Chinese company offshore/onshore IPO capital raising legal and financial risks

1. There are more and more foreign issuers who do IPO in U.S. stock market according to U.S. security law and the relevant rules. Like in China, due to the time consuming IPO in domestic stock markets, some companies choose to raise money from the U.S. financial market. Also, the rules for the capital raising are different between the Chinese market and U.S. market, so, it is a little bit easier for the Chinese companies to raise money in U.S. market by the structure of the offshore companies. The general structure for the companies entities is like this, there is one company registered in Cayman Islands or BVI (British Virgin Islands). This first tier (offshore company)is the entity to be listed in U.S. stock market, like NASDAQ  or New York Stock exchange. Then, this entity 100% hold the Chinese company directly or indirectly. Another benefit for setting up the company in Cayman Island or BVI etc. is that it is tax free for these companies. During the process, there are several countries lawyers who have been involved in, U.S. lawyer, offshore country's lawyer and Chinese lawyer.

2. Due to the different entity, there are different law application and legal risks for the investors. Firstly, the offshore company is the public listed company in U.S. stock market, therefore, the Cayman law should be applied for the shareholders who hold its shares or ADS. Also, if the offshore company goes to bankruptcy, not the U.S. bankruptcy code should be applied, it is the offshore country's bankruptcy law will be applied. If you get the judgments favor of you as a shareholder, however, there is also uncertainty as to whether the courts of the Cayman Islands would recognize or enforce against the offshore company, its directors.

3. Another thing is about of the related parties transactions ,the assets pledge or mortgage and the controlling shareholders or the actual controlling person, together with the bank relationships.