The essence of variable interest entity, ie VIE structure, is a way for domestic entities to realize overseas listing. It refers to the separation of overseas listed entities from domestic business entities, and the establishment of wholly-owned subsidiaries by overseas listed entities in China. The wholly-owned subsidiary does not actually carry out its main business, but controls the business and finance of domestic business entities through agreements, making the business entities become the variable interest subjects of listed entities.

This arrangement can transfer the interests of domestic business entities to overseas listed entities through control agreements, so that the shareholders of overseas listed entities (that is, overseas investors) can actually enjoy the benefits generated by the operation of domestic business entities, which refer to companies, enterprises or investments that are legally operated.

Extended data:

American standard accounting standards point out that a variable interest entity (VIE structure) must have at least one of the following characteristics:

1. If there is no other financial support, then the equity investment it takes risks is not enough to meet its business needs. In other words, its equity is equal to or less than the expected loss of the entity.

2. Equity holders do not make direct or indirect decisions on the business activities of the entity as a whole through voting rights or similar rights.

3. The voting rights are not distributed among the holders according to the proportion of their expected losses or expected residual income. In fact, all the business activities of an entity represent the interests of an investor with only a small proportion of less voting rights.

4. The equity holders do not bear the expected losses, but collect the expected residual income as a whole.

Baidu Encyclopedia-Variable Interest Entity