Establishing family trusts with tradable A-shares

Cases of major shareholders of overseas listed companies holding shares through family trusts has been quite common for some time, with relatively famous cases being those of Longfor Properties and SOHO China. Due to the restrictions imposed by relevant regulatory rules, the shareholders cannot, in the course of getting listed on A-stock markets, directly hold shares of companies in the form of trusts.

In recent years, with the increasing number of high net worth individuals (HNWIs), certain shareholders of listed companies have requested that they be permitted to place the listed company stock that they hold in a family trust. The author believes that is feasible, despite certain restrictive requirements in laws and in practice, and there are now some examples of success.

In terms of the design of the trust structure, the shareholder of the listed company may initiate a trust as sole trustor, and such a trust may invest into one or two levels of special purpose vehicles (SPV). It would be ideal and easier for the operation to entrust the negotiable shares of listed companies into the trust directly. However, the establishment of a trust does not satisfy the conditions for the transfer of shares without floor trade or off-board trade.

Ouyang Fangfei is a partner at Merits & Tree Law Offices