Laws and Regulations
Provisions on Acquisitions of Domestic Enterprises by Foreign Investors
Chapter I General Provisions
Article 1 For the purposes of promoting and regulating foreign investors' investments in China, introducing advanced technologies and management experiences from abroad, improving the level of utilizing foreign investments, realizing the reasonable allocation of resources, ensuring employment, as well as safeguarding fair competition and state economic security, these provisions are formulated pursuant to the laws and administrative regulations on foreign-funded enterprises, Company Law and other relevant laws and administrative regulations.
Article 2 The phrase "acquisition of domestic enterprises by foreign investors" as mentioned in the present provisions means that the foreign investor purchases by agreements the equities from the shareholders of a domestic non-foreign-funded enterprise (hereafter referred to as "domestic company") or subscribes to the increased capital of a domestic company, and thus changes the domestic company into a foreign-funded enterprise (hereafter referred to as "equity-based acquisition"); or, a foreign investor establishes a foreign-funded enterprise, and through which it purchases by agreements the assets of a domestic enterprise and operates its assets, or, a foreign investor purchases by agreements the assets of a domestic enterprise, and then invest such assets to establish a foreign-funded enterprise and operate the assets (hereafter referred to as "asset-based acquisition").
Article 3 To acquire a domestic enterprise, a foreign investor shall abide by the laws, administrative regulations, and rules of China, comply with the principles of fairness, reasonableness, compensation of equal value and good faith, and shall not cause over–centralization or practices which eliminate or restrict competition, disturb the social economic order, damage the public benefits, or result in any loss to the state-owned assets.
Article 4 To acquire a domestic enterprise, a foreign investor shall satisfy the requirements of the laws, administrative regulations, and rules of China concerning the qualifications of investors, and shall comply with the policies on the industry, land, environmental protection, etc.
For the industries where solely foreign-owned operation is not permitted by the "Guidance Catalog of Industries for the Foreign Investment", the acquisition shall not lead to the consequence of a foreign investor's holding all the equity rights of the enterprise; for the industries where it is required for a Chinese party to control or relatively control the shares, the Chinese party shall, after an enterprise in such industries is acquired, still control or relatively control the shares of the enterprise; for the industries where foreign investors are prohibited from operation, no foreign investor shall acquire any enterprise in such industries.
The business scope of the domestic enterprise being acquired shall comply with the requirements for the foreign investment industrial policies; if such requirements cannot be met, adjustment shall be made.
Article 5 If the acquisition of a domestic enterprise by a foreign investor involves the transfer of state-owned property rights of the enterprise and management of state-owned property rights of listed companies, the relevant provisions on the management of state-owned assets shall be followed.
Article 6 Where a foreign investor establishes a foreign-funded enterprise by acquiring a domestic enterprise, it shall, in accordance with these Provisions, obtain the approval of the examination and approval organ and modify the registration or go through the establishment registration in the registration administrative organ.
If the enterprise to be acquired is a domestic listed company, it shall, pursuant to the Measures for the Administration of Strategic Investment in Listed Companies by Foreign Investors, go through the relevant procedures with the securities regulatory institution of the State Council.
Article 7 All parties concerned to the acquisition of a domestic enterprise by a foreign investor shall pay taxes under Chinese tax laws and accept the supervision of the tax organs.
Article 8 All parties concerned to the acquisition of a domestic enterprise by a foreign investor shall abide by the laws and administrative regulations of China on the administration of foreign exchange. They shall timely go through the approval, register, archival filing and modification formalities in the foreign exchange administrative organs.
Chapter II Basic System
Article 9 For a foreign-funded enterprise established after acquisition by a foreign investor, if the foreign investor's proportion of investments exceeds 25% of the registered capital of this enterprise, this enterprise shall be entitled to the treatments of foreign-funded enterprises.
For a foreign-funded enterprise established after acquisition by a foreign investor, if the foreign investor's proportion of investments is less than 25% of the registered capital of this enterprise, this enterprise shall not enjoy the treatments to foreign-funded enterprises unless it is otherwise provided for by any law or administrative regulation. It shall follow the relevant provisions on borrowing foreign loans by non-foreign-funded enterprises when it borrows foreign loans. The examination and approval organ shall issue to it a Foreign-funded Enterprise Approval Certificate (hereafter referred to as the Approval Certificate) with the remark "The proportion of foreign investments is less than 25%". The registration administrative organ and the foreign exchange administrative organ shall respectively issue to it a Foreign-funded Enterprise Business License and a Foreign Exchange Register Certificate with the remark "The proportion of foreign investments is less than 25%".
Where a domestic company, enterprise or natural person acquires a domestic affiliated company in the name of an overseas company it lawfully established or controls, the foreign-funded enterprise so established shall not enjoy the treatments to foreign-funded enterprises, except that this overseas company subscribes to the increased capital of the domestic company or that it increases the capital of the enterprise established after acquisition and the proportion of the capital increase exceeds 25% of the registered capital of the enterprise so established. For a foreign-funded enterprise established in the forms as mentioned in this paragraph, if the proportion of investments made by a foreign investor, who is not its actual controller, exceeds the 25% of its registered capital, it shall be entitled to enjoy the treatments to foreign-funded enterprises.
