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VIE structures 可变利益实体(VIE)结构 June 14, 2011

Posted by Ian Cheng in Funding.
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This posting will explain the use of variable interest entities (VIEs) by U.S. listed Chinese companies.  I have selected E-Commerce Dangdang, Inc. (NYSE: DANG), which listed on the NYSE late in 2010, as an example of how the VIE structure is used.  I have selected Dangdang because it follows the archetypal model for VIE structures, not because it has any higher or lower risks than other companies using VIEs.

Offshore holding companies. Like most U.S. listed Chinese companies, the actual listed company of DangDang is a Cayman Islands corporation.  After the IPO, founders Peggy Yu and Guoqing Li controlled 44.1% of the voting power of the company.

Chinese companies that list in the U.S. mostly use a foreign incorporated company as the listed company. The exceptions are large former state-owned enterprises like PetroChina or China Life, which list the Chinese incorporated parent company. The foreign parent companies are usually incorporated in the Cayman Islands because it is a favored location for offshore companies due to its tax-free status and established legal system that is built on English law. Some companies have used corporations formed in the British Virgin Islands or the U.S. U.S. holding companies are usually a poor choice, since this brings the corporate group into the U.S. tax net. Such arrangements are usually an accident of history –  the founders having started the company in the U.S. or used a reverse merger with a U.S. shell company.

The usual way to prepare for an IPO would be to contribute the shares of the Chinese operating company to the Cayman Islands company so that the Chinese company becomes a wholly owned subsidiary of the Cayman Islands company.  The big problem with that was that foreign investment is not permitted in the internet sector where Dangdang operates. There are other problems related to foreign exchange and taxes that I will cover in another posting. In order to list in the U.S. (or anywhere for that matter), it was necessary for the Cayman Islands corporation to be able to consolidate in its financial statements the Chinese operations of Dangdang that were held by the founders. The Cayman company also needed a way to get access to the profits of the Chinese operations for the benefit of the shareholders.  Since they could not simply transfer the Chinese company to the Cayman Island holding company, they used the VIE rules to consolidate the Chinese operations by putting in place the archetypal VIE structure, as illustrated in this chart from their registration statement:

VIE entities.  Beijing Dangdang Kewen E-Commerce Co. Ltd. (Dangdang Kewen) is a Chinese company that is owned by Dangdang’s founders, Peggy Yu Yu and Guoqing Li, who are husband and wife.  Because both shareholders are Chinese citizens, Dangdang Kewen is permitted to hold the licenses that are essential to the operation of Dangdang.  Dangdang Kewen has a 100% owned subsidiary in Wuxi.

WFOE entities.  The Cayman Islands corporation established a Chinese subsidiary, Beijing Dangdang Information Technology Co. Ltd. (Dangdang Information).  Because this entity is 100% owned by a foreign corporation, it is known in  China as a wholly foreign owned enterprise (WFOE).  Dangdang Information is not permitted to hold the necessary licenses to operate the business, and is not permitted to sell audio and video products in China.   It does, however, conduct a significant portion of Dangdang’s business in China, including , for example, handling product procurement and fulfillment operations and operating warehouses.  Ideally, Dangdang Kewen would also be a WFOE, but this is not permitted in the internet sector.  Dangdang Information has a 99% owned subsidiary in Wuxi.

Agreements. The concept that underpins a VIE structure is that control is obtained through legal agreements rather than through share ownership.  Taken together, the agreements are intended to provide Dangdang Information with substantially all of the economic benefits from Dangdang Kewen and the obligation to absorb all of its losses. Dangdang uses five agreements to achieve this.  These agreements are typical of most VIE structures:

Loan agreement. The founders borrowed funds from Dangdang Information in order to capitalize Dangdang Kewen.  By using Dangdang Information instead of the Cayman Island parent to make the loan, the agreement is between two Chinese companies, avoiding the need to deal with the State Administration of Foreign Exchange.

Equity pledge agreement. The founders executed an equity pledge agreement with Dangdang Information which pledges their shares in Dangdang Kewen as collateral under the loan agreement and the other agreements.

Call option agreement. The founders agree to sell Dangdang Kewen to Dangdang Information at any time for the original capital contribution. The payment price can be offset against the loan.  From a practical viewpoint, the option cannot be exercised unless at some point in the future China allows foreign investment in companies like Dangdang Kewen.

Technical support agreement. Dangdang Kewen agrees to use Dangdang Information as its exclusive technical service provider including platform and technical support, maintenance and other services. It is through this agreement that Dangdang extracts the profits of Dangdang Kewen. The transfer price that determines the amount of the charge for technical services creates tax risk, which I will discuss further in a later post.

Power of attorney. The founders give a power of attorney to Dangdang Information that gives it all the normal shareholder rights, including voting, attending shareholder meetings and fulfilling the call option agreement.

Operations. The registration statement of Dangdang does not provide details on how it will operate, but there are some clues.  The objective in any VIE structure will be to minimize the profits in the VIE.  Residual profits in the VIE cause problems because the ultimate transfer of these profits to the public shareholders is difficult and expensive. While VIE agreements typically require the VIE shareholders to turn any dividends over to the public company, any distributions to the VIE shareholders would be subject to individual income tax in China, layered on top of corporate taxes already paid.

Companies with VIE operations in China typically try to conduct as much of the business as they can justify in the WFOE.  In Dangdang’s case, it appears that they intend to conduct procurement, fulfillment and warehousing activities in the WFOE (except for audio and video products that the WFOE is prohibited by law from handling).  On top of that, the WFOE will charge the VIE for a technical service charge to compensate for developing and maintaining the internet trading platform. The ideal situation will zero out the profit of the VIE, resulting in all of the profits residing in the WFOE.

