Success heart method: Clever and balanced equity structure, help "Ne Zha 2" to achieve 10 billion box office miracle

PART/1 Introduction

In the Spring Festival of 2025, the domestic animated film Nezha's Evil Child Nao Hai (hereinafter referred to as "Nezha 2") has become a dark horse at the box office of the Spring Festival with its unique charm and shocking visual effects. The film not only shocked the release with its amazing production standards, but also created a number of new box office records in Chinese film history. As of 15:38 PM on February 17, Ne Zha 2 has topped 12 billion yuan in total box office (including preview screenings and pre-orders), topping China's box office and just one step away from surpassing Inside Out 2, which ranks first in the global box office of animated films.

According to Maoyan's production and distribution materials, Nezha 2 is mainly produced by Chengdu Keh Bean Animation Film & Television Co., LTD. (hereinafter referred to as "Chengdu Keh Bean Company"), Chengdu Free Realm Culture Media Co., LTD., and Chengdu Light Animation Co., LTD. Among them, Chengdu Cocoa Bean Company and Chengdu Free Realm Culture Media Co., Ltd. are all controlled by director Yang Yu (also known as the film's director "Jiaozi") as major shareholders, while Chengdu Enlight Animation Co., Ltd. is controlled by Beijing Enlight Media Co., LTD. (hereinafter referred to as "Enlight Media"). From "Ne Zha 1" to "Ne Zha 2", Enlight Media, as the main producer and distributor, has been deeply involved in the production and promotion of the film, and its market value has soared as A result, becoming a "dark horse" in the A stock market.

With the success of Ne Zha 1, director Jiao Zi has moved from being an animation creator to dominating the overall planning and operation of film projects. Here's an in-depth look at the equity structure behind Ne Zha 2, and how these companies have turned a traditional fairy tale into a box office behemoth for the modern film industry.

PART/2 Analysis of the equity structure of the producer of Nezha 2

1. "Holding company - project company" structure to realize risk isolation and tax planning

Chengdu Cacao Bean Company is one of the main producers of Nezha 2, and Horgos Cacao Bean Animation Film & Television Co., LTD. (hereinafter referred to as "Horgos Cacao Bean Company") is the wholly-owned shareholder of Chengdu Cacao Bean Company.

(1) Use the project company wisely to realize risk isolation

Implementing specific projects through the mode of "holding company - project company" can play a role in "vertical and horizontal" risk isolation. For example, when the project company borrows to operate the project, but goes bankrupt due to insolvency, the holding company generally assumes responsibility for the debts of the project company only within the scope of its contribution. If different projects are operated by different project companies, the risks between different projects can also be isolated. When the holding company has disputes at the shareholder level due to equity changes and other reasons, the disputes can also be isolated at the holding company level to reduce the impact on the operation of the project company.

(2) Tax planning through preferential tax policies

The Ministry of Finance and the State Administration of Taxation have issued Finance and Taxation [2011] No. 112, stipulating the preferential tax policies available to enterprises in special economic development zones such as Khorgos. Khorgose Cocoa also briefly adopted the shareholding structure of four Chengdu companies from July 2019, and penetrated upwards to companies registered in Hainan, where regulatory policies allowed for tax planning. However, it should be pointed out in particular that since April 2023, due to the tightening of regulations, it has been difficult to obtain tax incentives by registering shell companies in tax basins such as Khorgos, because current tax incentives often require companies to substantially operate in the local area.

2. The game between the founder and the capital side, the balance between the right of control and the right of profit

The founder is the soul of a project. In Ne Zha 2, director Jiao Zi, also known as Yang Yu, holds a 56% stake in Khorgos Cocoa Beans, reaching relative majority control, and also serves as the company's chairman; Another member of the founder team, Liu Wenwen (cofounder of Cacao Beans), holds 14% and is also a member of the board of directors, so that the founder team basically realizes the control of the entire project management rights, and the shareholding ratio reaches 70% absolute control. Enlight Media holds 30% as an investor, and the Board of Directors appoints a director to represent the investor.

(1) The absolute control of the founder

At the shareholders' meeting level, assuming that the above three parties have not made a special agreement on the proportion of voting rights, and the founder team Yang Yu and Liu Wenzhang agree on the voting matters, they can pass the statutory special majority that requires more than two-thirds of the shareholders to vote on the matters, including but not limited to amending the company's articles of association, capital increase, capital reduction, merger, division, dissolution and change of the company's organizational form; For other matters, including the distribution of profits, only more than half of the shareholders need to vote to pass, so in theory, as long as Yang Yu agrees, you can make matters requiring more than half of the shareholders' resolution.

