Tycoon: From Rags to Riches

Chapter 179: Chapter 162: Equity Structure and Risk Isolation

10:00 AM. The city was bathed in a bright, clear light. The sky was the color of washed lapis lazuli, and the sun, having lost its morning coyness, had grown direct and fervent.

"VROOOM—!"

Accompanied by the deafening roar of an engine approaching, a red and black Lamborghini supercar emerged from the bustling traffic, finally pulling to a slow stop in an empty space by the main entrance of the Bund Center Building.

The cool scissor doors rose. Dressed casually and wearing sunglasses, Gu Heng stepped out of the car. His tall, straight posture, the flash of white teeth and red lips beneath his sunglasses, and the ten-million-yuan limited-edition supercar at his side drew the eyes of countless women.

"Mr. Gu, good morning."

Qin Ying, the Chief Strategy Officer of Deloitte China, had been informed of Gu Heng’s visit today and had come downstairs early to greet him. As she looked at Gu Heng now, a flicker of surprise passed through her eyes.

Compared to when she had first met him a few days ago, Gu Heng’s demeanor had changed drastically. He seemed more relaxed, more confident, more composed.

"President Qin, good morning."

Gu Heng took off his sunglasses, casually tucking them into his collar, and reached out to shake Qin Ying’s hand. "I’m surprised at how efficient you’ve been."

"Mr. Gu, you are Deloitte China’s most esteemed private client. Any of your requests are given the highest priority here. How else could we justify the trust you’ve placed in us?"

Qin Ying replied with a smile, a true master of the art of conversation.

To borrow a phrase from Lord Jing—

’Now *that* was smooth.’

The two exchanged pleasantries as they walked into the Bund Center Building.

Several senior managers from Deloitte China clustered around them. A top earner making millions a year was responsible for pressing the elevator button, a sight that made other white-collar workers in the Bund Center Building hesitate to even step inside.

The elevator ascended rapidly, soon arriving at the 33rd floor.

"Chairman Gu, our President Wang flew to Saint Petersburg yesterday. He was invited to attend an economic forum and won’t be back for about four days."

Qin Ying made an inviting gesture toward Gu Heng. "Before President Wang left yesterday, he specifically asked me to convey his apologies."

"It’s no problem."

Gu Heng waved his hand, his attitude casual.

As the Sect Leader of Deloitte China, it was no exaggeration to say Wang Shunfu was swamped with work on a daily basis. It would be stranger if he were just sitting around the Deloitte China headquarters drinking tea all day.

Led by Qin Ying, Gu Heng was shown into Deloitte China’s VIP room.

"Chairman Gu, good morning."

A middle-aged man was seated in the VIP room. He wore a white shirt with a light brown suit vest and silver-rimmed glasses perched on his nose, giving him a rather scholarly appearance.

Xu Ke, President of Deloitte China’s Private Client Services Group, a senior partner at Deloitte China, an honorary professor at Zhonghai University of Transportation’s Antai College of Economics and Management, and also the head of the joint service committee exclusively serving Gu Heng.

Gu Heng and Xu Ke had met in person once before; most of their communication had been by phone or WhatsApp.

Meeting again, they exchanged a few simple pleasantries and took their seats. Their tone and expressions were already quite familiar.

Gu Heng sat in the host’s seat, with Xu Ke and Qin Ying sitting on either side.

Everyone present was a person whose time was valuable, so naturally, they didn’t waste it on meaningless pleasantries and quickly got down to business.

"Mr. Gu, based on the scale of your assets and your need for risk isolation, we have designed an equity structure plan for you that complies with corporate law and tax regulations. Please take a look."

As Xu Ke spoke, he handed Gu Heng a file about half a finger thick.

"A dual-layer equity structure?"

Gu Heng opened the file. The first page was a clear and concise mind map, allowing him to see and understand the specific structure of this equity framework at a glance.

"Yes."

Xu Ke nodded. "Given that you control both high-value heavy and light assets, Mr. Gu, we have designed a dual-layer equity structure for you."

"First is the top-level structure, which is what people commonly refer to as a family office."

"This family office will be a limited liability company that you control 100%. In the future, it will serve as the vehicle for your family’s wealth succession, solely responsible for holding ownership of core assets. It will act as a holding platform for investments and will not be directly involved in operations, thus avoiding piercing risk."

Gu Heng listened to Xu Ke’s explanation as he browsed through the proposal.

As the amount of assets under Gu Heng’s control grew, building a family equity structure exclusively for him had become an urgent matter.

Most people’s impression of a family equity structure is usually limited to a superficial understanding of wealth succession. They think it simply provides a clear path for passing wealth to future generations.

In reality, the more significant purpose of a family equity structure is risk isolation.

A well-designed equity structure helps to separate personal risk from corporate risk, protecting the overall wealth from the operational risks of individual companies. It can also help avoid legal risks and compliance issues.

Gu Heng was only eighteen this year. Wealth succession was still a distant concept for him. Therefore, the aspect he valued most about the family equity structure was the benefit of risk isolation.

Every company has operational risks.

