2024年私募股權趨勢與發(fā)展之中國篇 Private Equity 2024

CHAMBERSGLOBALPRACTICEGUIDES

PrivateEquity2024

Definitivegloballawguidesoffering

comparativeanalysisfromtop-rankedlawyers

China:TrendsandDevelopments

StevenYuandEvanSunGlobalLawOffice

CHINATrendsanddevelopmenTs

TrendsandDevelopments

Contributedby:

StevenYuandEvanSun

GlobalLawOffice

GlobalLawOffice(GLO)datesbackto1979,enceinrepresentinginvestors,butithasalso

whenitbecamethefirstlawfirminthePRCtoextensivelyrepresentedfinancingenterprises

haveaninternationalperspective,fullyembrac-andfounders.Withadeepunderstandingofthe

ingtheoutsideworld.Withmorethan600law-bestlegalpracticesanddevelopmenttrendsof

yerspractisinginitsBeijing,Shanghai,Shenz-investmentterms,theteamatGLOknowshow

henandChengduoffices,GLOistodayknowntofindthemosteffectivebalanceofinterests

asaleadingChineselawfirmandcontinuestointermsofnegotiationsoastorealiseall-win

setthepaceasoneofthePRC’smostinno-results.Vastpracticalexperienceandindustrial

vativeandprogressivelegalpractitioners,in-backgroundknowledgeenableGLOtoenhance

cludingintheprivateequityandventurecapitalvalueineverystepoftheclientinvestmentcy-

sector.NotonlydoesGLOhavevastexperi-cle.

Authors

StevenYuisapartnerofGlobal

LawOfficebasedinShanghai.With20yearsofexperienceinleadinginternationaland

Chinesefirms,Stevenhas

focusedhispracticeonprivate

equity/venturecapital,M&A,fundformation

andcapitalmarkettransactionsacrossawidespectrumofindustries,includingthe

manufacturing,auto,chemical,cleanenergy,logistics,TMT,fintech,consumerstaple,

pharmaceutical/healthcare,commercial

property,entertainmentandsports,and

educationsectors.Stevenhaslongbeen

recognisedasaleadingorhighlyranked/recommendedlawyerintheprivateequity/venturecapitalareasbyChambers,amongseveralotherlegaldirectories.

EvanSunisapartnerofGlobalLawOfficebasedinShanghaiwithextensiveexperiencein

foreigndirectinvestment,

generalcorporatelaw,M&A,

privateequityfundformation

andinvestment,andcapitalmarkets.EvanhasadvisedleadingVC/privateequityinstitutionssuchasMorningsideVentures,Trustbridge

Partners,CICCCapital,Tencent,ByteDance,

SenseTimeandQimingVenturePartners,as

wellasmanystart-upcompanies,onlegal

issuesintheirdailyoperations,financings,andemployeestockownershipplandesignand

implementation.Evan’spracticecoversa

varietyofindustries,includinglifesciences,

renewableenergy,automobiles,education,

food,chemicals,manufacturing,finance,

telecommunications,theinternet,cultureandentertainment.

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CHINATrendsanddevelopmenTs

Contributedby:StevenYuandEvanSun,GlobalLawOffice

GlobalLawOffice

35&36/FShanghaiOneICCNo.999MiddleHuaiHaiRoad

XuhuiDistrictShanghai200031

China

Tel:+862123108288

Fax:+862123108299

Email:global@Web:

China’sNewCompanyLawisSignificantlyImpactingPrivateEquityTransactions

InvolvingChineseCompanies

TheStandingCommitteeofthePRCNationalPeople’sCongressadoptedtheamendedCom-panyLawofthePeople’sRepublicofChina(“NewCompanyLaw”)on29December2023.TheNewCompanyLaw,whichcameintoforceon1July2024,hassubstantivechangesrela-tivetothepreviousversion(the“2018Compa-nyLaw”,lastamendedin2018)inareassuchascapitalcontribution,equitytransfer,capitalreductionandcorporategovernancerules.Thesechangesarehaving,andwillcontinuetohave,asignificantimpactonprivateequitytransactionsinvolvingChinesecompanies.

