Core Viewpoint - Pre-IPO financing is a critical step for companies before going public, involving a series of systematic restructuring and integration to meet regulatory requirements, optimize ownership structure, and attract strategic investments [1][3]. Group 1: Definition and Purpose of Pre-IPO Financing - Pre-IPO restructuring refers to the systematic reorganization of a company's legal, ownership, business, and asset structures before an initial public offering to comply with regulatory requirements and optimize business relationships [3]. - The core purposes of Pre-IPO financing include: - Compliance: Ensuring the company structure and operations meet the legal requirements of the intended stock exchange [4]. - Clarity: Establishing a clear and well-governed listing entity with a focus on core business [5]. - Value Maximization: Divesting non-core or underperforming assets to highlight core business and profitability [6]. - Tax Optimization: Designing an efficient tax structure to reduce tax burdens during restructuring and future operations [7]. - Financing Facilitation: Creating a structure conducive to attracting private investments and facilitating future capital operations [8]. Group 2: Structural Choices for Restructuring - The choice of listing structure is the starting point for restructuring, influenced by the intended listing location, industry policies, shareholder backgrounds, and capital strategies [11]. - Types of structures include: - Domestic Structure: For purely domestic companies without foreign investment restrictions, suitable for China's A-shares [12]. - Red Chip Structure: For companies planning to list abroad or with foreign shareholders, typically involving a holding company in offshore jurisdictions [12]. - H-share Structure: Direct issuance of H-shares by domestic companies, requiring approval from the China Securities Regulatory Commission [12]. - Equity Control Model: For industries without foreign investment restrictions, where a foreign holding company directly controls domestic operations [12]. - VIE Structure: For industries with foreign investment restrictions, using agreements to achieve control and financial consolidation [12]. Group 3: Red Chip Structure and Shareholder Exit Arrangements - The core process of establishing a red chip structure involves transferring domestic rights into an offshore framework, which includes cross-border transfer of shareholder rights [14]. - Common paths for establishing a red chip structure include: - "Two-step" approach: First, introducing foreign investors to increase capital in the domestic operating company, then having the offshore holding company acquire the joint venture [14]. - Founder identity adjustment: Founders obtaining offshore identities to set up companies abroad and reinvest [14]. - VIE structure: Using agreements to control domestic companies in restricted sectors [14]. - Shareholder exit methods involve founders and management establishing offshore holding entities and completing foreign exchange registration as per regulatory requirements [16]. Group 4: Tax Considerations in Restructuring - Tax costs are critical in determining the feasibility of restructuring plans [49]. - Direct equity transfer tax liabilities include: - Corporate sellers facing a corporate income tax rate of 25% [51]. - Individual sellers facing a personal income tax rate of 20% [52]. - Indirect equity transfer tax risks focus on the red chip structure, where transferring shares of offshore holding companies may incur tax obligations if deemed to lack substantial operations [53]. - Compliance requirements include assessing whether transactions constitute taxable events and proactively reporting to tax authorities for certainty [55]. Group 5: Pre-IPO Financing Process - The Pre-IPO financing process consists of several stages: 1. **Initiation and Preparation**: Internal decisions on financing intentions, target valuations, and preparation of necessary materials [57][58]. 2. **Market Promotion and Initial Contact**: Conducting non-public roadshows to gauge investor interest and negotiate terms with potential lead investors [61][63]. 3. **Due Diligence and Agreement Negotiation**: Comprehensive due diligence covering business, financial, and legal aspects, followed by negotiations on investment agreements [64][67]. 4. **Closing and Post-Investment Management**: Meeting closing conditions, transferring funds, and initiating post-investment management activities [68][70].

Group 1 - The core of Document No. 37 is its high applicability, focusing on "domestic residents" and "special purpose companies" [1] - Most Chinese companies' overseas listing structures fall under the coverage of Document No. 37, including traditional red-chip structures [2] - The VIE structure, which transfers economic benefits and control rights of domestic operating entities to overseas listed entities through exclusive business cooperation agreements, also requires Document No. 37 registration for Chinese individuals holding shares [3] Group 2 - Three special cases for Document No. 37 registration are outlined, including scenarios involving management equity incentives, founders with foreign permanent residency, and shareholding through offshore family trusts [6][9][11] - In the first case, management members must register under Document No. 37 when holding shares in an overseas subsidiary established by a domestic enterprise [8] - In the second case, a founder with a U.S. green card may still be considered a domestic resident based on their economic interest center, requiring careful documentation to avoid registration [10] - The third case involves the founder needing to complete Document No. 37 registration personally before transferring shares into a family trust, with ongoing compliance considerations [12] Group 3 - Document No. 37 registration is generally required for any scenario involving domestic residents and overseas equity structures, with a need for professional advice in complex cases [14]

