Vie Structure Agreement

The implication of the report on the future of the LIFE structure This is why, when an investment is subject to restrictions, foreign investors have used a LIFE structure to access the Chinese market. With regard to the basis for assessing the validity of a LIFE agreement, there are not only rules and regulations at ministerial level, such as the foreign investment management catalogue in the employment sector, but also laws such as the Law on the Equivalence of Joint Ventures, the Sino-Foreign Cooperation Joint Ventures Act. , the law on foreign-owned companies. As a result, a LIFE agreement is still likely to be considered a non-valid agreement. In addition, in the Ambow case, the Supreme People`s Court expressly stated that ”the possible entry of a foreign investor into compulsory education and his participation in the management of the school should be supervised by the control of the founder of the school and that administrative proceedings should be punished for violations of the law.” In this context, it made a judicial recommendation to the Ministry of Education. Examples of agreements granting effective control over LIFE: appeal option agreements, voting rights or agents, loan contracts. The Alibaba case highlighted the LIFE agreements and it was widely reported that CSRC[2], the Financial Markets Authority of China, submitted an internal report to the State Council calling on the government to tackle this controversial but popular corporate structure. This has raised even greater investor concerns and raised doubts about the future viability of the life structure. In late 2016, the Supreme People`s Court delivered its final verdict in Changsha Yaxing Real Estate Development vs. Beijing Ambow Shida Education Technology (the Ambow case).

Because this is to some extent a systematic review of the LIFE model, it has been described as a ”first life case”.. In the past, it was said on the market that the court upheld the legality of the life structure in the case. From a legal point of view, the LIFE model is essentially about controlling a company through agreements and not through capital control. Given that the origin of the application of the LIFE model in China is indeed the desire to circumvent restrictions on foreign investment in certain industrial sectors, this is in itself a mistake. On the one hand, a LIFE agreement carries the legal risk of being considered a null and void agreement, with the potential to be considered a legal form for an illicit purpose, to harm the public interest or to violate mandatory laws or administrative provisions.