Service 03 — Equity design
Where your equity sits decides your withholding tax, your control rights and who can buy you later. We design the chain before it hardens — and fix it when it already has.
Typical engagement
We work alongside your offshore counsel; the China-side implementation is ours.
A China investment usually has two structures: the one on the licence, and the one the group actually operates through. When they diverge, the gap shows up in tax leakage, blocked repatriation or a diligence finding that reprices the deal.
We start from your ownership reality — who the ultimate beneficial owners are, where the capital came from, what the exit looks like — and test it against four constraints: foreign investment access, dividend withholding, capital gains on transfer, and administrative burden in each jurisdiction involved.
The output is a written structure with an implementation sequence: which entity is formed first, which registrations gate which transfers, and what must be filed with the tax authority and SAFE before a single share moves. Founders who skip this step usually pay for it twice — once in tax, once in legal fees to unwind it.
Common mistake
Registering the WFOE under the founder’s personal name because it is faster, then discovering the offshore round requires a shareholder change, a new bank file and a fresh SAFE registration.
Most structures use two or three of these. Which ones — and in what order — is the whole engagement.
We map ownership from the ultimate beneficial owner down to the operating company, then rebuild it where the chain creates withholding leakage, blocks a future exit, or leaves control with the wrong entity.
Where a sector remains restricted for foreign ownership, a variable interest entity can replicate economic exposure through a set of contracts. We design, document and stress-test the arrangement — and tell you when it is the wrong tool.
Founders and key staff usually hold through a domestic limited partnership rather than directly. We size the pool, choose the jurisdiction, and draft the partnership and incentive documents so vesting is enforceable.
Foreign individuals and funds need the right registration before shares move: SAFE registration for round-trip investment, ODI filing for outbound capital, and treaty positions that hold up under beneficial-ownership review.
Structure, layer by layer
A structure that works on paper and a structure that survives diligence are not the same thing. Every layer above must be justified by something — financing, treaty access, or a licensing constraint — otherwise it is cost without benefit.
Details anonymised; figures verified with client permission.
RMB 42m
A Hong Kong family vehicle held four mainland companies through three intermediate layers with no commercial purpose. We collapsed the chain to a single HK holding company, documented the restructuring rationale and completed the equity transfers with the tax authority’s clearance inside one quarter.
200 staff
A Series-B SaaS company had promised equity to 200 employees with no platform, no plan rules and no tax position. We established two limited partnerships, drafted the incentive plan and vesting schedule, and moved 18% of equity into the pool without disturbing the cap table.
2 contracts
An edtech client assumed it needed a VIE. After reviewing the activity against the negative list, a licensed WFOE with a service scope achieved the same economics without the enforceability risk — a saving of both legal cost and investor diligence time.
Five stages, each with a document you can show an investor or a bank.
Working with your advisers
We coordinate with offshore counsel, auditors and bankers, and take responsibility for everything filed inside mainland China.
We collect the current ownership map, shareholder agreements and funding plan, then define what the structure must deliver: control, exit route, tax efficiency or financing flexibility.
Two or three candidate structures are modelled for dividend withholding, capital gains on exit, and administrative burden. You see the numbers, not adjectives.
Shareholder agreements, articles, partnership deeds, VIE contract suites and board resolutions are drafted together so the documents do not contradict each other.
Registrations with the market regulator, tax authority and SAFE, plus bank updates. We handle sequencing so no transfer completes before its approval.
Structure maintenance is not passive: treaty positions, capital commitments and platform distributions all need annual review. We fold this into the compliance retainer.
Equity work is priced on complexity, not hours. Each tier below is a fixed fee with a defined deliverable set.
Structure review
RMB 12,000one-off
A diagnostic of what you have, and what it will cost you later.
Structure design
from RMB 32,000per structure
A complete, documented architecture ready to implement.
Implementation
from RMB 48,000per project
We execute the structure, not just describe it.
Fees exclude government charges, notarisation, offshore legal fees and any tax assessed on transfers. VIE and pre-IPO restructurings are quoted after a scoping call.
Planning a round?
Structure changes are cheapest before term sheets. Talk to us at least a quarter ahead of a financing.
+86 400 098 9866Two reasons. First, the mainland–Hong Kong double tax arrangement can reduce dividend withholding from 10% to 5%, subject to beneficial ownership and substance tests. Second, Hong Kong company law and banking are familiar to international investors and make future financing or exits simpler. The 5% rate is not automatic: the Hong Kong company must have real substance, and the tax authority increasingly asks for evidence of it.
For genuinely restricted sectors it remains the only workable way to give foreign capital economic exposure, and it is still used. But it is a contractual arrangement, not ownership, and enforceability depends on the people who signed it. We only recommend a VIE after confirming the restriction cannot be resolved by a licensed WFOE, and we document it to a standard that will survive investor diligence.
It is the foreign exchange registration a Chinese resident individual must complete before holding equity in an offshore special-purpose vehicle that invests back into China. Without it, capital cannot be repatriated and the structure is exposed on exit. It should be filed at the time of the offshore investment, not retroactively at the point of sale, when it is far harder to fix.
Employee and founder equity is usually held through a domestic limited partnership because it separates voting control from economic participation, allows vesting and leaver provisions that company law cannot easily deliver, and concentrates tax events. The general partner — normally a company controlled by the founder — keeps voting control even after the pool is diluted.
Yes, but sequencing and tax clearance matter. Equity transfers between related parties are generally priced at net asset value with a documented rationale; a badly sequenced restructuring can create a 20% individual income tax liability on a paper gain. We usually plan restructurings before a funding round rather than after.
Do it before. The shareholder chain, registered capital and legal representative are baked into the licence and the bank file. Changing them afterwards requires a change filing, a new bank KYC cycle and, for capital changes, a fresh foreign exchange registration. Design first; the registration then implements a decision rather than pre-empting it.
Next step
Send the current shareholding structure and your next twelve months of plans. You will get a written view on withholding, control and exit readiness — before you commit to a structure.
