Unveiling Offshore Companies and VIE Structures How to Define Actual Controllers?

Unveiling the Mystery of Offshore Companies and VIE Structures How is the Actual Controller Identified?

In today’s business environment, offshore companies and Variable Interest Entity VIE structures are widely used by multinational enterprises, especially those in the internet, technology, and finance sectors. These complex legal and financial structures are often employed to bypass regulatory restrictions in certain countries while enabling global business expansion. However, such arrangements also raise questions about the of actual control, particularly in legal disputes or tax investigations. Determining who the true decision-maker is has become an important issue.

An offshore company refers to one registered abroad, whose actual operations may not fully depend on the market conditions of that country. The VIE structure, on the other hand, achieves this through a series of contractual arrangements, allowing a company to nominally operate under another country's legal system but actually be controlled by its parent company or major shareholders. For instance, Alibaba Group uses a VIE structure to list on the U.S. stock market, even though most of its business activities take place in mainland China.

For investors, understanding the identity of the actual controller is crucial as it directly affects their comprehension of corporate governance and assessment of potential risks. When dealing with cross-border transactions, identifying the real decision-makers becomes even more complicated. Due to differences in legal regulations across jurisdictions, sometimes what appears to be a subsidiary of a foreign company might actually be controlled by a citizen of the home country.

To better understand this issue, we can refer to specific cases. For example, in 2025, JD Health, a leading e-commerce giant in China, successfully listed on the main board of the Hong Kong Stock Exchange. As an independent operational entity under JD.com, JD Health also adopted the typical VIE model to meet its international development needs. In this case, although JD Health is nominally a Hong Kong-registered enterprise, its ultimate beneficial owner remains Liu Qiangdong, a native Chinese, and he is also the actual leader of the entire JD Group.

So, how should the actual controllers of offshore companies and their associated VIE structures be identified? First, it must be clear that actual control does not merely mean owning a specific percentage of shares; more importantly, it involves key individuals or institutions that can influence daily operations and major decisions of the company. This includes, but is not limited to, board members, senior management, and other influential third-party partners.

Secondly, in practice, countries often establish corresponding judgment standards based on relevant laws and regulations. For example, under the requirements of the U.S. Securities and Exchange Commission SEC, publicly listed companies must disclose information about individuals or groups that directly or indirectly hold 5% or more of the company's shares. For privately held companies, this can be achieved through in-depth analysis of articles of association, shareholder registers, and related contract documents.

With the development of financial technology in recent years, more companies are beginning to use blockchain technology and smart contracts to enhance transparency and credibility. This means that in the future, there may be more advanced tools and technical means to help identify the real controllers hidden behind complex networks.

In conclusion, unveiling the mystery of the actual controllers of offshore companies and VIE structures is no easy task, but it is an indispensable part of ensuring the fairness of capital markets and protecting investors' rights. Only when we have sufficient knowledge background and sharp insight can we effectively address this challenge and contribute to building a healthier and more stable global economic order.