The treatments to a foreign-funded enterprise which is established after a foreign investor acquires a domestic listed company shall be governed by the relevant provisions of the state.
Article 10 The term "examination and approval organ" as mentioned in the Provisions refers to the Ministry of Commerce of the People's Republic of China (hereafter referred to as the MOFCOM) or the provincial commerce administrative departments (hereafter referred to as the provincial examination and approval organs). The term "registration administrative organ" refers to the State Administration for Industry and Commerce (hereafter referred to as the SAIC) or its authorized local administrations for industry and commerce. The term "foreign exchange administrative organ" refers to the State Administration of Foreign Exchange (hereafter referred to as the SAFE) or its branches.
Under the provisions of laws, administrative regulations, and rules, if a foreign-funded enterprise established after acquisition falls within any special category or sector of foreign-funded enterprises which are subject to the examination and approval of the Ministry of Commerce (hereafter referred to as the MOFCOM), the provincial examination and approval organ shall forward the application materials to the MOFCOM for examination and approval. The MOFCOM shall make a decision of approval or disapproval in pursuance of law.
Article 11 Where a domestic company, enterprise or natural person intends to acquire its domestic affiliated company in the name of a company which it lawfully established or controls, it shall be subject to the examination and approval of the MOFCOM.
The parties concerned shall not circumvent the aforesaid requirements by making investments within China through the foreign-funded enterprise, or by other ways.
Article 12 Where a foreign investor intends to obtain the actual controlling rights of a domestic enterprise it plans to acquire, and if any key industry is concerned, or if it has an impact on or may have an impact on the national economic security, or it will lead to the transfer of the actual controlling rights of a domestic enterprise which holds a famous trademark or China Time-honored Brand, the parties concerned shall file an application with the MOFCOM.
If the parties concerned fail to apply, but its acquisition has had or may have a serious impact on the national economic security, the MOFCOM may, together with the relevant authorities, demand the parties concerned to terminate the transaction or transfer the relevant equities，assets or take other effective measures to eliminate the acquisition impact on the national economic security.
Article 13 For an equity-based acquisition by a foreign investor, the foreign-funded enterprise established after acquisition shall succeed to the credits and debts of the domestic company it acquires.
For an asset-based acquisition by a foreign investor, the domestic enterprise which sells its assets shall bear its former credits and debts.
The foreign investor, the domestic enterprise to be acquired, the creditors and other parties concerned may enter into a separate agreement on the disposal of the credits and debts of the domestic enterprise to be acquired, provided that this agreement shall not impair the interests of any third party or public interests. An agreement on the disposal of credits and debts shall be submitted to the examination and approval organ.
A domestic enterprise to sell assets shall, not later than 15 days before the investor submits the application documents to the examination and approval organ, send a notice to the creditors and shall publish an announcement on a provincial newspaper or higher level, which is circulated nationwide.
Article 14 The parties to an acquisition shall determine the transaction price on the basis of the assessment result of the equities to be transferred or of the assets to be sold, which is given by an asset assessment institution. The parties to an acquisition may agree on an asset assessment institution lawfully established within China. A common international assessment method shall be adopted for the asset assessment. It is forbidden to divert any capital abroad in any disguised form by transferring any equities or selling assets at a price which is obviously lower than the assessment result.
The acquisition of a domestic enterprise by a foreign investor, which may cause the modification of any equity formed by investments from state-owned assets or transfer of the property right of state-owned assets, shall satisfy the relevant provisions on the management of state-owned assets.
Article 15 The parties to an acquisition shall state whether there is a connected relationship between the parties to the acquisition. If both parties belong to a same actual controller, the parties shall disclose their actual controller to the examination and approval organ and make an explanation about whether the purpose of acquisition and the assessment result conform to the fair value of the market. The parties shall not circumvent the aforesaid requirements through trust, holding shares on behalf of others, or by other means.
Article 16 To establish a foreign-funded enterprise by acquiring a domestic enterprise, a foreign investor shall, within 3 months from the date of issuance of business license to the foreign-funded enterprise, pay all the considerations to the shareholders who transfer the equities or to the domestic enterprise which sells the assets. In the case of any particular circumstance under which it is necessary to extend the time limit, the foreign investor shall, upon the approval of the examination and approval organ, pay at least 60% of the consideration within 6 months as of the date of issuance of the business license, and pay off the balance of consideration within one year, and distribute the proceeds according to the proportion of investments it has actually contributed.