For example, Zhen Cui Group, which Gu Heng wholly owns, involves food safety risks.

Another example is Ruyi Airlines, in which Gu Heng holds shares, which involves flight safety risks.

And then there’s Xingchuan International, where Gu Heng is also a shareholder, which involves risks related to gray-market industries.

Risk is a landmine.

Once it goes off, at best you’re entangled in trouble; at worst, you could face prison.

In this situation, a reasonable and well-designed family equity structure is like a protective shield. If a landmine unexpectedly detonates, it ensures the person inside the shield remains safe and sound.

Avoid risk, pursue profit, and evade harm.

Since Gu Heng had a top-tier powerhouse like Deloitte China assisting him, there was naturally no reason not to make use of them.

The sooner it was built, the sooner he would benefit.

"Below the top-level structure is the risk isolation and capital operations layer."

"Here, we’ve designed a dual-firewall structure for you. They will hold your heavy and light assets separately."

Xu Ke continued to explain, "Firewall Company A, which will hold your heavy assets, will be 100% owned by your family office. It will bear the operational risks of your heavy assets. Meanwhile, Firewall Company B, which will hold your light assets, will control portfolio companies through a limited partnership structure, thereby bearing limited liability."

A firewall company, as its name suggests, has the primary functions of asset isolation and risk diversification. It separates family wealth from personal risk, ensuring that when risks arise, they are intercepted at this level and not passed further up the chain.

Compared to a traditional single-layer firewall, a dual-firewall structure is much more secure and stable. Gu Heng could barely follow the various professional mechanisms involved at first, but his head soon started to spin. It was like listening to gibberish.

And below the firewall structure was the layer of operating companies.

Zhen Cui Group, Beichun Junlan Hotel, Xingchuan International, and Ruyi Airlines were all operating companies, belonging to Firewall Company A and Firewall Company B respectively.

Among them, Zhen Cui Group and Beichun Junlan Hotel were 100% owned by Gu Heng, so there wasn’t much room for restructuring.

However, with Xingchuan International and Ruyi Airlines, Gu Heng only held partial equity and lacked absolute control. To address this, Xu Ke and his team designed a completely new holding structure for Gu Heng to better control these two companies.

In the future, Gu Heng would use a GP+LP model to hold his shares in these two companies.

In the world of venture capital, GP and LP are two important concepts, each representing different roles and responsibilities.

GP is the abbreviation for General Partner;

LP is the abbreviation for Limited Partner.

The GP usually takes on the role of manager, responsible for the company’s daily operations and investment decisions, and bears unlimited liability for the company’s debts.

LPs are primarily investors who provide capital. They do not participate in the company’s specific management or investment decisions. Their liability is limited, usually to the amount of their investment, which means that if the company encounters problems, the most they can lose is their investment amount.

Under this model, Gu Heng’s Firewall Company B would act as the GP, and his family office would act as the LP.

The former would hold 1% of the equity in the operating company, while the latter would hold 99%. Then, the two operating companies under this Firewall Company B structure would, through limited partnerships, hold 34% of Xingchuan International’s equity and 13.67% of Ruyi Airlines’ equity, respectively.

At the same time, a dual-class share structure would be added to ensure Gu Heng maintains permanent, absolute control over these two operating companies.

Listening to Xu Ke’s ceaseless explanation, Gu Heng had only one feeling at that moment:

’My brain itches!’

Countless pieces of information were passing through his head, but none of them were sticking.

LPs, GPs, dual-class shares, limited liability, unlimited liability... Gu Heng had never even heard of these things before. Furthermore, many of the financial terms were in English, and every time Xu Ke threw in an English phrase, Gu Heng’s already muddled head felt even more confused.

Fortunately, Qin Ying was by his side. She and Xu Ke had a clear division of labor.

Xu Ke was responsible for explaining the plan, while Qin Ying was responsible for providing detailed clarification.

"Chairman Gu, to further strengthen your control over the operating companies."

"We recommend you add special clauses to the operating companies’ articles of association: one giving the founder veto power over major issues, and another granting the founder the right of first refusal for share subscriptions."

"This way, even if your operating companies need to raise funds and bring in external capital in the future, you can still rest easy without worrying about losing control."

These last two special clauses were clearly aimed at the two operating companies under Firewall Company A, which Gu Heng fully controlled.

"Chairman Gu, would you like to take a break?"

Qin Ying raised her hand to check the time and asked Gu Heng softly, "There’s a very authentic local Shanghainese restaurant near our office."

"About how much is left?"

Gu Heng rubbed the bridge of his nose and asked Xu Ke.

"If we were to explain everything, it would take about three more hours."

Xu Ke glanced over the documents and gave a relatively conservative estimate.

"Let’s go."

"Time to eat."

Gu Heng gave Xu Ke a polite but strained smile, then turned his head to reply to Qin Ying.

"A man’s gotta eat. Lunch is important."

Qin Ying could see that Gu Heng was getting tired. She shot Xu Ke a look. "We can go over the rest of the plan after we get back from lunch."

The client’s needs came first, so of course, Xu Ke had no objections.

Afterward, they all stood up and walked out of the VIP room...

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