Chart of the Day: How Overseas-Based DouYu Can Run an Internet Business in China

Video-game livestreaming platform DouYu International Holdings Ltd. filed for a U.S. IPO earlier this week.

DouYu’s largest shareholder is internet giant Tencent Holdings Ltd., which holds 40.1% of the company through its wholly-owned subsidiary Nectarine Investment Ltd.

Like most other Chinese companies that list outside the country, DouYu uses a legal structure called a variable interest entity (VIE) to skirt rigid financial rules that prohibit foreign investment and ownership in some sectors, including the internet business.

In DouYu’s case, the company is incorporated in the Cayman Islands even though it primarily operates in China. Through a wholly-owned Hong Kong-based subsidiary that is owned outright by a unit based in the British Virgin Islands, DouYu controls a company called Wuhan Douyu Culture Network Technology Co. Ltd., located in its hometown of Wuhan, Central China’s Hubei province.

Wuhan Douyu has contracts with two VIEs — Wuhan Ouyue Online TV Co. Ltd. and Wuhan Douyu Internet Technology Co. Ltd. — whose primary purposes is that they hold licenses from regulators to operate in the domestic internet industry. Both VIEs are controlled by DouYu International’s founder and CEO Chen Shaojie.

Contact reporter Mo Yelin (yelinmo@caixin.com)