Vie Agreement China

VIIEs are domestic companies owned by Nominees and controlled by the foreign company through contractual agreements. As part of a VIE structure, the “controlled” national company obtains the necessary licenses to operate the activity. Contractual agreements typically include exclusive service agreements that consolidate the finances of both companies in accordance with GAAP accounting rules. Variable Interest Entity (“VIE”) is a term first used by the U.S. Financial Accounting Standards Board (SASB) in Interpretation No. 46. In China, VIE Structure is also referred to as “control by agreement,” meaning that a listed foreign company controls a Chinese company through a series of contractual agreements to avoid China`s limitation and regulation of the initial arrival of foreign investment, foreign mergers and acquisitions, and overseas listing. Agreement on call option. The founders undertake to sell Dangdang Kewen to Dangdang Information at any time for the initial capital contribution. The payment price can be deducted from the credit.

From a practical point of view, the option cannot be exercised unless China at some point allows foreign investment in companies such as Dangdang Kewen. Equity Pledge. The founders entered into a private equity guarantee agreement with Dangdang Information that mortgages their shares in Dangdang Kewen as collateral under the loan agreement and other agreements. It is clear that more and more Chinese companies have adopted the VIE structure since the issuance of M&A rules. In the initial phase, the VIE structure was only used for light asset companies. However, after 2006, these wealth-intensive enterprises also opted for the use of the VIE structure. One of the reasons for the increasing use of the life structure is that the VIE structure can avoid MOFCOM approval. Indeed, it is inconceivable and unreasonable that such wealth-intensive enterprises can only relocate huge assets from China through multiple agreements without state authorization or other legal procedures. The Chinese authorities could also be alert to the misuse of the structure of life in investment-intensive industries. There are a few cases where the VIE structure has been taken over in the patrimonial industries and successfully listed abroad, but unfortunately, we also understand that there are cases that were rejected during the IPO simply because they used the VIE structure in the heritage industries. (v) the capital guarantee agreement concluded by and between the WFOE, the persons of the PRC and the national enterprise, where by which the persons of the PRC mortgage their holdings in the national company in the WFOE in order to ensure the performance of their obligations and the obligations of the national company arising from other agreements concluded between the three (3) parts of the VIE structure; and agreements. The concept behind a VIE structure is that control is acquired through legal agreements and not through the holding of shares..

. . .