Where a foreign investor subscribes to the increased capital of a domestic company, the shareholders of the limited liability company or of the domestic joint stock limited company established by way of promotion shall pay at least 20% of the newly increased registered capital when the company applies for a business license for foreign-funded enterprise. The time to pay the balance of the newly increased registered capital shall be in line with the Company Law, the laws on foreign investments and the Regulation on the Administration of Company Registration. If it is provided for in any other law or administrative regulation, such law or administrative regulation shall prevail. Where a joint stock limited company increase the registered capital by issuing new stocks, the shareholders shall subscribe to the new stocks in accordance with the relevant provisions on the payment for shares in the establishment of a joint stock limited company.
Where a foreign investor carries out an asset acquisition, it shall stipulate the time limit for contribution of investments in the contract and articles of association of the foreign-funded enterprise to be established. Where the foreign investor establishes a foreign-funded enterprise, and through which purchases the assets of a domestic enterprise and operates such assets, it shall contribute the investments equivalent to the consideration of the assets within the time limit for payment of consideration as provided for in Paragraph 1 of the present Article. As for the balance, the time limit for contribution shall satisfy the relevant provisions on the capital contribution for the establishment of foreign-funded enterprise.
Where a foreign investor establishes a foreign-funded enterprise by acquiring a domestic enterprise, if its investment proportion is less than 25% of the registered capital of the enterprise and if it plans to make investments in cash, it shall make full contribution within 3 months from the day when a business license is issued to the foreign-funded enterprise; if it plans to make investments in kind or industrial property, etc., it shall make full contribution within 6 months from the day when a business license is issued to the foreign-funded enterprise.
Article 17 The means of payment for the consideration shall conform to the relevant laws and administrative regulations of the state. If the foreign investor uses the RMB assets it lawfully owns as a means of payment, it shall obtain the approval of the foreign exchange administrative organ. If the foreign investor uses the shares over which it has the right of disposition, it shall comply with Chapter IV of these Provisions.
Article 18 After a foreign investor purchases the equities of a domestic company by agreement, and the domestic company has been converted into a foreign-funded enterprise, the foreign-funded enterprise's registered capital shall be the registered capital of the original domestic company, and the proportion of investments contributed by the foreign investor shall be the proportion of the purchased equities in the original registered capital.
Where a foreign investor subscribes to the capital increase of a domestic limited liability company, the registered capital of a foreign-funded enterprise established after the acquisition shall be the summation of the registered capital of the former domestic company and the amount of capital increase. As to the foreign investor and other shareholders of the former domestic company it acquires, their respective proportion of capital contributions to the foreign-funded enterprise shall be determined on the basis of the assessment of the assets of the domestic company.
Where a foreign investor subscribes to the capital increase of a domestic joint stock limited company, the registered capital shall be determined in accordance with the Company Law.
Article 19 For an equity-based acquisition by a foreign investor, the upper limits on the total investments to the foreign-funded enterprise after acquisition shall be determined according to the following rates, unless the state provides otherwise:
(1) If the registered capital is less than US$ 2.1 million, the total investments shall not exceed 10/7 of the registered capital;
(2) If the registered capital is not less than US$ 2.1 million but not more than US$ 5 million, the total investments shall not exceed twice the registered capital;
(3) If the registered capital is not less than US$ 5 million but not more than US$ 12 million, the total investments shall not exceed 2.5 times the registered capital;
(4) If the registered capital is more than US$ 12 million, the total investments shall not exceed 3 times the registered capital.
Article 20 For an asset-based acquisition, the foreign investor shall, according to the transaction price for the purchased assets and the actual production and operation scale, determine the total investments to the foreign-funded enterprise to be established. The proportion between the registered capital and total investments of the foreign-funded enterprise to be established shall conform to the relevant provisions.
Chapter III Examination, Approval and Registration
Article 21 For an equity-based acquisition, a foreign investor shall, pursuant to the total investments of the foreign-funded enterprise to be established after the acquisition, the type of the enterprise and the industry it engages in, submit the following documents to the competent examination and approval organ in accordance with the laws, administrative regulations, and rules on the establishment of foreign-funded enterprises:
(1) In the case of a domestic limited liability company targeted for acquisition: the unanimous shareholders' resolution in favor of the Equity Acquisition by the foreign investor; in the case of a domestic company limited by shares targeted for acquisition: the resolution of the shareholders' general meeting in favor of the equity-based acquisition by the foreign investor;
(2) An application to convert the domestic company targeted for acquisition into a newly established foreign-funded enterprise in accordance with the law;
(3) A contract and articles of association of the foreign-funded enterprise to be established after acquisition;
(4) An agreement on the foreign investor's acquisition of equities of shareholders of the domestic company or on the foreign investor's subscription to the capital increase of domestic companies;
(5) The previous-year financial audit report of the domestic company acquired;
(6) The certification documents for the identity, registration and creditworthiness of the investor that have been notarized and certified according to law;
(7) The descriptions about the enterprises invested by the domestic company acquired;
(8) The business licenses (duplicates) of the domestic company acquired and enterprises it invests in;
(9) The proposal on the settlement of employee of the domestic company acquired;
(10) The documents to be submitted as required by Articles 13 through 15 hereof.
