Provisional
Regulations of the Ministry of Foreign Trade and Economic
Cooperation on Certain Issues Concerning the Establishment
of Companies Limited by Shares with Foreign Investment
Article 1 In order to further expand
international economic co-operation and technological
exchange, to absorb foreign investment and to promote
the development of socialist market economy, foreign
companies, enterprises and other economic organizations
or individuals (hereinafter referred to as foreign shareholders)
may incorporate themselves into a company limited by
shares with foreign investment (hereinafter referred
to as the company) with Chinese companies, enterprises
or other economic organizations (hereinafter referred
to as Chinese shareholders) within Chinese territory
on the principle of equality and mutual benefit.
Article 2 In these Regulations, the
term "a company limited by shares with foreign
investment" refers to an enterprise legal person
established in accordance with these Regulations, with
the entire capital being divided into shares of equal
value, where the shareholders bear responsibilities
to the company to the extent of the number of the shares
they hold and the company bears responsibilities for
its debts with all its assets, and where the Chinese
and foreign shareholders jointly hold the company's
stock, with the shares subscribed and held by foreign
shareholders being more than twenty-five per cent of
the company's registered capital.
Article 3 The company is one of the
forms of enterprises with foreign investment and shall
be governed by the relevant laws and regulations of
the state concerning enterprises with foreign investment.
Article 4 The establishment of such
company shall be in conformity with the state industrial
policies concerning foreign investment. The state encourages
the establishment of production-oriented enterprises
using advanced technologies.
Article 5 The company may be established
by means of promotion or offer.
Article 6 The company set up by means
of promotion shall meet the conditions as provided for
in the Company Law on promoters, with at least one of
the promoters being a foreign shareholder. The company
established by means of offer shall meet the requirements
as provided for in the preceding paragraph, with at
least one of the promoters having records of continuously
making profits in the recent three consecutive years
prior to the offer. In case the aforementioned promoter
is a Chinese shareholder, the last three years' financial
statements audited by a Chinese certified public accountant
should be furnished. In case the aforementioned promoter
is a foreign shareholder, the financial statements audited
by a certified public accountant registered in its country
of residence should be furnished.
Article 7 The registered capital of
the company shall be the total share capital registered
with the registration authority and actually paid in.
The minimum amount of the registered capital of the
company shall be RMB 30 million, with the shares subscribed
and held by foreign shareholders being no less than
twenty-five per cent of the registered capital.
Article 8 The transfer of the shares
subscribed by the shareholders shall meet the conditions
stipulated in Article 7 of these Regulations. The promoters'
shares may be transferred after three years from the
date of registration of the company, subject to the
approval by the original examination and approval authority.
Article 9 After the promoters conclude
an agreement to establish the company, they may jointly
entrust one of them to handle all matters regarding
the application for setting up the company. The detailed
procedures are as follows:
(1) the applicant shall submit an application
for the setting up of the company, feasibility study
report, asset evaluation report, etc. to the competent
departments of the provinces, autonomous regions, municipalities
directly under Central Government and cities with independent
planning (hereinafter referred to as the competent departments)
where the applicant is located. Prospectus shall also
be submitted for the application of establishing a company
through offer of shares.
(2) the aforementioned documents, upon
examination by and with the consent of the competent
departments, shall be submitted, through the competent
departments, to the foreign economic and trade departments
of the same provinces, autonomous regions, municipalities
directly under Central Government and cities with independent
planning. Upon approval of the documents by foreign
economic and trade departments, the promoters shall
officially sign an agreement for the establishment of
the company and its articles of association. And
(3) the agreement for the establishment
of the company and the articles of association signed
by the promoters shall, upon examination by and with
consent of the foreign economic and trade departments
of the provinces, autonomous regions, municipalities
directly under the Central Government and cities with
independent planning, be submitted to the Ministry of
Foreign Trade and Economic cooperation for examination
and approval.
The Ministry of Foreign Trade and Economic
Cooperation shall decide to approve or disapprove it
within 45 days.
Article 10 All kinds of documents provided
by the promoters shall be written in the Chinese language.
Where all promoters consider it necessary, a foreign
language agreed upon by all the promoters can be used
simultaneously. However, the examined, approved and
effectuated Chinese version shall be authentic.
