VIE (the full name of Variable Interest Entity) is "VIE structure", also known as "protocol control", which refers to a legal business structure in which investors do not have the majority of voting rights, but has a controlling stake. Therefore, the listed company has the ability to direct the significant activities of the VIE and control the flow of profits and losses.
The VIE structure we usually talk about is that a domestic institution or individual establishes an overseas company, and controls the domestic operating entity through the foreign-funded enterprise agreement held by the overseas company, so that the interests of the domestic operating entity can be reflected in the overseas company's statement, so as to achieve the goal of the overseas company becoming an overseas listed company, and the domestic operating entity becomes indirectly listed.
Generally speaking, the VIE structure is actually for a company to be listed to set up a parallel offshore company in the Cayman Islands or the British Virgin Islands in order to achieve overseas listing, and use the offshore company as the main body for future listing or financing. Its equity structure reflected in the real equity structure of the company to be listed is not necessarily reflected in the domestic company to be listed.
Then, after a series of investment activities, the offshore company finally landed in China as a foreign-invested enterprise, that is, WFOE. A WFOE is a Wholly Foreign Owned Enterprise and is used for agreement control of domestic operating entities.
The WFOE signs a series of agreements with the company to be listed, and the company to be listed transfers most of its own profits to the WFOE. In this way, the top-level offshore company becomes the shadow company of the company to be listed, and can then land on the foreign capital market.
Two advantages of VIE architecture
(1) It is a tax advantage
VIE can successfully circumvent the current non-convertible foreign exchange control system. For example, when Sina sets up a company in the Cayman Islands, it can enjoy tax exemption and low-cost share transfer, and it can also apply for listing in Hong Kong and other countries and regions at the same time.
(2) It can help foreign capital effectively avoid government control and disputes
By setting up a shell company overseas, using the assets of domestic enterprises for reverse packaging, and finally making the overall assets packaged and listed overseas, it not only effectively avoids the supervision of domestic regulatory agencies on the entry of foreign capital, but also enables domestic enterprises to successfully raise financing in the U.S. capital market.