CapitalContribution

OneofthemajorchangesintroducedbytheNewCompanyLawisastrengtheningofthecapitalcontributionobligationsofshareholders,withaviewtoprotectingthecompanyanditscreditorsfromtheabusiveuseofthepreviouscapitalcontributionscheme.

Timelimitforcapitalcontribution

ThePRCCompanyLaw(2028Revision)(“2018CompanyLaw”)hadnostatutorytimelineforshareholderstopaytheircommittedcapitalcon-tributionstoacompanyinfull.Asaresult,manycompanieswereestablishedwithalargeamountofregisteredcapital,whiletheactualpaid-incapitalwasminimalornilthroughoutthelifespanofthesecompanies.Incontrast,theNewCom-panyLawnowrequiresshareholdersofalimitedliabilitycompanytomakecapitalcontributionsinfullwithinfiveyearsfromtheestablishmentofthecompany.

Graceperiod

Companiesestablishedbefore1July2024haveathree-yeartransitionperiodtoadjusttheircapitalcontributionschedulestomeetthenewtimelinerequirement.ThisgraceperiodisgrantedbytheProvisionsoftheStateCouncilontheImplementationoftheCompanyLawofthePeople’sRepublicofChinaontheRegistra-tionofRegisteredCapitalManagementSystem,promogulatedon1July2024.

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Consequencesoffailuretopayontime

Shareholdersofacompanycanagreeonamoredetailedcapitalcontributionscheduleinthearticlesofassociation(“AoA”)ofthecom-pany,providedthatthetimescheduleiswithinthestatutorytimelimitforcapitalcontribution.IfashareholderfailstopayitssubscribedcapitalpursuanttotheNewCompanyLaworthetimeschedulesetoutintheAoA,thenthesharehold-erindefaultmayberequiredto:

?indemnifythecompanyagainstlossescausedbysuchfailure;and

?forfeititsrighttotheportionoftheunpaidequityinterestuponboardresolutionafterthelapseofagraceperiodprovidedbythecompany.

Iftheforfeitedequityhasnotbeentransferredorcancelledwithinsixmonthsfromtheforfeiture,thenothershareholdersofthecompanywillberequiredtomakeuptheoutstandingcapitalcon-tributioninfullinproportiontotheirrespectivecapitalcontributionstothecompany.Ifashare-holderfailstopayitssubscribedcapitalwithinthestatutorytimelimit,thentheshareholderinviolationmayalsobesubjecttoafinebythegovernmentauthorityofuptoCNY200,000,andinmoreseriouscases,afineofupto15%oftheunpaidamount.

Jointandseveralliabilityforoutstandingcapital

TheNewCompanyLawprovidesthatifafound-ingshareholderofacompany(ie,ashareholderupontheestablishmentofthecompany)failstopaythecapitalcontributionaccordingtotheAoAofthecompany,orwherethefound-ingshareholdermakesitscapitalcontributioninkindandtheactualvalueofthein-kindcapitalcontributionissignificantlylowerthanthecapi-talcontributionsubscribedtobythisfoundingshareholder,thentheotherfoundingsharehold-

ersofthecompanyarejointlyandseverallyliablefortheoutstandingcapitalcontribution.

Inlightoftheabove,foundersofstart-upcom-paniesandearly-stageinvestorsshouldcare-fullyconsideranddeterminetheamountofreg-isteredcapitalofacompanytoensurethatallshareholdersareabletofulfiltheircapitalcom-mitmentstothecompanyontime.Inaddition,partiestoaprivateequityinvestmenttransac-tionmayalsowishtoclarifyinthetransactiondocumentstheirrightsandobligationswhenaforfeitureofequityinterestoradefaultincapitalcontributionbyashareholderoccurs.Forexam-ple,thepartiesmaywishtosetoutinthetrans-actiondocumentsprovisionsrelatingtoinves-tor’srightoffirstrefusaltopurchasetheforfeitedequity,andthedefaultingshareholder’sliabilitytoindemnifytheothershareholdersifthelatterareforcedtomakeuptheunderpaidcapitalasrequiredbylaw.