If the business scope, scale, obtain of land use right of a foreign-funded enterprise established after acquisition are subject to the permission of the relevant government departments, the relevant permission documents shall be submitted along with the documents as listed in the preceding Paragraph.
Article 22 The equity purchase agreement or domestic company capital increase agreement shall be governed by Chinese law and shall contain the following provisions:
(1) The status of each party to the agreement, including the name and domicile of each party, the names, positions and nationalities of their legal representatives;
(2) The shares and price of the equities to be purchased or of the capital increase to be subscribed to;
(3) The time period of the agreement, and the method of execution thereof;
(4) The rights and obligations of each party to the agreement;
(5) The liabilities for breach of contract, and settlement of disputes; and
(6) The time and place for the conclusion of the agreement.
Article 23 For an asset-based acquisition, the foreign investor shall, pursuant to the total investments of the foreign-funded enterprise to be established after the acquisition, the type of the enterprise and the industry it engages in, submit the following documents to the competent examination and approval organ in accordance with the laws, administrative regulations, and rules on the establishment of foreign-funded enterprises:
(1) A resolution of the property right holders or authority organ of the domestic enterprise in favor of the sale of assets;
(2) An application for the establishment of a foreign-funded enterprise;
(3) A contract and the articles of association of the foreign-funded enterprise to be established;
(4) An asset purchase agreement signed by the foreign-funded enterprise to be established and the domestic enterprise, or by the foreign investor and the domestic enterprise;
(5) The duplicates of the articles of association and the business license of the domestic enterprise to be acquired;
(6) Certification of the fact that the domestic enterprise to be acquired has notified, and published an announcement for, its creditors, as well as statements on whether its creditors have raised any objections;
(7) The certification documents for the identity, registration and creditworthiness of the investor, that have been notarized and certified according to law;
(8) The proposal on the settlement of employee of the domestic enterprise that is acquired;
(9) The documents as required by Articles 13 through 15 hereof.
If the business scope, scale, obtain of land use right of a foreign-funded enterprise establishment after acquisition involve permission of the relevant government departments, the relevant permission documents shall be submitted along with the documents as listed in the preceding Paragraph.
Where a foreign investor purchases the assets of a domestic enterprise by agreement and invests such assets in establishing a foreign-funded enterprise, it shall not, prior to the establishment of the foreign-funded enterprise, carry out any business activities with such assets.
Article 24 The agreement on the purchase of assets shall be governed by Chinese law and shall contain the following main contents:
(1) The status of each party to the agreement, including the name and domicile of each party, the names, positions and nationalities of their legal representatives;
(2) A list of the assets to be purchased and the price thereof;
(3) The time period and method for the execution of the agreement;
(4) The rights and obligations of each party to the agreement;
(5) The liabilities for breach of contract, and settlement of disputes;
(6) The time and place for the conclusion of the agreement.
Article 25 Where a foreign investor intends to establish a foreign-funded enterprise by acquiring a domestic enterprise, unless it is otherwise provided for in the Provisions, the examination and approval organ shall, within 30 days after receives the complete set of documents as required, make a decision of approval or disapproval. If it decides to make a decision of approval, the examination and approval organ shall issue to the foreign investor an approval certificate.
For a foreign investor which intends to purchase the equities of a domestic company by agreement, if the examination and approval organ makes a decision of approval, it shall simultaneously send a copy of the relevant approval documents to the foreign exchange administrative organ of the places where the equity transferor and the domestic company are located, respectively. The foreign exchange administrative organ of the place where the equity transferor is located shall handle the foreign exchange registration for equity-transfer-based foreign investments, which indicates that the consideration to the foreign investor’s equity acquisition has been fully paid.
Article 26 For an asset-based acquisition, the foreign investor shall, within 30 days after it receives the approval document, apply to the registration administrative organ for establishment registration so as to obtain a foreign-funded enterprise business license.
For an equity-based acquisition by a foreign investor, the domestic company acquired applies to the original registration administrative organ for modifying its registration in accordance with the Provisions. If the original registration administrative organ has no registration authority for such change, it shall, within 10 days after receiving the application documents, transfer these application documents to the competent registration administrative organ and simultaneously accompany them with the registration files of the domestic company. When the domestic company acquired applies for modifying the registration, it shall submit the following documents and shall be responsible for their genuineness and validity:
(1) An application for modifying registration;
(2) An agreement on the purchase of equities of the domestic company or on the subscription of increased capital of a domestic company by a foreign investor;
(3) The amended articles of association or revisions to the original articles of association, and the foreign-funded enterprise contract which shall be submitted in pursuance of law;
(4) The foreign-funded enterprise approval document;
(5) The certification for the qualifications of the foreign investor as the subject, or the identity certification of the foreign investor as a natural person;
(6) The amended name list of the members of the board of directors, the documents which state the name and domicile of the new directors, and the documents on the appointment of the new directors;
(7) Other relevant documents and certificates as required by the State Administration for Industry and Commerce.
The investor shall, within 30 days after it receives a foreign-funded enterprise business license, go through the registration formalities in the tax, customs, land administration and foreign exchange administration departments.