At the board level, the founder team occupies two of the three directors, and as long as Yang Yu and Liu Wenwen agree, they can directly influence business decisions in most cases. For example, when Nezha's "smoky eye" was questioned, the founder team could fight back, thanks to the parties' arrangements for decision-making rights in advance.

However, in practice, for matters requiring industrial and commercial registration/filing, if the resolution of the shareholders' meeting or the board of directors of a limited company fails to be passed by all, it may face obstacles in handling industrial and commercial registration/filing procedures. In case of deadlock or disputes in the company's decision-making, the relevant registration/filing can be promoted through litigation.

(2) The capital realizes the majority of income rights

From the perspective of investors, if the investors do not make a special agreement on the above-mentioned amendment of the articles of association, capital increase and profit distribution ratio, it is difficult to effectively protect the interests of investors. In fact, according to the profit forecast of the box office division disclosed by the Enlight Media announcement, after deducting the relevant tax costs, Enlight Media may have made a special agreement with Yang Yu and Liu Wenwen in terms of profit distribution ratio, not to distribute profits directly in accordance with the proportion of investment, but to distribute profits in accordance with the proportion of about 6:4.

(Note: After deducting the relevant taxes, distribution agent fees, production costs and income shared with the cinema party, the estimated profit distribution ratio between the two parties may be about 6:4, subject to the specific agreement of the parties)

As a supporting guarantee, in order to prevent controlling shareholders from abusing their voting rights to modify other provisions of the articles of association such as the fixed profit distribution, investors generally need to have the right of veto over the amendment of specific provisions of the articles of association. In addition, for major business decisions, such as capital increases, mergers, classifications, dissolution, etc., special agreements on the voting rights of investors or their directors are also common provisions in investment agreements.

3. When natural persons directly hold shares, how to achieve the optimal solution of income

As of the date of publication of this article, the information retrieved through public channels shows that Yang Yu, a natural person, directly holds 56% of the shares of Horgos Cocoa Bean Company. The popularity of Nezha 2 has led to a surge in Enlight Media's share price and a predictable increase in the equity value of the Cocoa company system. At this time, in general, if natural persons want to make a quick profit through the transfer of equity, they will enjoy a lower tax rate and fewer taxation links than the legal shareholders who transfer shares and pay dividends to natural person shareholders:

(1) The natural person's share transfer income shall be subject to personal income tax at 20% (withheld by the acquirer), but the corporate shareholder's share transfer income shall be subject to corporate income tax at 25% (without withholding) in the absence of tax incentives;

(2) If the legal shareholder is a non-listed company and distributes the proceeds of the transfer to the natural person shareholder by way of dividend, the natural person shareholder shall also pay personal income tax on the dividend income at 20%.

However, corporate shareholders can use the proceeds of the conversion to make up for losses to reduce taxable income, and may also obtain more tax savings through tax incentives, so it is necessary for investment parties to hire professional advisers in advance for equity structure planning.

PART/3 "Method of Accomplishing Tasks" for Major Projects

The complex equity design and interest balance mechanism behind Ne Zha 2 not only ensures that the main creative team has a greater say in the production and distribution of the film, but also guarantees the investors' demand for profits. The birth of this phenomenon is inseparable from the precise division of copyright income, decision-making authority and risk through the flexible and dynamic equity structure design.

In the "high investment - high return" major projects such as artificial intelligence, science and technology research and development, biomedical, construction engineering, project participants often face multiple demands conflict, the founder hopes to always grasp the decision-making power of the project, investors require financial return and risk cover, the core team expects long-term incentives. Therefore, in practice, we usually recommend clients to design a variety of different equity structures such as limited partnership structure and mixed share structure to meet the needs of different projects and project participants.

However, the phenomenon of Nezha 2 is rare after all, in most cases, we also found that many investors or entrepreneurs in the early stage of the project, do not pay attention to the equity structure and risk isolation of the project, and even in the dividend tax is not considered, and finally in the dispute after the hope of litigation relief, and even pay a heavy price.

The rebellious image of Nezha of "My life is by me not by heaven" is charming, but do not be too willful in business cooperation! Rather than pay the high "cost of correction" after the conflict breaks out, it is better to nip the problem in the bud at the beginning of cooperation. We believe that when investing in a major project, the feasibility and rationality of the plan should be demonstrated and discussed in advance, and the common achievements in business and reputation should be achieved through a reasonable and balanced equity structure design, which is the only way to succeed.