Core Viewpoint - The red-chip structure and ODI (Overseas Direct Investment) filing are independent yet closely related processes essential for companies seeking to go public and ensure compliant capital outflow [1][16]. Red-chip Structure - Definition: Domestic enterprises utilize offshore holding companies (e.g., Cayman Islands, BVI) to indirectly hold domestic assets for overseas listing and financing [3]. - Core Objective: To bypass the high barriers of domestic A-share listings and leverage overseas capital markets (e.g., Hong Kong, US) for financing [3]. - Typical Scenarios: Companies in restricted sectors such as technology, internet, and education use variable interest entity (VIE) agreements or equity acquisitions for domestic business integration [3]. ODI Filing - Definition: Domestic enterprises establish, invest in, or acquire foreign companies using cash, physical assets, or intangible assets, requiring filing with the National Development and Reform Commission (NDRC), Ministry of Commerce, and State Administration of Foreign Exchange [4]. - Core Objective: To ensure that funds can exit the country legally, prevent capital disorder, and maintain national economic security [5]. - Typical Scenarios: Overseas factory establishment in manufacturing, resource development in energy, and cross-border e-commerce supply chain layout [5]. Relationship Between Red-chip Structure and ODI Filing - Relationship: In establishing a red-chip structure, domestic funds must go through ODI filing to legally exit to the offshore holding company; failure to do so results in violations [6]. - Example: A technology company that failed to complete ODI filing before injecting funds into an offshore SPV faced penalties from the foreign exchange bureau, leading to a suspension of its overseas investment qualifications [6]. ODI Filing Process Design - Filing Application: Online submission to NDRC and Ministry of Commerce systems, followed by offline submission of physical documents (e.g., business license, articles of association, board resolutions) [9]. - Review Stages: Initial review by the Ministry of Commerce (enterprise qualifications, investment authenticity) and final review by NDRC (project necessity, compliance) [9]. - Post-filing: After completing the filing, companies must register with the foreign exchange bureau and open a dedicated foreign exchange account [9]. Compliance Risks in Red-chip Structure - Compliance Focus: Each layer of the structure must meet the regulations of the overseas listing location (e.g., Hong Kong Stock Exchange Listing Rules) and domestic foreign exchange management requirements [11]. - 37 Document Registration: Required for domestic individuals investing through SPVs; failure to register invalidates the VIE structure and prevents fund repatriation [12]. - Case Study: An education company that did not complete the 37 document registration faced delays in financing due to funds being stuck overseas for over six months [12]. Compliance Risks in ODI Filing - Risk Areas: Risks exist in the architecture design phase, filing application phase, and fund flow phase [14]. - Sensitive Industry Review: Investments in military technology, data security, and financial stability require joint reviews by multiple departments [15]. - Timeliness of Filing: If funds are not contributed within two years of approval, the filing automatically loses its validity [15]. Strategic Recommendations - Companies should adopt a compliance-centric approach while leveraging strategic frameworks to navigate the complexities of red-chip structures and ODI filings [16]. - Emphasis on proactive defense mechanisms and professional guidance is crucial for success in the global market [16].

Core Viewpoint - The red-chip structure, due to its flexibility and compliance advantages, has become an excellent choice for companies seeking overseas financing and listing amid globalization. However, the process is complex and requires careful navigation of regulatory requirements to avoid potential pitfalls [1]. Key Steps: "Six Steps" from Structure Design to Compliance Loop - The core of the red-chip structure is "overseas holding + domestic operation," utilizing offshore SPVs (such as BVI or Cayman Islands) to hold equity in domestic WFOEs, ultimately leading to overseas listings [3]. - Three key elements must be clarified in advance: equity structure, investment path, and return plan [6]. - The overseas SPV serves as the "core hub," typically registered in BVI (tax transparency, strong confidentiality) or Cayman (high international recognition, ease of listing) [5]. Coordination Principles: "Four Golden Principles" - The 37th document registration is applicable to Chinese individuals (founders, shareholders, employees) to address compliance issues related to overseas holdings [10]. - ODI registration is required for domestic corporate entities to ensure compliance for overseas direct investments [10]. - It is advisable to synchronize the processing of 37th document registration and ODI registration materials to avoid delays in overall progress [10]. Practical Recommendations: Professional Guidance to Avoid Compliance Pitfalls - The establishment of a red-chip structure and compliance with cross-border investment regulations involves multiple areas, including foreign exchange management, business approvals, and tax planning [20]. - Companies are encouraged to consult professional lawyers or advisory firms to develop compliance plans tailored to their specific situations, potentially saving significant costs and time [20].

