Author: Wang Quan, litigation lawyer, Gui Yiwei, litigation lawyer|Note: Yes【Tax Law Writing】Press
In practice, there are various types of corporate shareholding structures, including direct shareholding by natural persons, indirect shareholding by natural persons through partnerships or group companies, mixed shareholding models and multi-layer nested models. Behind the various shareholding structure models, of course, there are legal, tax, control and management considerations of the company's shareholders. In order to facilitate readers to grasp the legal and tax issues under various equity structure models, we have made a special article to share this article.
[Lawyer's point of view].
1. Conventional shareholding model: direct shareholding by natural persons.
This shareholding model is relatively common, simple and crude, with an individual contributing to the establishment of a company, and the individual directly holding the equity of the target company. As shown in Fig
From a legal point of view, under this shareholding model, natural person shareholders can directly participate in the company's decision-making, and enjoy the voting rights, asset income rights, right to know, priority transfer and subscription of new equity, and the right to request for the distribution of residual property corresponding to the shareholding ratio. Since each natural person directly holds the equity of the company, if the major shareholder wants to control the company, he must ensure that his shareholding ratio exceeds 51%, and if he wants to achieve absolute control, he must ensure that his shareholding ratio exceeds 67%. In the absence of special agreement, the controlling shareholder must complete the subscription and capital contribution of the aforesaid holding ratio, which is relatively high for the major shareholder, and at the same time, the controlling shareholder should also ensure that the diluted equity enjoyed by itself still has a controlling position in the subsequent process of the company's capital increase and share expansion. Otherwise, the company is very likely to have a situation where the two shareholders together with the other shareholders control the company, and because the company has no actual controller, the company's operation will be deadlocked. In addition to the voting rights, the shareholders directly held by natural persons will also have a certain impact on the company's operation and management and decision-making procedures.
Of course, in order to ensure the controlling position of the company's operation and management and avoid deadlock in the company's operation, natural person shareholders can also achieve control of the company's operation through measures such as persons acting in concert, control by the company's articles of association, and the establishment of AB shares. However, these methods have certain drawbacks or limitations in their application. For example, a person acting in concert requires the relevant shareholders to sign an agreement, which has a time limit and is relatively weak in binding on shareholders. The control of the company's articles of association is mainly manifested in the fact that the company's articles of association can stipulate that the company's shareholders do not enjoy voting rights in proportion to their capital contributions, but this situation is only applicable to a limited liability company, and the articles of association of the company with shares cannot freely stipulate this, and the shareholders of the shares exercise their voting rights according to the shares they hold. Of course, the effect of different rights of the same shares of a limited liability company can be realized by setting up AB shares, but at present, China has only quoted the AB share system at the level of listed companies on the Science and Technology Innovation Board, and the voting difference of AB shares is also limited by 10 times the upper limit.
From the perspective of tax law, natural person shareholders are the direct taxpayers of share-related taxes. When the target company distributes dividends to natural person shareholders, natural person shareholders need to pay 20% individual income tax according to "dividends and bonus income", and if the target company is a first-class company or a listed company, natural person shareholders can enjoy the differentiated individual income tax policy on dividends and dividends (that is, if the shareholding is held for one month and less than one year, it will be reduced by half; Exemption if the shareholding has been held for one year). When the target company (in the case of a limited liability company) converts its share capital to a natural person shareholder, regardless of whether the target company uses surplus reserves, undistributed profits, other capital reserves or capital reserves-capital premiums to increase share capital, the natural person shareholders are required to pay 20% of the individual income tax on "dividends and bonus income"; If the target company is the part of the capital reserve of the shares-capital premium converted into share capital, the natural person shareholder does not need to pay individual income tax, and other accounting items converted to capital are subject to individual income tax. When a natural person shareholder transfers the equity of the target company, it can be divided into three situations: first, when a natural person transfers the equity of a non-listed company, he or she shall pay 20% of the individual income tax according to the "income from property transfer", and no VAT will be levied; Second, when a natural person transfers the ordinary equity of a listed company, it is exempt from individual income tax and value-added tax; Third, when a natural person transfers the restricted shares of a listed company, he or she shall pay 20% of the individual income tax according to the "income from property transfer" and be exempt from VAT.