EquityTransfer

TheNewCompanyLawhasseveralkeychang-esthatmayaffectequitytransfertransactions,asfollows.

Buyerandseller’sjointandseveralliability

Underthe2018CompanyLaw,becausetherewasnostatutorytimelimitforcapitalcontribu-tions,unpaidequitywasgenerallynotaseriousconcerntothepartieswhennegotiatinganequi-tytransfertransaction.TheNewCompanyLaw,however,providesthatifashareholderofalimit-edliabilitycompanydelaysacapitalcontributioninviolationoftheAoAandtransfersitsunpaidequityinterestafteritscapitalcontributionobli-gationfallsdue,thenthebuyerandthesellerarejointlyandseverallyliablefortheoutstandingcapital.Thebuyercanbeexemptedfromthisliabilityonlyifitisabletoprovethatitwasnotaware,andshouldnothavebeenaware,thatthe

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transferredequitywasunpaidwhenthetransac-tionoccurred.Assuch,thebuyerinanequitytransfertransactionshouldperformathoroughinvestigationofthecapitalcontributionstatusofthetargetcompany,inadditiontorequiringthesellertomakefullrepresentationsandwarran-tieswithrespecttothesame.Iftheequitytobetransferredisunpaid,thebuyermayrequirethesellertoeithercompletethecapitalcontributionbeforethetransferordeducttheunpaidamountfromtheequitytransferprice.

Simplifiedprocess

Underthe2018CompanyLaw,thetransferofequityinterestbyashareholdertoanon-share-holderthirdpartyissubjecttotheapprovalofamajorityoftheothershareholdersofthecom-panyandtheothershareholders’rightoffirstrefusal.TheNewCompanyLawnolongerhasthisrequirementforapproval.UndertheNewCompanyLaw,thesellerisrequiredtoserveawrittennoticeontheothershareholdersofthekeytermsandconditionsoftheintendedtrans-fer,suchasthequantity,price,paymentmethodandperiodoftimeforthetransfer,andtheothershareholdershavetherightoffirstrefusaltopur-chasetheequityunderthesametermsandcon-

ditions.Shareholderswhofailtorespondwithin30daysfromthereceiptofthewrittennoticewilllosetheirrightoffirstrefusal.

CapitalReduction

Redemptionrightisakeypreferencerightofinvestorsinprivateequitytransactions,andcapitalreductionisoneofthemajorwaysforcompaniestofulfiltheirredemptionobligations.

The2018CompanyLawwassilentonwhetheracompanymayreduceitscapitaldisproportion-atelyamongstitsshareholders.Incontrast,theNewCompanyLawprovidesthatacompanyshouldreducethecapitalcontributioninpro-

portiontothecapitalcontributionsmadebyitsshareholders,exceptwhen:

?providedbylaw;

?agreeduponbyalltheshareholdersofalim-itedliabilitycompany;or

?providedbytheAoAofajointstockcom-pany.

Assuch,althoughtheNewCompanyLawcon-firmsthatcapitalreductionscanbemadedis-proportionatelyamongstitsshareholders,suchreductionissubjecttothefollowingrestrictions/requirements:

?foralimitedliabilitycompany,theredemptionrightofinvestorsneedstobereflectedina

shareholders’agreemententeredintobyallshareholdersofthecompany;

?andforajointstockcompany,investors

shouldmakesurethatredemptionrightsaresetoutintheAoAofthecompany.

