PRINT THIS PAGE 2006 Update to doing business in China via the Caymen Islands28/06/2006. Source: Fenwick & West.
Many companies doing business in China are using a structure which includes a company formed under the laws of the Cayman Islands, says Fenwick & West. The primary business reasons for an offshore structure are flexibility in an exit strategy, whether in connection with an initial public offering or an acquisition; the possibility of reducing US taxes; and reducing the impact of China’s currency exchange restrictions. Chinese technology and internet companies listed on Nasdaq such as Actions Semiconductor, Baidu, CTrip, China Medical Technologies, Focus Media, Shanda, Suntech Power and Tom online are actually CI companies. The primary business reasons for an offshore structure are flexibility in an exit strategy, whether in connection with an initial public offering ('IPO') or an acquisition; the possibility of reducing US taxes; and reducing the impact of China's currency exchange restrictions.
In the simplest form, the structure is a CI company with a China subsidiary. Investments are made in the CI company and the subsidiary is the operating company. The next simplest form is when the CI company is the parent company of two subsidiary corporations, one in China and the other in the US.
A US corporation is needed only if the US is a market for the business. The most complex structure is required when the China business is in a restricted industry such as an Internet business. Other variations include delaying the formation of a US subsidiary until or if US operations are needed and adding a company from jurisdiction having a tax treaty with China (such as Mauritius) between the CI and Chinese corporations. Global venture capitalists have become comfortable with these CI structures and many US venture capitalists also understand and use these structures.
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If you have any questions about this article,please contact Fred M.Greguras (fgreguras@fenwick.com) or Tahir J. Naim (tnaim@fenwick.com) of Fenwick & West LLP (telephone: 650.988.8500) or S.RR. Gopalan of Dawn consulting in Bangalore, India (srg@dawnconsulting.com).
Fenwick & West LLP is a law firm providing comprehensive services to high technology clients of national and international prominence. The firm has over 300 attorneys and a network of correspondent firms in many major cities of the world. Fenwick & West has offices in Palo Alto California, San Francisco California, and Washington DC. For more information please visit www.fenwick.com
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