variable Interest Entity" (VIE), is a structure in which the overseas listed entity is separated from the domestic operating entity, and the control and enjoyment of the rights and interests of the domestic operating entity by the overseas entity is realized through the method of agreement control. The VIE structure originated from the definition of VIE in the US GAAP, and has since been widely used in overseas listing arrangements in areas where foreign investment is restricted, such as China's Internet industry.
**1. The basic principle of VIE agreement holding**
The core of the VIE structure is to transfer the economic interests of the domestic operating entity to the overseas listed entity through a series of arrangements of agreement, so as to achieve the control of the domestic operating entity by the foreign entity. These agreements typically include asset operation control agreements, exclusive service agreements, equity pledge agreements, voting rights entrustment agreements, etc. Through these agreements, the overseas listed entity can obtain the economic benefits of the domestic operating entity, enjoy its operating results, and bear the corresponding risks.
**2. The operation process of VIE agreement holding**
1.Establishment of an overseas listing entity: First, the establishment of an overseas listing entity is usually in the United States, Hong Kong and other regions with more developed capital markets.
2.Establishment of domestic operating entities: Establish one or more operating entities in China to be responsible for specific business operations. These operating entities can be in the form of limited liability companies, shares, etc.
3.Signing of agreements: Overseas listed entities enter into a series of agreements with domestic operating entities, including asset operation control agreements, exclusive service agreements, etc. The purpose of these agreements is to transfer the economic interests of the onshore operating entity to the offshore listed entity.
4.Equity pledge and voting rights entrustment: Shareholders of domestic operating entities pledge their equity holdings to overseas listed entities and entrust overseas listed entities to exercise voting rights. In this way, the overseas listed entity can achieve control over the domestic operating entity through equity pledge and voting rights entrustment.
5.Listing and financing: Overseas listed entities conduct listing and financing through the capital market, and the funds obtained can be used to support the business development of domestic operating entities.
**3. Advantages of VIE Agreement Holdings**
1.Breaking through foreign investment restrictions: Through the VIE structure, overseas listed entities can indirectly control domestic operating entities, thereby circumventing foreign investment restrictions in some industries.
2.Achieving overseas listings: Through the VIE structure, domestic operating entities can achieve overseas listings, gaining access to more financing channels and a broader investor base.
3.Optimize corporate governance: The VIE structure can promote the optimization of corporate governance of domestic operating entities and improve the level of corporate governance and transparency.
4. Risks of VIE Agreement Holdings**
1.Legal risks: VIE structures involve complex legal relationships and arrangements, which may be subject to legal compliance risks. A change in the legal environment or a problem with the arrangement can lead to the failure of the entire structure.
2.Control risk: Although an overseas listed entity has control over a domestic operating entity through a scheme of arrangement, such control may be affected by various factors, such as policy changes, shareholder disputes, etc.
3.Tax risk: VIE structures may involve complex tax issues, such as double taxation, tax compliance, etc. Businesses need to plan their tax strategies carefully to mitigate tax risks.
5. Summary and outlook**
As an innovative way of overseas listing arrangement, VIE Agreement Holdings provides a way for many enterprises to break through foreign investment restrictions and achieve overseas listing. However, it also comes with certain risks and challenges. Enterprises need to carefully assess their own circumstances and needs, carefully choose whether to adopt a VIE structure, and develop a risk management strategy accordingly. At the same time, the regulators should also strengthen the supervision and regulation of the VIE structure to ensure its legal and compliant operation and promote the healthy development of the capital market.
In the future, with the changes in the legal environment at home and abroad and the development of the capital market, VIE Agreement Holdings may face new opportunities and challenges. Enterprises need to pay close attention to market dynamics and policy changes, and adjust their strategies in a timely manner to adapt to the changing market environment. At the same time, China and regulators should also strengthen communication and cooperation to jointly promote the healthy and stable development of the capital market.