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Full Text (3065 words)

New administrative rules aiming to unify and bring consistency to the legal framework of foreign-invested companies may help reduce the uncertainties faced by foreign investors when doing business in China.

By Peter A. Neumann*, Faegre & Benson, Shanghai

The substantial revisions to the PRC Company Law (Company Law), which became effective on January 1 2006 and the related amendments to the PRC Administration of Company Registration Regulations (Registration Rules) represent an important step forward in China's legal framework for corporations. The continuing existence and validity of a separate body of laws and regulations governing foreign-invested companies (FICs) 1 adds a layer of complexity, and sometimes confusion, when legal rules are applied to events affecting the birth, transformation and death of FICs. This can cause uneasiness and delay for foreign investors in connection with events and procedures, which impact on the rights of FICs to do business in China, namely, FIC approval and registration. Recently enacted administrative rules aim to clarify potential points of confusion and bring consistency to the practices of local authorities, which have historically varied from place to place.

Interpretive and implementing rules

On April 24 2006, the State Administration for Industry and Commerce (SAIC), the Ministry of Commerce, the General Administration of Customs and the State Administration of Foreign Exchange (SAFE), jointly issued the Implementing Opinions on Several Issues Concerning the Application of the Law in the Administration of the Examination, Approval and Registration of Foreign-invested Companies (Opinion).

The Opinion provides clear and specific rules concerning issues such as organizational structure, incorporation form, timing and documentary requirements pertaining to approval applications, registration and capital contribution of FICs, as well as approvals and registration of amendments. Among other aims, the stated purposes of the Opinion include "the precise application of law; conducting the work of administering foreign investment approval and registration work in a standardized, convenient and efficient manner; [and] promoting the healthy development of foreign-invested enterprises".

Despite its broad circulation, the Opinion generated both sufficient confusion and insufficient local response to warrant issuance by the SAIC, on May 26 2006, of the Circular on the Implementation of the Implementing Opinions on Several Issues Concerning the Application of the Law in the Administration of the Examination, Approval and Registration of Foreign-invested Companies (Circular). Despite these developments, bringing nationwide uniformity to local approval and registration standards and practices will likely remain an elusive aspirational goal for some time to come. Nonetheless, the Opinion and the Circular represent an important step forward to help unify the application of foreign-invested enterprise law, the Company law, and related administrative regulations.

Legal authority governing FICs

The Opinion expands on the basic rules found in Article 218 of the Company Law on the applicability of the laws to FICs. 2 With respect to FIC company registration matters:

i. FICs are governed by the Company Law and the Registration Rules;

ii. if FIE laws 3 provide otherwise, the subject provisions of FIE laws will govern;

iii. if neither the Company Law, the Registration Rules nor FIE laws address a given issue, then the relevant administrative regulations governing FIEs, decisions of the State Council and other regulations of the state governing foreign investment apply.

This pronouncement, among other things, would appear to leave little room for purely provincial or local rules and practices to fill any gaps in national level laws and regulations. An important question, then, is whether significant gaps remain, and whether remedies for countering local protectionist practices are adequate if they would have the effect of inhibiting foreign investment.

Rectification of names

Even if the Opinion fails to achieve its stated goals, it may herald the extinction of the term 'foreign-invested enterprise' in favour of 'foreign-invested company'. The Opinion and Circular consistently refer to various forms of FIC, but only use the term FIE in connection with legacy FIE laws. This is consistent with the general principle that the Company Law should govern foreign direct investment in China, unless pre-empted by FIE laws, 4 and may foreshadow the phasing out of an FIE specific legal regime at some point in the foreseeable future.

When it comes to classifying FICs, the Opinion drafters display the instincts of a zoologist documenting biodiversity. The Opinion confirms detailed categories and sub-categories of FICs according to the legal form of the company and the nature of the foreign investor. In total, there are 13 different designations for FICs formed as limited liability companies (LLCs) and 10 distinct designations for FICs formed as foreign-invested companies limited by shares (FICLS). The business licenses of FICs established on or after January 1 2006 must reflect one of these classifications, and when pre-existing FICs undergo any changes requiring amendment of their business license, they should also follow suit (see List of Designations).

Corporate governance

On corporate governance issues, the Opinion also confirms the extended application of the Company Law to FICs.

According to the Opinion, the ultimate management authority of equity joint ventures (EJVs) and cooperative joint ventures (CJVs) formed as LLCs is vested in the board of directors, 5 rather than the shareholders' meeting. Other organizational structures may be established in the articles of association, based the EJV law, the CJV law and the Company Law. The Opinion is silent, however, on CJVs that are not organized as legal entities.