CorporateGovernance

Corporategovernancestructure

TheNewCompanyLawmakessomesignificantadjustmentstothestructureandpowersofacompany’scorporategovernancebodies.

I)Companywithoutsupervisor

The2018CompanyLawrequiredacompanytohaveaboardofsupervisors,oronetotwosupervisors,tosupervisethefinancialsofthecompanyandtheperformanceofdutiesofthedirectorsandseniormanagement.TheNewCompanyLawprovidesthat,ifunanimouslyapprovedbyitsshareholders,alimitedliabilitycompanyofsmallscaleorwithasmallnumberofshareholdersmayoperatewithoutasupervi-sor.

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II)Auditcommittee

TheNewCompanyLawprovidesthatacom-panymaysetupanauditcommitteeundertheboardofdirectorstofunctioninlieuofasupervi-sorortheboardofsupervisors.Theauditcom-mitteeintroducedbytheNewCompanyLawmayvestsupervisorypowersinthedirectors.Assuch,aninvestormaywishtohavetorighttonominateamemberoftheauditcommitteeinitsportfoliocompanies.

III)Employeedirector

The2018CompanyLawonlyrequiredstate-ownedcompaniestohaveanemployeedirec-torontheboardofdirectors.Incontrast,theNewCompanyLawprovidesthatanycom-panywithmorethan300employeesneedstohaveemployeerepresentationonitsboardofdirectorsunlessthecompanyalreadyhasanemployeerepresentative(s)asasupervisor.Theemployeedirectormustbeelectedbythecom-pany’semployeesthroughemployees’meetingsoranotherdemocraticprocess.

IV)Legalrepresentative

The2018CompanyLawprovidedthatthechairpersonoftheboardofdirectors,executivedirectororgeneralmanagerofacompanymayactasthecompany’slegalrepresentative.Incontrast,theNewCompanyLawprovidesthatadirectororgeneralmanagerwhocarriesoutthebusinessesofthecompanymayactasthelegalrepresentative.The2018CompanyLawwassilentonthedutiesandpowersofthelegalrepresentative.TheNewCompanyLawprovidesthatacompanybearsthelegalconsequencesofitslegalrepresentativeactingonthecompany’sbehalf,andthatthecompanymayrequestcom-pensationfromitslegalrepresentativeforlosses

incurredduetoactsofthelegalrepresentativeinviolationoflawsortheAoAofthecompany.Inlightoftheimportanceofthepositionoflegalrepresentative,investorsandfoundersofcom-paniesshouldcarefullyconsideranddeterminethecandidateforthispositionanddesignapropergovernancestructuretostrikeabalancebetween:

?allowingalegalrepresentativetoperformhisorherdutiesandexercisehisorherpowers;and

?reducingrisktothecompanyrelatingtoanyunauthorisedactsofthelegalrepresentative.

Dutiesandliabilitiesofdirectors,supervisorsandseniormanagement

Incomparisonwiththe2018CompanyLaw,theNewCompanyLawfurtherelaboratesonthefiduciarydutyofdirectors,supervisorsandsen-iormanagers.

I)Fiduciaryduties

TheNewCompanyLawprovidesthatdirectors,supervisorsandseniormanagementpersonnel:

?owefiduciarydutiestothecompany;

?shouldtakemeasurestoavoidconflicts

betweentheirowninterestsandthoseofthecompany;and

?shouldnotusetheirpowerstoseekimproperbenefits.

TheNewCompanyLawfurtherrequiresdirec-torstoreporttotheboardofdirectorsortoashareholders’meeting,andtoobtainaresolu-tioninaccordancewiththecompany’sAoA,beforetheycandirectlyorindirectlyengageinbusinessessimilartothatofthecompany.

II)Dutiesofdiligence

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TheNewCompanyLawalsoprovidesthatdirec-tors,supervisorsandseniormanagementper-sonnelowedutiesofdiligencetothecompany,andmustexercisethereasonablecarenormallyexpectedofmanagementpersonnelinthebestinterestsofthecompanywhenperformingtheirduties.