Core Points - The "Document No. 37" is crucial for founders planning to establish red-chip or VIE structures for overseas financing, serving as a compliance bridge between domestic assets and foreign capital [2][3] - It is a foreign exchange registration system established by the State Administration of Foreign Exchange to regulate domestic residents' capital operations through overseas special purpose vehicles (SPVs) [3][4] - The importance of Document No. 37 lies in its role as a compliance foundation for cross-border capital structures, preventing legal gray areas that could hinder overseas financing and profit repatriation [3][4] Summary by Sections 1. What is Document No. 37 Registration and Why is it Important? - Document No. 37, officially titled "Notice on Foreign Exchange Management Related to Domestic Residents' Investment and Financing through Special Purpose Companies Overseas," is essential for ensuring that all capital flows are traceable and manageable [3] - Non-compliance with this registration can lead to administrative penalties and block the legal inflow of overseas financing and outflow of profits, posing significant barriers to overseas listings [3][4] 2. Who Needs to Register and When? - The primary subjects required to register under Document No. 37 are "domestic residents," including Chinese ID holders and certain special groups like ESOP employees and permanent residents with unregistered Chinese household status [4][5] - Key timing for registration includes initial setup of SPVs, before introducing foreign investment, and during significant capital changes [5][6] 3. How to Register? Process and Key Considerations - The registration application must be submitted through banks to local foreign exchange management authorities [7] - The registration process involves several steps, including establishing a domestic equity company, planning the overall structure, and completing initial registration before engaging in overseas financing [8] - Key considerations during bank review include commercial rationale, authenticity of materials, compliance of funding sources, and timeliness of registration [9][10][11] 4. Beyond Compliance: Investment Structures and Funding Pathways in Southeast Asia - For Chinese entrepreneurs investing in Southeast Asia, Document No. 37 registration is not just a compliance task but a strategic starting point for top-level structure design and tax optimization [13] - Common investment structures include a basic structure with a direct SPV to Southeast Asian entities, an advanced structure with financing platforms, and simplified structures for specific cases [14][15][20] 5. Compliance Pathways for Cross-Border Fund Flows - For outbound investments, individuals have a $50,000 annual limit for personal expenditures, while larger investments require Document No. 37 registration [22][23] - For inbound fund flows, profits from Southeast Asian entities can be distributed as dividends to the SPV, subject to a 20% personal income tax upon repatriation [24][25] - Capital gains from selling SPV shares also require tax considerations, including potential capital gains taxes in the investment country and the jurisdiction of the SPV [26]

Core Points - Compliance is a critical principle that companies must strictly adhere to, especially in China where regulatory changes are frequent [1] - The 37th document, issued by the State Administration of Foreign Exchange (SAFE) in 2014, regulates the foreign exchange registration process for domestic residents investing through Special Purpose Vehicles (SPVs) [1] - The 37th document registration is a form of record management for specific types of enterprises or projects, primarily involving limited liability companies and partnerships [1] Applicable Groups - The applicable groups for the 37th document registration include "domestic residents," which consist of domestic institutions and individual residents holding valid Chinese identification [1] Situations Requiring Registration - New project investments, especially in construction or expansion, require 37th document registration to ensure compliance with national economic policies [3] - Changes to project content, such as scale or investment amount, necessitate registration to ensure legal compliance [3] - Certain industries, like energy and environmental sectors, may require additional registration due to their specific nature [3] - Applications for specific licenses or qualifications, such as construction permits, also require corresponding 37th document registration [3] - Significant changes in market policies or economic conditions may necessitate re-registration to align with new regulations [3] Registration Process - The preparation phase involves establishing a domestic equity company and planning a reasonable company structure, including the establishment of an SPV [4] - The establishment and registration phase includes registering an SPV abroad and completing the initial 37th document registration with necessary materials [4] - The operational phase involves using a Wholly Foreign-Owned Enterprise (WOFE) as a return investment vehicle and utilizing the SPV for overseas financing activities [4] - Changes to the SPV's basic information or shares require timely 37th document change registration, and cancellation must follow the proper sequence of deregistering the foreign company first [4]