The Practice and Enlightenment of Variable Interest Entity Structure in Luckin Coffee

This paper examines the Variable Interest Entity (VIE) structure through a case study of Luckin Coffee which analyzes its risks, regulatory challenges, and comparative advantages over franchising, joint ventures, and Red Chip structures. The VIE structure, initially developed by the Financial Accounting Standards Board during the event of Enron scandal, enables Chinese firms like Luckin Coffee to bypass foreign investment restrictions and access global capital markets via protocol control rather than holding equity right directly. However, the case reveals critical vulnerabilities, including legal uncertainties, cross-border supervision gaps, and data fraud risks, taking Luckins 2020 delisting due to financial misconduct as an example. Despite these risks, the study highlights the VIEs flexibility, tax efficiency, and adaptability to sensitive industries like technology, education and media, arguing that its stability relies on corporate integrity and transparent governance. The analysis concludes that while the VIE structure remains a double-edged sword, its strategic benefits for globalization outweigh inherent risks if coupled with stronger regulatory frameworks and ethical cognition.