Inlightofthesechanges,directors,supervisorsandseniormanagementpersonnelnominatedbyinvestorsorfoundersneedtofamiliarisethemselveswiththeseenhancedrequirementsregardingtheirdutiesandobligations.Inaddi-tiontoperformingtheirdutiesinafaithfulanddiligentmanneraslegallyrequired,investorsandtheirnominateddirectors,supervisorsandseniormanagementpersonnelmaywishtotakeothermeasurestoprotectthemselvesfrompotentialliabilities,suchas:

?requiringthecompanytopurchasedirectorandofficerliabilityinsurance,enteringintoadirectorindemnificationagreementwiththecompany;and

?keepingfullrecordsofboardmeetingminutesandothercommunicationmaterialsasevi-

denceforhis/herdueperformanceofdutiesandobligations.

China’sNewRegulationsforOverseasListingFiling–theFirstAnniversaryReviewand

Outlook

Ithasbeenoveroneyearsince31March2023,whentheChinaSecuritiesRegulatoryCommis-sion(CSRC)promulgatedtheTrialMeasuresfortheAdministrationofOverseasSecuritiesOfferingandListingofDomesticEnterprises(the“TrialMeasures”),andfivesupportingrulesforregulatoryguidance(collectively,the“NewFilingRegulations”)cameintoeffect.Basedonmarketobservations,theNewFilingRegulationshavereshapedChina’sregulatorylandscape

withrespecttotheofferingandlistingofover-seassecuritiesbydomesticenterprisesintheshort-to-mediumrunandareexpectedtohaveaprofoundinfluenceonChina’sprivateequityandVCmarket.

OverviewofimplementationpracticeoftheNewFilingRegulations

AccordingtoinformationpublicisedbytheCSRC,duringtheperiodfrom31March2023to30June2024,272applicants(excludingthoseissuerswhoappliedfor“fullcirculation”oftheirexistingnon-tradablesharesinoverseascapitalmarkets)wereknowntosubmitfilingapplica-tionstotheCSRC.Amongtheseapplicants,158haveobtainedthefilingnoticefromtheCSRC,accountingfornearly60%ofthetotalapplicants.Duringthefirsthalfof2024,about100applicantsobtainedfilingnoticesfromtheCSRC(thenumberofpassingapplicantswas57in2023),indicatingthattheCSRChasexpe-diteditsstepstowardsgivingthegreenlighttoapplicants.

AccordingtoGLO’sroughcalculationbasedonpubliclyavailableinformationfromtheCSRC,duringtheperiodfrom31March2023to30June2024:

?about170applicantschosetheHongKong

StockExchangeasthelistingexchange,andabout100applicantschosetolistonUScap-italmarkets(includingNasdaq,theNewYorkStockExchangeandotherUSexchangesnotspecificallydisclosed);

?about68applicantschoseoverseasdirectlistingasthelistingmodel,andabout204

applicantschoseoverseasindirectlistingasthelistingmodel;and

?amongthe204applicantswhochoseindirectlisting,55areissuersoperatingwithavari-

ableinterestentity(VIE)structure,andatotal

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of20applicantswiththeVIEstructurehaveobtainedfilingnoticesfromtheCSRC.

BasedonGLO’sroughestimate,amongappli-cantswhohavereceivedafilingnoticefromtheCSRCsincetheimplementationoftheNewFil-ingRegulations,theaveragetimefromreceiptofthefilingapplicationbytheCSRCtotheissu-anceofthefilingnoticeisapproximatelyfivemonths,withtheminimumandmaximumreviewperiodbeinglessthanthreemonthsandmorethantenmonths,respectively.Applicationsforoverseasdirectlistingappeartohaveapromi-nentadvantageoverapplicationsforoverseasindirectlistingintermsoftheaveragelengthoftimerequired(fourmonthsandsixmonths,respectively).Inaddition,althoughtheCSRCrelaxeditsscrutinyoffilingsbyapplicantswiththeVIEstructureinthefirsthalfof2024,com-paredwiththefilingtimeofapplicantswithouttheVIEstructure,itwouldtakeonaveragetwiceaslongforthoseapplicantswiththeVIEstruc-ture(four-and-a-halfmonthsandninemonths,respectively).

