Essay about Bringing Students Together Case

2221 Words Apr 18th, 2015 9 Pages
The Enterprise Business Classification


BRIEF BACKGROUND

Six Chinese nationals of related parties (Nominee Shareholders) formed a business enterprise in the People’s Republic of China (PRC) that will own and operate private schools. The Nominee Shareholders own 100 percent of the equity in the Enterprise. A foreign entity (the SEC registrant) in the Cayman Islands establishes a WFOE domiciled in the PRC. The WFOE develops and maintains all of the property providing employees, resources, and other services to run the schools. The WFOE and Nominee Shareholders enter into an equity pledge agreement, call option agreement, and management service agreement. The Enterprise’s Board of Directors, comprising of Nominee Shareholders, manages
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Services will be provided to the Enterprise exclusively by the WFOE. The WFOE has the exclusive right to provide the intellectual property, employees, resources, and other services for the Enterprise’s schools. The Enterprise pays service fees to the WFOE for its use of the WFOE’s intellectual property and other services provided by the WFOE. These service fees are significant, can be adjusted at any time at the sole discretion of the WFOE, and are not subject to minimum or maximum amounts. The annual service fee amounts to substantially all of the net income of the Enterprise and effectively serves as the mechanism for the earnings of the Enterprise to be extracted by the WFOE. The Nominee Shareholders cannot terminate the agreement except for cause (i.e., breach of contract, law). The Nominee Shareholders will agree to enter into these arrangements in exchange for an equity ownership in the SEC registrant commensurate with that in the Enterprise. The business of the Enterprise (including the activities that have the most significant impact on the economic performance of the Enterprise) is managed by the Enterprise’s board of directors, which is composed of the Nominee Shareholders. The Enterprise’s senior management team reports directly to the board of directors and has the authority to lead the business operations, implement the decisions and plans adopted by the…

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