Protocol control for restricted industries
For sectors where direct foreign ownership is capped or prohibited, the Variable Interest Entity (VIE) structure lets an offshore holding company achieve economic control over a PRC operating company it cannot own outright.
The mechanism is contractual, not equity-based: the WFOE enters a suite of agreements with the operating company and its PRC shareholders. Those agreements — the exclusive service / business cooperation agreement, equity pledge, exclusive purchase option, power of attorney, and spousal consent — must be drafted with enforceability and future exit in mind.
A poorly drafted VIE can be challenged as “concealing an illegal purpose” and collapse under regulatory or litigation pressure. We also advise candidly on the structure's inherent residual risks, which remain a live issue for listing and exit.
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