[co-author: James Alford]
On December 20, 2021, the US Securities and Trade Commission’s Division of Company Finance (“Division”) issued the Sample Letter (“Letter”) to businesses centered or obtaining the bulk of their functions in the People’s Republic of China (“China-dependent Companies”). The Letter requires China-primarily based Organizations to disclose in their community filings “more notable, specific and tailored” risks affiliated with investing in these providers in compliance with their disclosure obligations beneath the federal securities legal guidelines and to allow investors to make educated investment decisions.
In the Letter, the Division provided a sample remark letter to a China-based Firm identifying the kinds of disclosures that need to be dealt with, together with the suitable threats and the likely impacts on these kinds of company’s functions. These concerns involve, (i) the corporate structure of the China-dependent Corporation, (ii) the marriage concerning the entity conducting the featuring and the entities conducting the working functions, (iii) the operations performed by subsidiaries and via contractual preparations with a variable curiosity entity (“VIE”) based in China, (iv) potential affect if VIE structure were disallowed or the contracts have been established to be unenforceable, (v) the prospective effect of the Holding International Businesses Accountable Act and associated guidelines in the listing and trading of its securities, (v) authorization or approval essential to be attained from Chinese authorities to function its organization or present securities to overseas buyers, (vi) how funds is transferred within just the group and (vii) the Chinese government’s important oversight and discretion around the carry out of the company’s organization.
For SPACs, the Division calls for them to also disclose (i) if their sponsor/s or govt business office/s are in China or have important ties with China, (ii) if considering to merge with a corporation incorporated in China, (iii) what issues SPAC buyers could face in implementing their rights beneath the SPAC’s controlling agreements with the VIE, (iv) any effect Chinese legislation or regulations may well have on the SPAC’s potential to consummate a business blend with an working business in China and (v) the dollars flows connected with the business enterprise combination.
A duplicate of the Letter may possibly be considered below.