By contrast, the Opinion confirms that the organizational form of wholly foreign-owned enterprises (WFOEs) and FICLS should comply with the Company Law and their articles of association. 6 This entails statutory governance structures including the shareholders' meeting, board of directors and board of supervisors, as well as exemptions for LLCs with a few shareholders and sole shareholder. Current provisions contained in the articles of association of FICs, established prior to January 1 2006, are exempt and such FICs may choose whether not to amend their articles of association to reflect Company Law requirements. 7

An important implication of the Opinion for WFOEs in matters of corporate governance is the appointment of one or more supervisors 8 in accordance with Article 52 of the Company Law. Anecdotal reports indicate that various local Administrations of Industry and Commerce (AICs) are already requiring newly established WFOEs to appoint supervisors. Since most WFOEs are presumed to be companies with a small number of shareholders, they need not establish a board of supervisors, but may suffice in appointing only one or two supervisors. What is less clear, however, are the qualifications of these supervisors, other than the fact that senior managers and directors may not also serve as supervisors. 9

Single shareholder WFOEs

In previous versions of the Company Law, a single-shareholder company was prohibited, except in the case of State-owned enterprises. This restriction has been lifted in the revised Company Law, thereby bringing WFOEs more fully within the scope of the Company Law. The Opinion imposes some requirements and restrictions on sole-shareholder WFOEs as follows:

i. minimum registered capital equivalent to Rmb100,000 (US$12,500) is required; 10

ii. a single natural person may only establish one single shareholder WFOE, and WFOEs wholly owned by a natural person may not reinvest in another sole-shareholder company; 11

iii. the business license of a WFOE established by a natural person issued after January 1 2006 will bear a notation indicating ownership by a foreign natural person, 12 and

iv. although restrictions are not applicable to WFOEs established before January 1 2006, they should comply with the above referenced requirements in the event of a capital increase and reinvestment. 13

Capital contributions

Timing

Under the prior version of the Company Law, in the case of non-FIEs, capital contributions were required to be paid in a single lump-sum payment. 14 The revised Company Law now permits subscribed registered capital to be contributed in separate instalments, emulating capital contribution requirements under the FIE laws, but with some differences. The Opinion provides some specific guidance by using the Company Law as the general basis and adding some specific requirements for FICs.

For FICs formed as LLCs, including single shareholder companies, the initial capital contribution by an individual shareholder or multiple shareholders must comply with the requirements of corresponding laws and regulations. Capital contribution by a single lump-sum payment should be made not later than six months after the establishment of the FIC. If registered capital is contributed by instalments, the first instalment must be not less than the minimum statutory registered capital and also not less than 15% of the approved registered capital. In addition, the first instalment should be paid in no later than three months after establishment of the FIC. The timing of contribution of the remaining registered capital should be in accordance with the Company Law, FIE laws and the Registration Rules. Overall, the balance must be paid in within two years after the establishment of the FIC and within five years after the establishment of an investment company. 15

Capital contributions of FICLS should comply with the requirements of the Company Law. Specifically, if the company is established by promotion, the promoters' initial capital contribution must be not less than 20% of the total registered capital. The balance must be contributed within two years from the establishment date, but within five years after the establishment of an investment company. 16

When applying for registration of capital increase of LLCs and FICLS established by promotion, the minimum amount of capital contributions to be made must be not less than 20% of the newly increased capital. 17

Currency of registered capital

The Opinion explicitly permits registered capital to be denominated in either renminbi or other freely convertible currency. However, if the contribution is made in a different currency, the middle exchange rate announced by the People's Bank of China on the day of contribution will be applied, 18 limiting investors' ability to lock in an exchange rate in advance.

Non-cash contributions to registered capital

Pursuant to the Opinion, methods of capital contribution by shareholders of FICs should comply with Article 27 of Company Law, Article 14 of the Registration Rules and the Provisions on the Administration of Registration of Company Registered Capital. These various authorities permit registered capital to be contributed in the form of currency, tangible assets, intellectual property rights, land use rights or other intangible assets whose value can be stated as money equivalent and may be legally transferred. Contributions in the forms of labour, credit, name of natural persons, goodwill, franchising rights or encumbered property are prohibited. Until such time as the SAIC and other relevant departments issue regulations on the subject, any permitted in-kind (non-cash) registered capital investments in forms other than currency, tangible assets, intellectual property and land use rights should be appraised and verified by lawfully established appraisal firms within China. Investors in EJVs may, however, agree between themselves on the valuation of contributions of tangible assets, industrial property rights and other permitted non-monetary forms. 19

Funding registered capital with loans

Prior to the Opinion, the Regulations Concerning Respective Capital Contributions by Investors in Equity Joint Ventures provided that the subscribed registered capital of a joint venture should take the form of the investors' 'self-owned' funds or unencumbered tangible assets or industrial property rights owned by them. This placed a cloud over the fairly common practice of foreign investors using offshore debt to fund their capital contributions. Under the Opinion, debt raised by shareholders of an FIC is now also deemed to be 'self-owned' funds. 20

FIC registration requirements

The Opinion in various places clarifies, adds to or simplifies numerous requirements of FIC registration, and makes changes to items within the scope of registration.

