Code Chain New Continent (NASDAQ:CCNC) stock is soaring 102% today after the China-based company announced a broad, new deal with another Chinese company, Shanghai Highlight Media. Under the transaction, Shanghai Highlight will receive 9 million shares of CCNC stock. Additionally, the transaction calls for Code Chain’s subsidiary, Shanghai-based Makesi IoT Technology, to form a “variable interest entity,” or VIE, in partnership with Shanghai Highlight.
Code Chain is involved in the “Internet of Things (IoT) and [creating] electronic token digital door signs.” The latter business consists of “the digitalization of a physical store.” Additionally, the company makes tokens that can be used to purchase virtual real estate.
The Agreements Between Shanghai Highlight and Makesi
According to Code Chain, its subsidiary, Makesi, made “a series of VIE Agreements” with Shanghai Highlight on Sept. 16. Under these deals, Makesi and Shanghai Highlight have formed a “VIE structure,” CCNC reported.
A VIE is “a legal business structure in which an investor has a controlling interest despite not having a majority of voting rights,” according to Investopedia. The structure is often used by Chinese firms to obtain foreign investment while satisfying Chinese regulations on capital inflows from overseas entities.
Code Chain refers to the “VIE structure” as an “acquisition,” but it is not clear if Shanghai Highlight is actually acquiring Makesi under the deal.
CCNC Stock: More About the Deal
The agreements require Shanghai Highlight to extensively utilize services — including “consultation services” related to “human resources, IT and intellectual properties” — provided by Makesi. The latter provision will last for at least 20 years unless it’s terminated by Makesi first.
Under the agreements, if Shanghai Highlight fails to uphold its end of the contracts, Makesi would be entitled to sell all of Shanghai Highlight’s stock. Shanghai Highlight’s shareholders pledged all of their stock in the latter company to Makesi, CCNC explained.
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On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.