A “pyramidal” structure is common in family-dominated companies. Legally independent companies are controlled by the same family through a chain of ownership relations. The controlling shareholder — usually one who owns at least 20 percent of a company’s voting rights — exercises control of one company through ownership of at least one other listed company.

Such companies can operate legally and ethically, but that kind of structure led U.S. investors to be wary when Chinese Internet company Renren Inc. floated an IPO on the New York Stock Exchange in 2011.

As the investor website Motley Fool pointed out, the company offering shares in Renren was a Cayman Islands-based holding company. The operating company for Renren in China was actually Beijing Qianxiang Tiancheng Technology Development, which would continue to be 99 percent owned by the Renren CEO’s wife, a Chinese citizen.

A dual-class share structure, in which some shares have voting rights and others do not, also limited the influence of outside shareholders — a typical situation in family-dominated companies.

Despite those and other warning signs, Renren (RENN) raised $740 million at $14 per share.

The success of the IPO indicated that even red flags do not deter investors who think they have spotted a high-flying company. Soon, however, investor concern over accounting practices at Chinese firms took a toll on Renren, among other Chinese companies, and its share price dipped to $4.05 in early 2012.