Chapter IV Equity-payment-based Acquisition of Domestic Companies by Foreign Investors
Section 1 Conditions for Equity-payment-based Acquisition
Article 27 The term "equity-payment-based acquisition of a domestic enterprise by a foreign investor" means that acquisition of any equity held by shareholders of a Domestic Company or increased capital by such Domestic Company, which acquisition shall be made through payment of equity held by shareholders of an overseas company or increased capital by such overseas company.
Article 28 The term "overseas company" as mentioned in this Chapter shall be a lawfully established company, there is a sound system of company law in its registration place, and the company and its management level have no record of punishment by the regulatory institution within the recent 3 years. Except for special-purpose companies as mentioned in Section 3 of this Chapter, an overseas company shall be a listed company and there shall be a complete and sound securities trading system in the place where it gets listed.
Article 29 The equities of the domestic and overseas companies involved in the equity-based acquisition of a domestic company by a foreign investor shall meet the following conditions:
(1) They are lawfully held by the shareholders and transferable in accordance with the law;
(2) They are subject to no dispute of ownership or any lien or other encumbrances;
(3) The equities of an overseas company shall be listed publicly in an overseas lawful securities exchange market (excluding the over-the-counter market); and
(4) The trading price of the equities of the overseas company in the recent 1 year remains stable.
The Items (3) and (4) of the preceding Paragraph shall not applicable to the special-purpose companies as mentioned in Section 3 of this Chapter.
Article 30 For an equity-based acquisition of a domestic company by a foreign investor, the overseas company or its shareholders shall hire an intermediary institution registered within China to serve as a consultant (hereafter referred to as the "acquisition consultant"). The acquisition consultant shall conduct due diligence investigations with regard to the genuineness of the acquisition application documents, the financial status of the overseas company as well as whether the acquisition meets the requirements of Articles 14, 28 and 29 of these Provisions, shall make a acquisition consultant report and shall provide explicitly professional opinions on each of the aforesaid items.
Article 31 The acquisition consultant shall satisfy the following conditions:
(1) Having a good reputation and having relevant practicing experiences;
(2) Having no record of serious violation of any law or regulation;
(3) Being capable of investigating and analyzing the legal systems of the registration place of the overseas company and the place where the overseas company is get listed, as well as the financial status of the overseas company.
Section 2 Application Documents and Procedures
Article 32 An equity-based acquisition of a domestic company by a foreign investor shall be subject to the examination and approval of the MOFCOM. The domestic company shall not only submit the documents as required in Chapter III of these Provisions, but also the following documents:
(1) A statement of the changes of equities and major changes of assets of the domestic company within the recent 1 year;
(2) An acquisition consultant’s report;
(3) The business opening certifications or identity certification documents of the relevant domestic and overseas companies and their shareholders;
(4) Descriptions about the equities held by the shareholders of the overseas company, and the name list of the shareholders who hold 5 % or more of the equities of the overseas company;
(5) The articles of association of the overseas company and a description of any external security provided by such company; and
(6) The recent annual financial report upon audit and a report on the stock tradings of the overseas company in the recent half year.
Article 33 The MOFCOM shall, within 30 days after it receives a complete set of documents, examine the acquisition application. If the relevant requirements are satisfied, it shall issue to the applicant an approval document, which is given the remark that "For the equity-payment-based acquisition of a domestic company by a foreign investor, it will be valid for 6 months as of the date of issuance of a business license."
Article 34 The domestic company shall, within 30 days after it receives the aforesaid approval documents, modify the registration in the registration administrative organ and the foreign exchange administrative organ. The registration administrative organ and the foreign exchange administrative organ shall respectively issue to it a foreign-funded enterprise business license and a foreign exchange register certificate which are given the remark that "To be valid for 8 months as of the date of issuance".
When a domestic company goes through the registration modification formalities in the registration administrative organ, it shall, in advance, submit documents signed by the legal representative of the domestic Company for purpose of future restoration of its equity structure, if applicable, including but not limited to the letter of application for change of equity interests, amended articles of association, equity transfer agreement.
Article 35 Within 6 months as of the date of issuance of a business license, the domestic company and its shareholders shall, in regard to the matters relating to the overseas company's equities it plans to hold, apply to the MOFCOM and the foreign exchange administrative organ for going through the formalities for the examination, approval and registration of investments to run an enterprise abroad.
The parties concerned shall not only submit to the MOFCOM the documents as required in the Provisions on the Examination and Approval of Investment to Run Enterprises Abroad, but also a foreign-funded enterprise approval document with the said remark and a foreign-funded enterprise business license with the said remark. After the MOFCOM examines and approves the overseas company’s equities to be held by the domestic company or its shareholders, it shall issue to the applicant a Chinese enterprise overseas investment approval certificate and replace the foreign-funded enterprise approval document with a remark by one without a remark.