Giventheaboveobservations,itcanbeseenthatCSRCfilingundertheNewFilingRegula-tionshasbeenrunningsmoothlyasaroutineprocedureformorethanoneyear,andthatdomesticandoverseasregulatoryprocesseshavebeeneffectivelyconnectedtoeachother,improvingthetransparencyavailabletoappli-cantsandpotentialapplicants.KeyelementsthatmayinfluencethespeedoftheCSRC’sreviewprocessinclude,amongothers,whetheranissuerhasadoptedorusedtheVIEstructureforoverseaslisting.

ScopeofDomesticEnterprisesSubjecttoFilingRequirementUndertheNewFilingRegulations

StatutorycriteriaundertheTrialMeasures

Article15oftheTrialMeasuresprovidesthat,ifanissuersimultaneouslymeetsthefollow-ingcriteria,itshallbeidentifiedasadomesticenterpriseindirectlyofferingsecuritiesandlist-ingoverseas:

?intermsoftheoperatingincome,totalprof-its,totalassetsornetassetsofdomestic

enterprise(s)inthemostrecentfiscalyear,

anyindicatorthereofaccountsformorethan50%oftherelevantdataintheauditedcon-solidatedfinancialstatementsoftheissuerinthesameperiod;and

?themainlinksregardingthebusinessactivi-

tiesareinChina,thebusinessactivitiesare

mainlycarriedoutinChina,ormostofthe

seniormanagementpersonnelresponsibleforbusinessmanagementareChinesecitizensorhavetheirmainresidenceinChina.

Furthermore,theTrialMeasuresemphasiseapplyingthe“substanceoverform”principleinparticularcases.

DespitethetestbeingstipulatedintheTrialMeasures,therestillremainssomeambiguityregardingitsinterpretationorthediscretionalapplicationofthe“substanceoverform”prin-ciplebytheCSRC(eg,howtoidentifythemainlinksregardingthebusinessactivitiesofanissuer).

Observationofmarketpractice

GLOnotesthatdifferentissuerswithhighsimi-larityintermsoftheproportionsofdomes-ticenterprises’financial(andother)indicatorsmadedifferentchoicesintheirapplicationfortheCSRCfiling.

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Inonecase,anissuerdisclosedinitsfilingmate-rialsforpubliclistingthat,althoughitsrevenueinthelasttwofiscalyearsaccountedformorethan50%ofitsrevenuefromoverseas,sincemostofitsassetsandbusinessactivitiesarelocatedinmainlandChina,ittooktheinitiativetosubmitanapplicationtotheCSRC,andshortlythereafteritwasinformedinwritingbytheCSRCthatitwasnotcurrentlycoveredbythefilingrequirement.Incontrast,anotherissuerwithnoessentialdiffer-encesfromtheabove-mentionedissuerbelievesthatitdidnotneedtofilewiththeCSRC(asdis-closedinitspubliclylistedfilingmaterials),andGLO’sfollow-uppublicsearchindicatedthatthisissuerhascompleteditsIPOandlistingintherelevantsecuritiesmarket.

Comparedwiththeabovetwocases,someissuerswithbusinessandoperations(eg,R&Dcentre,purchasingand/ormarketingstaff)inmainlandChinaadoptedamoreconservativestrategytoaddresstherisksofCSRCfiling,althoughstrictlyspeakingtheirfinancialandotherkeyindicatorsdonotmeetthestatutorythresholds.Toreduceregulatoryuncertainty,suchissuersconductedseveralroundsofcom-municationswiththeCSRCpriortosubmittingaformalapplicationand/orvoluntarilysubmittedafilingapplicationtotheCSRC,andtheyeachhavebeengranteda“notapplicable”clearanceorsuccessfullyobtainedafilingnotice.

