LOS ANGELES (MarketWatch) — Alibaba Group’s filing for an initial public offering is the news of the day, with many U.S. investors eager to grab their piece of the Chinese Internet boom.

And Alibaba’s position in the market is no doubt appetizing: For instance, its Taobao and Tmall sites are said to account for 80% of all Chinese online retail traffic, which in turn was valued at close to $300 billion in 2013, according to a Wall Street Journal report citing iResearch data.

The problem, however, is that investors buying New York-listed shares in Alibaba won’t actually have title to Taobao, Tmall or any of Alibaba’s Chinese assets.

This is because Chinese law forbids foreigners from owning strategic assets in the country, and Alibaba wouldn’t be able to keep its licenses if, say, a U.S. hedge fund directly bought into the e-commerce leviathan.

To get around this, Alibaba is using a structure known as the “variable-interest entity,” a method already employed by many Chinese tech firms that list in the U.S., such as Baidu Inc. BIDU, -0.00% .

Basically, the Alibaba stock will buy you a stake in a Cayman Islands-registered entity which is under contract to receive the profit from Alibaba’s lucrative Chinese assets but will not actually own them.

Alibaba files IPO in the U.S.

And who will own them? Alibaba founders Jack Ma and Simon Xie, according to a post on the New York Times Dealbook blog.

“Such a structure means that if shareholders in the United States want to enforce their rights, they will have to do so based on contracts between a Cayman Islands entity and a mainland China-based one,” writes Ohio State University professor Steven Davidoff in the Dealbook blog.

None of this is to imply that Ma and Xie plan to rip off investors, pulling the Taobao out from under them, so to speak. The real risk appears to be on the shaky legal foundations of the variable interest entity (VIE) structure.

In its Securities and Exchange Commission filing, Alibaba admits that while its Chinese lawyers at Fangda Partners believe the VIE conforms to China’s laws, this could change.

“It is uncertain whether any new PRC [People’s Republic of China] laws, rules or regulations relating to variable-interest entity structures will be adopted, or if adopted, what they would provide,” the filing says.

“If we or any of our variable-interest entities are found to be in violation of any existing or future PRC laws ... the relevant PRC regulatory authorities would have broad discretion to take action in dealing with such violations or failures,” it says.

Bill Bishop, a China consultant and publisher of the Sinocism China Newsletter, says the VIE and associated problems could prove to be the biggest issue for U.S. investors. (Full disclosure: In a past incarnation, Bishop was also one of the founders of MarketWatch.)

Those in the U.S. buying into Alibaba and other Chinese tech stocks “tend to overlook some of the risks in these companies, including their ownership structures,” Bishop said.

Still, the fact that the likes of Baidu, Sohu SOHU, -0.05% and Sina SINA, -0.49% are already fixtures on the U.S. market suggests that it may not be such a worry to trust your capital to the Chinese tech sector simply because investors have less control than they would with firms domiciled in the West.

“It’s like sitting in economy class in a flight over the Pacific — it’s all out of your hands, it’s up to the pilot,” Bishop said.

On the other hand, it’s not always smooth sailing when East meets West on the markets.

For example, when Alibaba shifted its crucial Alipay unit (a major online-payment business, roughly equivalent to PayPal in the U.S.) in 2011 from the company to a separate entity controlled by Ma, Alibaba shareholder Yahoo Inc. US:YHOO was furious.

Eventually, a deal was worked out that reportedly satisfied Yahoo and top Alibaba shareholder Softbank Inc. 9984, -1.08% SFTBF, -1.33% of Japan, but it took some time and plenty of negotiating.

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