After a domestic company obtains a foreign-funded enterprise approval document without a remark, it shall, within 30 days, apply to the registration administrative organ and the foreign exchange administrative organ, for replacing the foreign-funded enterprise business license and the foreign exchange register certificate with a remark by new ones with no remark.
Article 36 With 6 months as of the date of issuance of a business license, if the domestic and overseas companies fail to complete the equity modification formalities, the approval document with a remark and the Chinese enterprise overseas investment approval certificate shall be invalidated automatically. The registration administrative organ shall, examine and approve to change the registration for restoration of the domestic company’s equity structure back to such condition as it was before the acquisition in accordance with the relevant equity change documents submitted by the domestic company in advance regarding restoration of its equity structure.
In the case of failure to acquire the shares increased by a domestic company, before the registration administrative organ examines and approves the modification registration under the preceding Paragraph, the domestic company shall, pursuant to the Company Law, reduce the registered capital correspondingly and publish an announcement on a newspaper.
If the domestic company fails to go through the relevant registration formalities according to the preceding Paragraph, it shall be handled by the registration administrative organ in accordance with the Regulation on the Administration of Company Registration.
Article 37 Before the domestic company obtains a foreign-funded enterprise approval document without a remark and a foreign exchange register certificate without a remark, it shall not distribute its profits to its shareholders, nor provide a guaranty to any connected company, nor pay any amount incurred from equity transfer, capital reduction, liquidation, and any other accounts of capital-related items.
Article 38 A domestic company or its shareholders shall, upon the approval document with no remark and the business license with no remark issued by the MOFCOM and the registration administrative organ, go through the tax modification registration in the tax organ.
Section 3 Special Provisions on Special-purpose Companies
Article 39 The term "special-purpose company" refers to an overseas company controlled directly or indirectly by a domestic company or natural person in order for overseas listing of its/his equity interests actually owned in a domestic company.
The provisions of this Section shall apply to a special-purpose company, which, for the purpose of getting listed abroad, its shareholders or the special-purpose company purchase the equities from the shareholders of a domestic company or through the share increase of a domestic company, by using the equities of the special-purpose company it holds or the share-increase of the special-purpose company as consideration.
If the parties concerned uses an overseas company, which holds any equities of a special-purpose company, to serve as the entity getting listed abroad, this overseas company shall satisfy the relevant requirements for the special-purpose company as described in this Section.
Article 40 The overseas listing and trading of shares of a special-purpose company shall be subject to approval by the securities regulatory authority of the State Council.
The country or region where the special-purpose company gets listed shall have sound legal and regulatory systems, and securities regulatory authority of this country or region shall have signed a memorandum of understanding with the securities regulatory authority of the State Council of China and keep an effective cooperation in the regulatory work.
Article 41 A domestic company having its equity interests listed abroad referred to in this Section shall satisfy the following conditions:
(1) The title to its property right is clear without question and there is no dispute, existing or threatened, regarding its property right;
(2) It has a complete business system and is capable of sustainable operation;
(3) It has a sound corporate governance structure and internal management system; and
(4) The company and its main shareholders have no record of serious violation of any law or regulation.
Article 42 To set up a special-purpose company abroad, an overseas company shall apply to the MOFCOM for going through the examination and approval formalities. When doing so, the domestic company shall not only submit to the MOFCOM the documents as required in the Provisions on the Examination and Approval of Investment to Run Enterprises Abroad, but also the following documents:
(1) The identity certification documents on the ultimate controller of the special-purpose company;
(2) The business plan on the overseas listing of the special-purpose company; and
(3) The assessment report made by the acquisition consultant on the price of the stocks to be issued by the special-purpose company when get listed abroad in the future.
After the party who establishes or controls a special-purpose company obtains approval document for Chinese enterprise to make overseas investment, it shall apply to the foreign exchange administrative organ of the place where it is located for going through the formalities for the register of overseas investments.
Article 43 The total value of the stocks of a special-purpose company listed abroad shall not be lower than the value of the equity interests of the domestic company upon the assessment of the relevant asset assessment institution.
Article 44 Where a special-purpose company intends to launch an equity-payment-based acquisition, the domestic company shall not only submit to the MOFCOM the documents as required in Article 32 of these Provisions, but also the following documents:
(1) The approval documents and certificate for the investor to run an enterprise abroad at the time of establishment of the special-purpose company;
(2) The foreign exchange register form for the overseas investments of the special-purpose company;
(3) The identity certification documents on the ultimate controller of the special-purpose company, or the business opening certification or articles of association of the special-purpose company;
(4) The business plan on the overseas listing of the special-purpose company;
(5) The assessment report made by the acquisition consultant on the price of the stocks to be issued by the special-purpose company to get listed abroad in the future.
If the parties concerned uses an overseas company, which holds the equities of a special-purpose company, to serve as an entity getting listed abroad, the domestic company shall, apart from the aforesaid documents, submit the following documents:
(1) The business opening certification and the articles of association of this overseas company;
(2) The arrangement of the special-purpose company and the overseas company for the transaction of the equity interests of the domestic company acquired, as well as the detailed descriptions of the conversion.