Onemorenoteworthycase,occurringinMay2024,hascometoGLO’sattentionandmeritscautionforallmarketplayers.Aspubliclydis-closedbytheissuerinthiscase,itreceivedawrittennoticefromtheCSRCrequiringittoperformtheCSRCfilingwithinoneweekafteritsreceiptoftheNoticeofEffectivenessoftheUSSecuritiesandExchangeCommission(SEC)onitsshare-registrationdocuments.However,itwaspreviouslyadvisedbyitsPRCcounselthat,

sincetheissuergeneratedover50%ofitsrev-enue,netincome,totalassetsandnetassetsfromoutsidemainlandChinafortherelevantfis-calyears,theofferingandlistingofthisissuerare“unlikely”totriggerthefilingrequirement.

Inviewoftheabove-mentionedcases,itissug-gestedthatconsiderationshouldbegiventowhethertherearestrongconnectionsbetweentheissuersandmainlandChinabyapplyingthe“substanceoverform”principle,inadditiontothestatutoryindicators.Also,precautionarymeasuressuchaspre-applicationcommuni-cationswiththeCSRCwouldbenecessarytoavoidorreducetheriskofbeingunexpectedlypreventedfrommakingstepstowardsoverseassecuritiesofferingandlisting.

IssuersWiththeVIEStructure

Overview

AsoftheendofJune2024,atotalof20issu-ersusingtheVIEstructurehavesuccessfullyobtainedfilingnoticesfromtheCSRC;18ofthesewereobtainedin2024,accountingforabout13%ofthetotalof158issuerswhohavecompletedfilingwiththeCSRC.

IssuerswhoadopttheVIEstructureusuallyusecontractualarrangementstoholdinterestsinindustrialsectors/areasrestrictedforforeigninvestors.However,sofar,therehavebeennospecificPRClawsandregulationsclarifyingthelegalityoftheVIEstructure,andthestabilityandpotentialrisksofthestructurehavebeenhotlydebatedinthemarket.Withtheimple-mentationoftheNewFilingRegulations,the20casespassingthefilingindicatethattheCSRCisbecomingincreasinglypositiveandtoleranttowardstheVIEstructure,aslongastheredlinesetbylawisnotcrossed.

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BasedonGLO’sobservation,issuerswiththeVIEstructurethathavecompletedtheCSRCfilingaremainlyconcentratedintheinternet,insurance,travel,education,logisticsandmedi-calindustries,amongothers.Themainbusinessareasthatmayinvolveforeigncapitalprohibi-tionorrestrictionincludevalue-addedtelecom-munications,networkculture,networkpublish-ing,radioandtelevisionprogrammeproductionandoperation,surveyingandmapping,medicalinstitutionsanddomesticmaildelivery.

FocusonexaminingissuerswiththeVIEstructure

TheNewFilingRegulationsrequireapplicantswiththeVIEstructuretodiscloseandclarifythefollowinginthefilingdocuments:

?thereasonsforusinganddetailedcomposi-tionoftheVIEstructure;

?legalandcompliancerisksassociatedwiththeVIEstructure,aswellasrisktreatmentmeasures;

?whetherforeigninvestorsareparticipatingintheoperationandmanagementoftheissuer;

?whethertherearePRClawsandregulationsexplicitlyprohibitinganissuerintheinvolvedindustries/businessareasfromusingtheVIEstructure;and

?whetherforeignparticipationintheinvolved

industries/businessareasissubjecttonation-alsecurityreview,andwhethertheissueris

involvedinindustries/businessareasinwhichforeigninvestmentisrestrictedorprohibited.

Accordingtoth