In practice, in view of the transfer of restricted shares of listed companies by natural person shareholders, in order to grab tax sources, local governments have formulated tax refund policies within the scope of their respective fiscal revenues. Therefore, when the target company is listed, many natural person shareholders open their individual shareholder fund accounts in the location of the ** institution in the tax depression, and when they transfer the restricted shares to cash out, they can achieve great tax savings. However, we believe that the policy of "levy first and return later" for local tax depressions is invalid because it violates the provisions of the superior law of the tax law. Local tax refund policies are facing great uncertainty, and natural person shareholders need to be vigilant. Relevant views can be found in the previous article "Heavy! **Clean up tax returns, "investment promotion" must be vigilant.
2. Super leveraged holding model: limited partnership shareholding.
Since the rise of the Internet and employee equity incentives, this shareholding model has appeared more frequently, usually to facilitate the controlling shareholder to achieve the purpose of holding. As shown in Fig
From a legal point of view, under this shareholding model, natural persons indirectly enjoy the rights and interests of the target company by enjoying the partnership share of the limited partnership. As a shareholding platform, the limited partnership enjoys the voting rights and property rights of the target company, and the general partner of the limited partnership acts as the executive partner to exercise rights on behalf of the limited partnership. In short, the voting rights of the equity of the target company held by the limited partnership are exercised by the executive partner on behalf of the managing partner. This is the main reason why limited partnerships are frequently used as shareholding platforms. Theoretically, even if the general partner only contributes 1%, he or she can fully control 100% of the equity of the target company enjoyed by the limited partnership. If a natural person wants to achieve absolute control, a limited partnership is an excellent shareholding model, and the leverage ratio of funds to leverage voting rights can reach 100 times.
From the perspective of tax law, a limited partnership is not a legal entity and is not a taxpayer in the sense of tax law. Although the limited partnership is a shareholder of the target company, it is not subject to income tax at the corporate level.
For the dividends, conversion of share capital or external transfer of equity of the target company, the investor of the limited partnership (for the sake of simplified treatment, the investor is a natural person) shall be the subject of taxation (except for VAT). If the limited partnership obtains dividends from the target company, it penetrates to the investors, and the dividend income is separately regarded as the dividends and dividends obtained by the investors, and the individual income tax is paid at a rate of 20%. It should be noted here that the dividends of the first company or listed company obtained by the investor through the limited partnership do not enjoy the differentiated tax policy of individual income tax on dividends and dividends, which is different from the direct shareholding of natural persons.
For the target company to increase its share capital, if the investor is a natural person shareholder, no matter what type of accounting project is converted to increase capital, the investor needs to pay individual income tax at a rate of 20%, and cannot enjoy the differentiated tax policy of individual income tax on dividends and dividends. If the investment is a corporate legal person, the accounting items of the capital increase should be distinguished**, and if the capital is converted to capital reserve-capital premium, no enterprise income tax shall be levied; In addition to the accounting items converted into capital, the investor needs to pay the enterprise income tax in full. (For specific analysis, we will explain it in more detail in other articles.) ）
For the limited partnership to transfer the equity of the target company, it is generally not taxed according to the "income from property transfer". If the penetrated investor is a natural person, there is a natural person as the taxpayer and pays individual income tax according to the "production and operation income" (5%-35%); If the penetrated investor is a legal person or other organization, it shall pay enterprise income tax (25%). However, for partnership type venture capital enterprises, you can choose to account for a single investment** or a single investment project, or you can choose to account for all the income of the enterprise as a whole. If a venture capital enterprise chooses to account separately, its individual partners can pay individual income tax at a rate of 20% on the income from the transfer of investment equity; If you choose to account as a whole, you will be taxed at the rate of "5%-35%". In addition, at the level of turnover tax, the transfer of the equity of a listed company by a limited partnership is a transfer of financial products and needs to pay VAT; If the equity of other companies is transferred, it is not a VAT taxable act and does not need to pay VAT.
In practice, in order to avoid taxes, many investors prefer to adopt the shareholding model of a limited partnership and register the limited partnership in a region with an approved collection policy or tax refund policy. If the limited partnership can enjoy the approved levy, taking the taxable income rate of 10% as an example, the individual income tax rate will be greatly reduced to "0.".5%-3.5%", and if the local tax refund policy is superimposed, the tax burden rate is even lower. However, the above-mentioned tax avoidance methods have seriously eroded the national tax source, and the State Administration of Taxation has issued a document on December 30, 2021, which explicitly requires that sole proprietorship enterprises and partnership enterprises holding equity investments such as equity and property shares of ** partnership shall not be approved and collected. At the same time, Circular No. 20 was also issued on June 13, 2022, mentioning "gradually cleaning up the subsidy or refund policies that are linked to improper interference in the market and tax revenues".
