1. Our company is a foreign-invested commerce enterprise, established in 2008 and has the intention of transferring into a joint stock company, so I’d like to further known about the qualifications and procedures.
An applicant planning to set up a foreign-invested joint stock company shall submit such documents as the application, feasible research report and assets evaluation report for the establishment of the company to the governmental competent authority of the province, autonomous area, municipality directly under the central government and separately planned city where the applicant is domiciled. The above-mentioned documents shall be transferred and submitted to the foreign economic and trade department of the province, autonomous area, municipality directly under the central government and separately planned city by the competent authority upon the examination and approval, and the promoter officially signed the agreement and the articles of association of the establishment of the company after the documents are approved by the competent commerce department of the province, autonomous, municipality directly under the central government and separately planned city.
The documents shall be submitted to the Ministry of Commerce for examination and approval upon another review. Please refer to the Tentative Provisions on Several Issues Concerning the Establishment of Foreign-Invested Joint Stock Limited Companies (No. 1 decree of the Ministry of Foreign Trade and Economic Cooperation in 1995) for detailed information.
2. Are domestic enterprises merged by foreign investors only supposed to be companies?
Please refer to Article 2 of the Provisions on the Merger or Acquisition of Domestic Enterprises by Foreign Investors, and the phrase “merger or acquisition of a domestic enterprise by a foreign investor” as mentioned in the present provisions means that the foreign investor purchases by agreement the equities of the shareholders of a domestic non-foreign-funded enterprise (hereinafter 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 (hereinafter referred to as “share right merger or acquisition”); or, a foreign investor establishes a foreign-funded enterprise, and through which it purchases by agreement the assets of a domestic enterprise and operates its assets, or, a foreign investor purchases by agreement the assets of a domestic enterprise, and then invest such assets to establish a foreign-funded enterprise and operate the assets (hereinafter referred to as “asset merger or acquisition”).
3. Whether the equities held by a Chinese party in the Chinese-foreign equity joint venture can be transferred to a natural person with Chinese nationality?
The equities held by a Chinese party in the Chinese-foreign equity joint venture may be transferred to a natural person with Chinese nationality.
4. Would you please tell me what formalities are needed to transfer domestic-funded enterprises into foreign-funded enterprises?
To promote and regulate foreign investors' investment in China, bring in foreign advanced technologies and management experience, improve the level of utilizing foreign capital, realize reasonable allocation of resources, ensure employment and maintain fair competition and national economic safety, in accordance with laws, administrative regulations of foreign investment enterprises, the Company Law of the People's Republic of China and other relevant laws and administrative regulations and rules, Chinese Government formulated the Provisions of Merger or Acquisition of Domestic Enterprises by Foreign Investors (Decree No. 10, 2006 of six ministries and commissions including the Ministry of Commerce).
5. How to handle the procedures for transfer of foreign-invested enterprises to domestic-invested enterprises?
1. For the alteration of equities of the investors of foreign-invested enterprises, the examination and approval authorities should, in accordance with Article 17 of the Provisions on the Alteration of Investors' Equities in Foreign-funded Enterprises, decide to approve or not within 30 days upon the receipt of all the required documents.
2. For alteration of the items of foreign-funded enterprises, besides submission of the application letter of alteration, copies of approval certificate and copies of the business license, the documents required for approval should be submitted according to the Implementing Regulations for the Law of the People's Republic of China on Sino-foreign Equity Joint Ventures, the Detailed Rules for the Law of the People's Republic of China on Chinese-Foreign Contractual Joint Ventures, the Detailed Rules for the Law of the People's Republic of China on Foreign-Capital Enterprises and the relevant special laws and regulations, including board resolution, contractual revised agreement and the revised agreement of article of association.
6. Shall the creditors be informed in the written form after the preliminary reply of the merger of foreign companies from the Ministry of Commerce that has been published in the nationwide media? If so, how to determine the scope of creditors? Whether shall all those with debt relationship be informed?
In accordance with Clauses 2 and 3 of Article 29 of the Provision on the Merger and Division of Enterprises with Foreign Investment (Revised 2007), the applicants of companies to be merged shall submit the examination and approval authorities the documents including certification of the company to its creditors and statements of handling the rights of creditors and debts related to the company.
China’s General Principles of Civil Law provides that a debt represents a special relationship of rights and obligations established between the parties concerned, either according to the agreed terms of a contract or legal provisions. The party entitled to the right shall be the creditor, and the party assuming the obligations shall be the debtor. The right enjoyed by the creditor is called creditor's right and the obligation the debtor is responsible for is called debt.