Article 45 If the MOFCOM approves the documents as required in Article 44 of these Provisions upon preliminary examination, it shall issue a letter of in-principle approval. The domestic company shall, upon the strength of the letter of in-principle approval, submit to the securities regulatory authority of the State Council the application documents for getting listed. The securities regulatory authority of the State Council shall make a decision of approval or disapproval within 20 working days.
After the domestic company obtains an approval, it shall apply to the MOFCOM for an approval certificate. The MOFCOM shall issue to it an approval certificate with the remark "equities held by an overseas special-purpose company, it shall be valid for 1 year as of the issuance of a business license".
If the acquisition causes the change of equities of the special-purpose company, the domestic company or natural person holding the equities of the special-purpose company shall, upon the strength of the foreign-funded enterprise approval certificate with a remark, apply to the MOFCOM for going through the formalities for the examination and approval of the change of the overseas investment to run an enterprise abroad and shall apply to the local foreign exchange administrative organ for modifying the foreign exchange register of overseas investments.
Article 46 The domestic company shall, within 30 days after it receives an approval document with a remark, apply to the registration administrative organ and the foreign exchange administrative organ for modifying the registration. The registration administrative organ and the foreign exchange administrative organ shall respectively issue to a foreign-funded enterprise business license and a foreign exchange register certificate with a remark "To be valid for 14 months as of the date of issuance".
When a domestic company goes through the registration modification formalities in the registration administrative organ, it shall, in advance, submit documents signed by the legal representative of the domestic Company for purpose of future restoration of its equity structure, if applicable, including but not limited to the letter of application for change of equity interests, amended articles of association, equity transfer agreement.
Article 47 The domestic company shall, within 30 days after the special-purpose company or its connected overseas company realizes the overseas listing, report to the MOFCOM about the information about the overseas listing and its plan on the transfer-back of the raised funds and apply for an unremarked foreign-funded enterprise approval certificate. At the same time, it shall, within 30 days after the realization of overseas listing, report to the securities regulatory authority of the State Council the information about the overseas listing and provide it with the relevant documents for archival purposes. It shall also submit to the foreign exchange administrative organ its plan on the transfer-back of the raised funds and execute this plan under the supervision of the foreign exchange administrative organ. It shall, within 30 days after it receives an unremarked approval certificate, apply to the registration administrative organ and foreign exchange administrative organ for replacing its foreign-funded enterprise business license and foreign exchange register certificate with a remark with a new unremarked one.
If the domestic company fails to report to the MOFCOM within the aforesaid time limit, its approval certificate with a remark shall be become invalid automatically, its equities structure will resume to the state prior to the equity-based acquisition and it shall go through the formalities for modifying the registration in accordance with Article 36 of the Provisions.
Article 48 The funds of a special-purpose company raised from overseas listing shall, according to the transfer-back plan submitted to the foreign exchange administrative organ, be transferred back into China according to the currently applicable foreign exchange administrative provisions. The raised funds may be transferred back into China by:
(1) providing commercial loans to the domestic company;
(2) setting up a new foreign-funded enterprise within China; and
(3) acquiring a domestic enterprise.
To transfer back the funds of a special-purpose company raised overseas under the aforesaid circumstances, the relevant parties shall abide by the laws and administrative regulations on the administration of foreign investments and on foreign debts. If, as a consequence of the transfer-back of the funds a special-purpose company raised overseas, the domestic company or natural person who holds more equities of the special-purpose company or the net assets of the special-purpose company increase, the parties concerned shall faithfully disclose the relevant information and apply for examination and approval. After it finishes the examination and approval formalities, it shall go through the formalities for modifying the foreign exchange register of foreign investments and the register of overseas investments.
The profit, dividends and capital change income in a foreign currency obtained by the domestic company or natural person from the special-purpose company shall be transferred back to China within 6 months after the date of obtainment. The profit or dividends may enter into the foreign exchange account for current items or may be converted into RMB. The capital change income in a foreign currency may, upon the examination and approval of the foreign exchange administrative organ, be deposited in a special capital account opened for it or be converted into RMB if so approved by the foreign exchange administrative organ.
Article 49 Within 1 year after the date of issuance of a business license, if the domestic company fails to obtain an unremarked approval certificate, the approval certificate with a remark shall become invalid automatically. The domestic company shall go through the formalities for modifying the registration.
Article 50 After the special-purpose company has realized the overseas listing and the domestic company has obtained an approval certificate and a business license with no remark, if the relevant party concerned continues to acquire domestic companies by using its equities as payment, the provisions of Sections 1 and 2 of this Chapter shall apply to this case.
Chapter V Antitrust Review
Article 51 If the acquisition of a domestic company by a foreign investor is under any of the following circumstances, the investor shall report the relevant information to the MOFCOM and the State Administration for Industry and Commerce (hereafter referred to as the SAIC):
(1) The current-year turnover of any party to the acquisition in the Chinese market exceeds RMB 1.5 billion RMB;
(2) The foreign investor has acquired more than 10 domestic enterprises in the relevant industries;
(3) The market share of any party to the acquisition has reached 20% in Chinese market;
(4) The acquisition leads to the fact that the market share of the party to the acquisition has reached 25% in Chinese market.
