Silicon Valley Legal Bible（20）Pinduoduo, Temu shareholding structure in-depth analysis

Temu, which entered North America in the second half of 2023, sponsored the Super Bowl in the U.S. Look at the Americans around us, everyone's cell phone is loaded with Temu's client at some point, and they all place their orders for food, clothing, housing, and transportation on Temu. Pinduoduo (Pinduoduo), a latecomer to the market, is not to be underestimated. The global headquarters is located in Ireland, and the U.S. headquarters is located in Boston, this unique approach also makes people can not help but wonder why such a design. Today we'll take a look at the global structure of Pinduoduo.

Silicon Valley's 42 chapters, a customized legal encyclopedia for founders. I'm Liu Xiaoxiao, a U.S. attorney, and I'm here in Silicon Valley to provide you with an in-depth explanation of the legal logic behind entrepreneurship.

1. Architecture Overview

Let's take a look at the general architecture diagram of Pinduoduo, which is a typical VIE structure. Some people will start to raise the bar, "Didn't you tell us every day, Mr. Liu, that you don't want VIEs?" I need to emphasize, VIE structure is not can not be used, but can not all people open the company directly do VIE structure. If all your business, investors, founders are in China, and you want to come to the U.S. listing, then only through the VIE this road, but the U.S. Securities and Exchange Commission on this structure is now very strict review, resulting in this road is now exceptionally difficult.

So we can not generalize everything.

From the architectural diagram, PDD Holdings Inc. controls two wholly foreign-owned enterprises (WFOEs) through HongKong Walnut Street Limited (HongKong Walnut Street Limited), Shenzhen Qianhai Xinzhijiang Information Technology Co. Information Technology Co., Ltd. in Qianhai, Shenzhen, and Hangzhou Weimi Network Technology Co. Ltd. and Hangzhou Weimi Network Technology Co., Ltd., which in turn controls the operating entity Hangzhou Aimi Network Technology Co. This routine should be too familiar to be true.

Here are a few differences in the structure of Pinduoduo compared to the traditional VIE structure.

2. Why set up a Singapore company

We will notice that there is a Singaporean company under the corporate structure of Pinduoduo (Pinduoduo), which is called Elementary Innovation PTE, which is also a very straightforward name, simply called Elementary Innovation.

Some people look at it and get excited:

"Look, Poundland also opened a Singapore company."

"Singapore has become the new Cayman."

"In the future, multinational companies will have to set up Singapore companies."

Such and such, such and such remarks have started again.

In fact, Pinduoduo (Pinduoduo) opened this Singapore company is purely a technology research and development company, what? What scientific research in Singapore? Because of Singapore's limited land, the locals pay more attention to innovation in agriculture, vertical agriculture, urban agriculture, high-density aquaculture and other aspects of the world's leading. In fact, has always been, Pinduoduo (Pinduoduo) is not only a sell goods, it is also very focused on agricultural research, actually have more agricultural research science and technology competitions as well as tens of billions of agricultural research special such activities. Pinduoduo (Pinduoduo) chose to open a company in Singapore purely to take advantage of Singapore's agricultural research and development capabilities.

Surprised? Surprised? This Singapore company has nothing to do with multinational hubs or any provincial taxes, but purely for agricultural R&D. So don't be dazzled by the sight of Singapore, thinking that you have discovered the secret of martial arts, in fact, there is no such thing as magic and shortcuts, many times due to the reality of the situation.

3. Why change your domicile to Ireland

How many people have said, oops, Pinduoduo (Pinduoduo) put the headquarters to Ireland, is there any special purpose again?

This, indeed, is a little bit.

Ireland is the largest tax haven in Europe, with a corporate income tax rate of 12.5%, compared to the US corporate tax rate of 21% and China's corporate tax rate of 25%. There are many tax havens, Cayman is a tax haven, Singapore is a tax haven, why Ireland? The special thing about Ireland is that it provides various tax incentives for innovative companies, including patent tax incentives, R&D tax incentives, etc. For example, Ireland provides tax incentives for intellectual property related income. For example, Ireland only levies a 6.5% tax on intellectual property-related income. Ireland also has a transfer pricing policy that allows companies to shift profits from high-tax countries to low-tax countries. That's why high-tech companies like Apple, Google, and Facebook have their global headquarters in Ireland.

Then some people will say, Pinduoduo (Pinduoduo) such an e-commerce platform, how to feel with the intellectual property rights of the eight poles hit it. What did we just say? Agriculture. In recent years, Pinduoduo has invested heavily in agricultural R&D and innovation, and has launched the strategy of "Agricultural Goods on the Market", hoping to bring agricultural products directly from producers to consumers through e-commerce platforms. Isn't it quite chic? In fact, think about it, Pinduoduo (Pinduoduo) as an e-commerce platform for the latecomer, in addition to purely compete in the price war, at least there are some special unique skills to maintain customers. Taobao rely on first-mover advantage, Jingdong rely on logistics, Xiyin (SHEIN) rely on fashion, jitterbug (Douyin) rely on algorithms, then Pinduoduo (Pinduoduo) should also want to think of a little bit of a rut it, so it is from the agriculture of a surprise victory.

4. Temu U.S. headquarters set up in Boston:

Pinduoduo (Pinduoduo) this is also very peculiar, other Chinese overseas companies are basically in California, New York, these places to set up headquarters, why Pinduoduo (Pinduoduo) to set up in Boston? Public information can not see any content, but we reasoned down, should still be with Pinduoduo (Pinduoduo) focus on agricultural research and development. Friends who know something about Boston know that Boston is really one of the important biomedical centers in the United States and the world, which will provide a solid foundation for Pinduoduo's agricultural research.

5. Difference between Pinduoduo's and ByteDance's global structures

Having said that, let's also compare the differences in the corporate structures of both Pinduoduo and ByteDance. Both started out in the Chinese market with a typical VIE structure, but there are some differences:

5.1 ByteDance's global footprint is larger and more complex, while Pinduoduo is simpler in comparison.

5.2 Pinduoduo has moved its headquarters to Ireland, while ByteDance remains in Cayman, for reasons explained earlier.

5.3 Pinduoduo's U.S. headquarters is directly a U.S. Delaware corporation; whereas ByteDance is held through a Cayman subsidiary with operating entities in different countries, including the United States. We believe that this aspect is mainly due to two factors, one is that Temu's business in the United States is not yet as much as Tiktok's, and does not need so many subsidiaries in charge of different businesses, and the other point is that Temu is mainly oriented to the U.S. business, while Tiktok is oriented to be global.

Silicon Valley Treasure Trove Forty-Two Chapter Sutra, a legal encyclopedia customized for founders. I'm U.S. attorney Liu Xiaoxiao, and I'll see you in the next installment.