Article 11 The application for establishing
a company shall lay down the following:
(1) names, domiciles and the legal representative
of the promoters;
(2) name, domicile and aims of the company
to be established;
(3) method to establish the company,
total value of shares, share category, value per share,
proportion of the shares subscribed by promoters and
the scope and means of the offer;
(4) the production and management situations
of the promoters, including information about production
and management, assets and liabilities and profitabilities
in the recent three years (only applicable to promoters
who establish a company by means of offer);
(5) the fields of capital investment
and business scope of the company;
(6) time of the application, signature
of the legal representative of the promoters and official
stamp of the promoters' unit; and.
(7) other matters that need to be elaborated.
Article 12 The promoters' agreement
shall include the following main contents:
(1) names and domiciles of the promoters;
name, nationality, domicile and post of the legal representative;
(2) name and domicile of the company
to be established;
(3) objectives and business scope of
the company;
(4) means of establishment and structure
of the company;
(5) the company's registered capital,
total shares, share category and the number, form and
subscription period of the shares subscribed by promoters;
(6) rights and obligations of the promoters;
(7) liability for breach of agreement;
(8) application of law and settlement
of disputes;
(9) effectiveness and termination of
the agreement;
(10) time and place of signature of
the agreement, signature of the promoters; and
(11) other matters that need to be notified.
Article 13 After the promoters' agreement
to establish the company and the articles of association
are approved by the Ministry of Foreign Trade and Economic
Cooperation, the promoters shall, within 30 days, open
a special-purpose bank account with a bank by presenting
the certificate of approval issued by the Ministry of
Foreign Trade and Economic Cooperation. The promoters
shall make full payment in one installment of all the
shares subscribed within 90 days from the date of issue
of the certificate of approval. The promoters shall
undertake the joint and several liability for the subscription
before all the capital subscribed to the company by
themselves is paid. The promoters are also jointly liable
for the debts and expenses arising from actions to establish
the company if the company fails to be established.
Article 14 Where the company is established
by means of promotion, after the promoters have made
full payment for shares subscribed in accordance with
the provisions of Article 11, an election for the board
of directors and the board of supervisors shall be made.
The board of directors shall submit the document of
approval to establish the company, articles of association,
certificate of capital verification, etc. to the registration
authority and apply for the registration. Where the
company is established by means of offer, after the
full payment has been made for the shares issued, it
must be verified and given certificate by an authorized
investment verification organization. The promoters
shall within 30 days, hold the founding meeting of the
company and elect the board of directors and the board
of supervisors. The board of directors shall submit
document of approval, the company's articles of association,
certificate of capital verification, memorandum of the
founding meeting, etc. to the registration authority
to apply for the registration. The registration authority
shall complete the registration formalities and issue
the business licence within 30 days after it receives
all documents for registration.
Article 15 Where existing Chinese-foreign
equity joint ventures, Chinese-foreign cooperative joint
ventures and wholly foreign-owned enterprises (hereinafter
referred to as "enterprises with foreign investment")
apply to reorganize themselves into a company, the enterprises
with foreign investment must have a record of making
profits for the recent 3 consecutive years. The investors
of the original foreign investment enterprises shall
act as the promoters (or together with other promoters)
to sign the agreement for the set up of the company
and the articles of association and then submit them
to the original examination and approval authority in
the location of the original foreign investment enterprise
for preliminary examination and approval and onward
submission to the Ministry of Foreign Trade and Economic
Cooperation for final approval. The following documents
shall be submitted where an enterprise with foreign
investment applies for such reorganization:
(1) contract, articles of association
of the original enterprise with foreign investment;
(2) decision of the board of directors
of the original enterprise with foreign investment on
the reorganization of the enterprise;
(3) agreement of the investors of the
original foreign investment enterprise on the termination
of the original contract and articles of association;
(4) asset evaluation report of the original
enterprise with foreign investment;
(5) the promoter's (including but not
limited to the investors of the original enterprise
with foreign investment) agreement;
(6) articles of association of the company;
(7) business licence, certificate of
approval, and the financial report of the recent 3 consecutive
years;
(8) application letter for the establishment
of the company;
(9) the promoters' credit references;
and
(10) feasibility study report.
Article 16 After the foregoing applications
are approved by the Ministry of Foreign Trade and Economic
Cooperation, the promoters shall go through the procedure
of alteration of registration after the issuance of
approval certificate and full payment of the capital
shares subscribed.
Article 17 Upon the completion of the
formalities for the alteration of registration, all
the rights and obligations of the original enterprise
with foreign investment shall be fully assumed by the
company. The obligations committed by the Chinese and
foreign investors of the enterprise with foreign investment
in the original contract and articles of association
should be specified in the promoter's agreement and
articles of association and made applicable to the company
to be established.