Even if the foreign investor doesn't meet the conditions as mentioned in the preceding Paragraph, upon request of a domestic enterprise of competitive relationship, a relevant functional authority or industrial association, the MOFCOM or the SAIC is of opinion that the acquisition by the foreign investor involves a very large market share, or that there are other major factors which seriously affect market competition, it may also demand the foreign investor to prepare a report.
The aforesaid acquiring party includes the connected enterprises of the foreign investor.
Article 52 If the acquisition of a domestic company by a foreign investor is under any of the circumstances as mentioned in Article 51 and if the MOFCOM and the SAIC opine that it may lead to excessive concentration, hamper fair competition or impair the interests of the consumer, they shall, within 90 days as of the receipt of all the documents as required, either solely convene after negotiation or jointly convene the relevant authorities, institutions, enterprises and other interested parties to hold a hearing, and shall make a decision of approval or disapproval in accordance with the law.
Article 53 Where an overseas acquisition is under any of the following circumstances, the parties to the acquisition shall, before announcing the acquisition proposal or when submitting the said proposal to the competent authority in the country of its locality, submit the acquisition proposal to the MOFCOM and the SAIC. The MOFCOM and the SAIC shall examine whether it will lead to excessive centralization in the domestic market, hinder domestic fair competition, or damage the domestic consumers’ benefits, and shall make a decision on whether approve the proposal or not:
(1) The overseas party to the acquisition owns assets of more than RMB 3 billion within the territory of China;
(2) The current-year turnover of the overseas party to the acquisition in the Chinese market is more than RMB 1.5 billion in the current year;
(3) The market share of the overseas party to the acquisition and its connected enterprises in Chinese market has reached 20%;
(4) The market share of the overseas party to the acquisition and its connected enterprises in Chinese market has reached 25% due to the overseas acquisitions; or
(5) Due to the overseas acquisitions, there will be more than 15 foreign-funded enterprises in the relevant domestic industries in which any of the parties to the foreign acquisition has a direct or indirect equity interest.
Article 54 Where a acquisition is under any of the following circumstances, the parties to the acquisition may apply to the MOFCOM and the SAIC for exemption of examination:
(1) The acquisition may improve the conditions for fair competition in the market;
(2) A loss-making enterprise is acquired and the employment is ensured;
(3) The acquisition helps the introduction of advanced technologies and management personnel and is able to improve the enterprise's international competitiveness;
(4) The acquisition may improve the environment.
Chapter VI Supplementary Provisions
Article 55 Where an investment company established by foreign investors within China intends to acquire a domestic enterprise, it shall be governed by these Provisions.
Where a foreign investor intends to purchase the equities of a foreign-funded enterprise within China or to subscribe to the increased capital of a foreign-funded enterprise within China, it shall be governed by the currently applicable laws and administrative regulations on foreign-funded enterprises as well as the relevant provisions on changes of equities of foreign-funded enterprise investors; any matters not provided for in such laws and regulations shall be handled with reference to the Provisions hereof.
Where a foreign investor intends to merge with or acquire a domestic enterprise through a foreign-funded enterprise established by it within China, it shall be governed by the relevant provisions on the merger and split-up of foreign-funded enterprises and the relevant provisions on domestic investments of foreign-funded enterprise; any matters not provided for in such laws and regulations shall be handled with reference to the Provisions hereof.
Where a foreign investor acquires a domestic limited liability company, and transforms it into a joint stock limited company, or if the domestic company is a joint stock limited company, it shall be governed by the relevant provisions on the establishment of a joint stock limited company; any matters not provided for in such laws and regulations shall be handled with reference to the Provisions hereof.
Article 56 For the submission of documents, an applicant or submitter shall classify the documents into different categories under these Provisions and accompany them with a list of documents. All of the prescribed documents submitted shall be written in Chinese.
Article 57 With proper approval obtained, Chinese natural person shareholders of a domestic company subject to any equity acquisition can remain to be Chinese investors to the foreign-funded enterprise converted there under.
Article 58 If a natural-person shareholder of a domestic company changes his nationality, the enterprise nature of the company will remain unchanged.
Article 59 The functionaries of the government organs shall be duteous, shall perform their duties in pursuance of the law, shall not seek any improper benefit by taking the advantage of their positions, and shall keep confidential the commercial secrets they have access to.
Article 60 Where an investor from Hong Kong Special Administrative Region, Macao Special Administrative Region or Taiwan Region intends to acquire a domestic enterprise of any other region, it shall be governed by these Provisions.
Article 61 These Provisions shall come into force as of September 8, 2006.
(This English version by China Securities Investor Protection Fund Co., Ltd. is for your reference only. In case any discrepancy exists between the Chinese and English context, the Chinese version shall prevail.)
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