2013-02-26 23:30:15
Foreign investors may use VIE as a circumvention structure to invest in restricted or prohibited industries in China. In general, the basic structure is comprised of a Chinese domestic company, an offshore holding company and a wholly foreign-owned enterprise (WFOE). Usually,the holding company may owns the WFOE through many a level of holding. Critically, the WFOE controls the domestic company by a system of agreements, such as equity option, equity pledge, voting proxy and technical licence etc; so that the WFOE may consolidate the domestic company its financial statements, which could be accepted by international capital markets.
SINA firstly used the VIE structure to be listed on the New York Stock Exchange in 2000;among other companies, New Oriental Group also successfully made use of the structure to list on overseas capital markets.However,New Oriental Group announced it was under investigation by the US Securities and Exchange Commission (SEC) in July 2012. The company opines that the investigation relates to the consolidation of one its subsidiaries into the company’s financial statements.
Actually, it is not the first time SEC has investigated companies using the VIE structure. In 2011, SEC scrutized some Chinese companies The VIE structure does not violate Chinese law, however, it does not conform to the tenet of the legislation. In addition, there are serious concerns on the = enforceability and validly of the control contracts.