3. Multi-business sector incubation model: holding company shares.
This type of shareholding model is common in mixed business operation or group company, where the holding company is only established for the purpose of holding, and the actual business is operated by the subsidiaries of each module. As shown in Fig
From a legal point of view, a natural person enjoys the rights of shareholders of the holding company, and the holding company, as a fictitious legal person, enjoys the rights of shareholders of the target company, and natural persons do not enjoy any rights and interests of the target company. A natural person can achieve control over the target company through a holding company, which has a certain leverage effect on voting rights. At the same time, the holding company operates different businesses through the establishment of different subsidiaries, and each business module is independent of each other, incubated and operated separately, the business risk is isolated separately, and the business performance is assessed and incentivized separately.
From the perspective of tax law, a holding company, as a legal entity, has the qualification of a tax subject, and needs to declare and pay relevant taxes and fees at the company level for equity-related income. After penetration, if the natural person shareholder obtains relevant income from the holding company, he also needs to declare and pay the relevant taxes and fees at the individual level. Therefore, for the shareholding model of the holding company, there is a "double taxation" situation that we often hear, and if the natural person shareholder finally converts the shares and cashes out, he will face a higher tax burden. However, it should be pointed out that the dividends and dividends of the target company and various types of converted share capital obtained by the holding company during the holding period are tax-exempt or non-taxable. In short, the dividends received by the holding company from the target company are not subject to tax. The advantages of tax exemption for dividends of holding companies are very subtle in practice, and we will briefly share this point in the mixed shareholding model.
Fourth, the multi-interest demand model: mixed shareholding model.
In practice, in addition to the simple natural person shareholding model, the more common and complex type is the hybrid shareholding model (i.e., the combination or even nested use of the above two or more shareholding models), which is mainly based on considerations such as taking care of the interests of different shareholder groups, tax saving effects, risk isolation and the company's business strategic objectives. As shown in Fig
The founding shareholders of mixed equity designed such a complex equity structure for the target company mainly based on the following considerations.
From a legal point of view, the founding shareholders do not directly hold the equity of the target company, but indirectly hold shares through the intermediate structure and nested structure, which can achieve the legal risk isolation effect, and at the same time can play a leverage effect of equity holding. The effect of leverage has been mentioned many times earlier and will not be repeated here. In terms of risk isolation, by setting up *** A as the general partner of limited partnerships A and B, the unlimited joint and several liability borne by the founding shareholders as natural persons directly as general partners can be avoided. At the same time, the founding shareholders can also serve as limited partners in the limited partnership, which is convenient for cashing out with other limited partners, and puts investors with different interests or groups on different limited partnership platforms, which is more convenient for management and withdrawal, and avoids unnecessary disputes and disputes. The founding shareholder can also play an excellent role in risk isolation by establishing a holding company B and then nesting with the strategic investor to establish a holding company C to achieve control of the target company, and at the same time, taking into account the strategic synergy between the strategic investor and the founding shareholder, and advancing and retreating together with the founding shareholder.
From a tax point of view, the founding shareholders, family members, senior executives and other employees each hold shares of the limited partnership, and when the target company pays dividends, they are taxed according to the dividend income (consistent with the above). When the limited partnership transfers the equity of the target company, each interest group can realize the equity exit income and pay individual income tax at a rate of 5%-35%. The establishment of a limited partnership with different interest groups can be arranged to withdraw and cash out in a rhythmic and planned manner, so as to optimize the tax burden ratio, and at the same time, it can also take care of the demands of different interest groups. As for financial investors, since the purpose of their investment is mainly to cash out, such as angel investors, etc., the structure is arranged to hold shares directly, which is also convenient for them to freely arrange the timing of withdrawal and cash-out. For strategic investors, they can often resonate with the founding shareholders at the same frequency, so the founding shareholders and strategic investors jointly set up a company to hold shares, so that the target company can enjoy the preferential tax exemption policy when distributing dividends to the holding company, and as long as it does not eventually distribute dividends to natural person shareholders, the holding company can use the retained and tax-free dividend income to reinvest, so as to achieve the effect of tax savings.
Of course, in practice, the shareholding structure is ever-changing, and the balance of interests between shareholders is also one of the important considerations, and we cannot exhaust all possible equity structures, but the equity structures listed in this article can cover most of the company's situations, and we also try to give readers a brief sharing from the perspective of law and taxation, hoping to help the company's long-term operation.