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Provisional Regulations of the Ministry of Foreign Trade
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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.

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