Article 18 A state-owned enterprise
or a collectively-owned enterprise which applies for
reorganizing itself into a company shall meet the following
requirements in addition to other provisions as provided
for in these Regulations:
(1) the enterprise shall have an operational
period of no less than five years, and have records
of taking profits in the recent three consecutive years;
(2) shares of the enterprise as subscribed
with freely convertible foreign currencies and held
by foreign shareholders shall take more than twenty-five
per cent of the registered capital of the enterprise;
and
(3) the business scope of the enterprise
shall be in line with the state's industrial policies
for enterprises with foreign investment. The agreement
for the setting up of the company and the articles of
association signed by Chinese and foreign shareholders
as promoters shall be submitted to the local examination
and approval authority for preliminary examination and
approval and onward submission to the Ministry of Foreign
Trade and Economic Cooperation for final approval.
The following documents shall be submitted
in order to apply for the reorganization:
(1) asset evaluation report of the enterprise;
(2) application letter for the establishment
of the company;
(3) feasibility study report;
(4) promoters' agreement;
(5) the company's articles of association;
(6) business license and balance sheets
for the recent three consecutive years of the enterprises;
(7) credit references of the promoters;
and
(8) other necessary documents.
Article 19 Upon the approval by the
Ministry of Foreign Trade and Economic Cooperation for
the above mentioned application, the promoters shall,
after the issuance of the approval certificate and full
payment of the share capital subscribed, apply to the
registration authority for the alteration of registration.
Article 20 A company limited by shares
applying for reorganizing itself into the company shall
meet the following requirements in addition to other
provisions as provided for in these Regulations:
(1) the establishment of the company
limited by shares was duly approved by the State;
(2) the shares subscribed with freely
convertible foreign currencies and held by Foreign Shareholders
shall take more than twenty-five per cent of the company's
registered capital; and
(3) the business scope of the company
limited by shares shall be in line with the industrial
policies for enterprises with foreign investment.
Article 21 Where a company limited by
shares applies to reorganize itself into a company by
means of issuing Renminbi Special Shares (B Shares)
to the public, the following documents shall be submitted:
(1) the decision of the shareholders'
meeting on reorganizing itself into a company;
(2) asset evaluation report of the original
company limited by shares;
(3) application report on the reorganizing
itself into the company;
(4) agreement on the additions and amendments
to the articles of association of the original company
limited by shares;
(5) approval document from the security
administration authority on the public offer of Renminbi
Special Shares (B Shares); and
(6) other necessary documents.
Article 22 Where a company limited by
shares applies to reorganize itself into a company by
increasing capital and making public offer of new shares
or reverting to offering shares to be held by foreign
shareholders, it shall submit, in addition to the documents
set out in item (1), (2), (3) and (4) in the preceding
article, the share subscribing agreement entered into
between the company limited by shares and the specifically-targeted
subscriber (s) as well as other necessary documents.
Article 23 A company limited by shares,
which is listed and makes public offer of shares outside
the Chinese territory to foreign investors (including
but not limited to H shares and N shares) and applies
for the reorganization into the company, should submit
the following documents in addition to documents set
out in item (1), (2), (3) and (4) of Article 21:
(1) approval document from the security
administration authority on the overseas listing;
(2) approval document from the security
administration authority outside the Chinese territory
on the public listing of the original company limited
by shares; and
(3) transaction records of the overseas
listed shares of the original company limited by shares.
Article 24 Upon approval by the Ministry
of Foreign Trade and Economic Cooperation on the above
mentioned application, the original company limited
by shares shall apply for the alteration of registration
by presenting the approval document and the public offering
certificate to the administration authority for industry
and commerce.
Article 25 Other matters relating to
the company that are not provided for in these Provisional
Regulations shall be handled in accordance with the
Company Law and Special Regulations of the State Council
on Offer and Listing of Shares Outside the Territory
by Companies Limited by Shares.
Article 26 The tax holidays for tax
exemption and reduction etc. shall not be recalculated
for a company reorganized by an enterprise with foreign
investment.
Article 27 These Provisional Regulations
are applicable to the companies established with investment
by companies, enterprises, and other economic organizations
or individuals from the regions of Hong Kong, Macao
and Taiwan.
Article 28 The Ministry of Foreign Trade
and Economic Cooperation shall take charge of the interpretation
of these Provisional Regulations.