This posting has outlined the basic structure of VIEs using a typical example. There are some variations on this structure that I will explain in future postings. In these postings I intend to present some of my research on how VIEs are actually being used in China, and outline some of the more significant risks.

这篇博文的主要目的是解释在美上市的中国公司所使用的可变权益实体(VIE)结构。为此,我选择了电子商务公司当当(NYSE:DANG)来作为VIE结构的例子。之所以选择当当,主要是因为它使用了典型的VIE结构,而不是因为它的风险比其它使用VIE结构的公司更高或更低。

离岸控股公司:和大部分在美上市的中国公司一样,当当的上市公司是一家注册在开曼群岛的公司。在IPO之后,该公司的创始人俞渝和李国庆控制该上市公司44.1%的表决权。

绝大部分在美上市的中国公司都用一家在国外成立的公司作为上市公司。只有大型国有企业,如中石油和中国人寿例外 – 它们的上市公司就是中国境内的母公司。在美上市中国公司的外国母公司大部分都在开曼群岛设立,该地由于免税和基于英国法的完善法制制度,一直都是设立离岸公司的优先选择。其它一些公司在英属维京群岛或美国设立控股公司。在美国设立控股公司通常不是一个好的选择,因为这样做将把该公司纳入美国的税收网中。这样的结构往往是出于历史原因 – 创始人在美国成立公司开始创业,或者是利用反向收购并购美国壳公司上市。

通常为IPO做准备的方法是将中国营运公司的股份转移到开曼群岛公司,从而使中国营运公司成为开曼群岛公司的全资子公司。但这样做存在一个重大问题:当当网从事互联网行业,而中国的互联网行业禁止外资投资。同时,这样做还会引起外汇和税务问题,我将会在另外的博文中讨论这些问题。为了在美国(或者是任何地方)上市,开曼群岛公司必须能够将由创始人控制的中国营运公司纳入其合并财务报表范围。同时,开曼群岛公司还需要设法代表股东提取中国营运公司的利润。由于无法简单的将中国公司的股份转移到开曼群岛公司,他们将中国营运公司放置于一个典型的VIE结构中,并利用VIE相关的准则将其纳入合并报表范围内。下图摘自当当公司上市申请登记表,解释了他们所使用的公司结构。

可变权益实体:北京当当科文电子商务有限公司(当当科文)是一家由当当的创始人俞渝和李国庆夫妇所有的中国公司。由于两位股东均为中国公民,当当科文可以持有对于当当的运营至关重要的许可证。当当科文在无锡有一家全资子公司。

外商投资企业:开曼群岛控股公司设立了一家中国子公司 –
北京当当网信息技术有限公司(当当信息)。由于这家公司由外资100%持股,它在中国被归类为外商投资企业(WFOE)。当当信息无法持有当当运营所必要的许可证,同时也不能够在中国境内出售音频和视频产品。但是,它负担着当当在中国业务的很大一部分,包括产品采购、库房运营等。当当科文当然也可以成为一家外商投资公司,但这样做将会使它被禁止踏入互联网行业。当当信息在无锡有一个99%持股的子公司。

协议:VIE结构的基础概念是,控制通过法律协议而不是持有股权实现。这些协议的目的是使当当信息拥有当当科文的全部经济利益,同时承担其所有的损失。当当运用了五个不同的协议来实现这一目的。这些协议在VIE结构中非常典型。

借款协议:当当的创始人们向当当信息借款以为当当科文提供资金。通过使用当当信息,而不是开曼群岛母公司签订借款协议的目的在于:通过当当信息,该协议是在两家中国公司之间签订的,因此并不需要接受到中国国家外汇管理局的管理。

权益抵押协议:当当的创始人们与当当信息签订权益抵押协议,将他们在当当科文的股权作为借款协议和其他协议抵押给当当信息。

认购期权协议:当当的创始人们同意在任意时间以原始出资额向当当信息出售当当科文的股份。股权转让款可以与借款相抵。实际上,除非在未来中国允许外资投资当当科文这类公司,否则该期权无法行权。

技术支持协议。当当科文同意雇佣当当信息为其唯一的技术服务提供商,提供包括网络平台、技术支持、维护和其他协议。通过这个协议,当当得以将利润从当当科文转出。技术服务费的转移定价存在税务风险,我将在另一篇博文中讨论这一事项。

授权书:当当的创始人们授权当当信息以他们的名义行使所有的一般股东权利,包括投票、出席股东会和完成认购期权协议。

运营:当当的上市申请登记表并没有提供它的营运细节,但是在其中有一些线索。任何VIE结构的目标都是使VIE公司的利润最小化。VIE公司的留存收益将带来问题 – 将这些收益转移至公共股东手中非常困难并耗费不菲。虽然VIE协议一般要求VIE公司的股东将其收到的股利全部支付给上市公司,向VIE股东支付的股利在缴纳企业所得税之后,仍需要缴纳中国个人所得税。

使用VIE结构的中国公司通常将其业务尽可能多的放在外商投资公司中。对于当当来说,他们看起来准备利用外商投资公司进行(除了外资禁止运营的音频和视频业务外的)采购、订单实现和仓储业务。在此之外,外商投资公司将收取VIE公司一笔服务费,以弥补为其开发和维护网上交易平台的费用。理想的状态是,VIE公司的利润在支付服务费后为零,所有的利润都在外商投资公司里。

这篇博文通过一个典型样本概述了VIE的基本结构。这种结构有着不少变体,我将在未来的帖子里解释它们。我计划通过这一系列博文分享我关于VIE结构在中国的运用的研究,并同时指出一些比较重大的风险。

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