Appointment of agent

Under the Opinion, foreign investors are now required to appoint an agent in China for purposes of receiving service of legal documents. In addition to documents required by Article 20 or Article 21 of Registration Rules, the foreign investor(s) should submit a power of attorney appointing an agent for service of process to the approval and registration authorities. The agent may be a branch established by the foreign investor(s) in China, the prospective FIC, or other entities or individuals in China. 21

Documentation requirements

The certificate of incorporation of a corporate foreign investor or identification for natural person investors must be notarized and legalized by both local notarial authorities and PRC consular authorities in the foreign investor's home country. However, local notarization is sufficient if the investor is from Hong Kong, Macao or Taiwan. 22

Pursuant to the Opinion, the joint venture contract and creditworthiness certification of investors is no longer required for company registration, equity transfer or other changes to registration. 23

Primary registration application

An FIC formed as an EJV is governed by the registration time limits found in Article 20 of the Registration Rules and therefore should apply for initial registration no later than 90 days after the approval date. However, the Opinion requires that an FIC formed as a CJV or a WFOE should apply no later than 30 days after the approval date. If the relevant time limit is exceeded, the applicant should request confirmation from the approval authority that the approval remains valid, or resubmit the application for approval. 24

Registration of changes and amendments application

Timing of the application for registration of changes and amendments should generally follow application deadlines as provided in the Registration Rules. For amendments requiring approval, an application should be made within 30 days after the date of approval. If the time limit is exceeded, the applicant should request confirmation from the approval authority that the approval remains valid or resubmit the application for approval. Under circumstances such as variation of registered capital and expansion of business scope, approval documentation issued by the original approval authority before amendment and the approval certificate reflecting such an amendment should also be submitted, in addition to documentation required by the Registration Rules. 25

Cancellation of registration application

FICs should submit documents for cancellation of registration according to Article 44 of the Registration Rules, which stipulate that the certification of tax registration cancellation, certification of customs registration cancellation or certification of default of customs registration should be attached to the liquidation report. In addition, approval from the original approval authority is also required for early termination of FICs. 26

Reinvestment in China

Pursuant to Articles 5 and 6 of the Provisional Regulation on Investment in China by Foreign-owned Enterprises, FICs could not reinvest in China until the registered capital had been fully paid and the enterprise had become profitable, and the aggregate amount of reinvestment was not allowed to exceed 50% of the company's net assets. Such requirements and restrictions have been lifted. 27 The Opinion also provides that qualification certification for FICs to reinvest in China issued by the company registration authorities is no longer required. 28

Branches and representative offices

Application for registration of opening or closing of branches of FICs should be made to the local AIC of the city where the branch is located or to be opened and no longer needs to be approved by the original registration authorities of the head office. Such an application must be made within 30 days after the date of approval (if approval is required). 29

Domestic representative offices of FICs are a unique type of entity distinct from a branch company, which is permitted to engage in such indirect business activities as market investigation and liaison for FICs. Under previous regulations, the representative office had to go through registration formalities after being approved; however, the Opinion abolishes such requirements. From now on, registration will not be granted for representative offices of FIC, and existing FIC representative offices will be cancelled or converted into branches upon expiration of their current registration. The Circular clarifies that FICs are free to set up unregistered'liaison' offices as may be required by their business. However, they may not engage in substantive operations in the name of the liaison office. 30

Closing observations

The Opinion addresses various other subjects that are likely to be of concern to FICs and their investors at some point or another in the course of the FIC's formation, existence and evolution in China. Together with the Circular, it should be mandatory reading for both legal practitioners and company secretaries alike. Although local and provincial AICs and approval authorities have not yet universally embraced its provisions, the issuance of the Circular indicates that the widespread and consistent implementation of the Opinion is a high priority. Early indications are that certain provinces are already taking its requirements seriously. If the SAIC is successful in this endeavour, there will be greater certainty and cost savings realized by foreign investors, their advisers and FICs that have historically been faced with the daunting task of ascertaining local administrative requirements.

Endnotes

* Peter Neumann can be contacted at pneumann@faegre.com.

1 The Opinion consistently uses the term "foreign-invested company" [Chinese characters omitted] and not the traditional term "foreign-invested enterprise" [Chinese characters omitted].

2 Paragraph 1 ibid.

3 FIE laws include, primarily the basic laws, passed by the National People's Congress, governing EJVs, CJVs and WFOEs.

4 Paragraph 1 of the Opinion.

5 Paragraph 3 of the Opinion; Paragraph 1 of the Circular.

6 Paragraph 3 of the Opinion.

7 Paragraph 1 of the Circular.

8 Where an LLC has relatively few shareholders, it may appoint one or two supervisors and is exempted from establishing a board of supervisors (one-third of whom would need to be labour representatives). See Article 52 of the Company Law.

9 Ibid.

10 Paragraph 2 of the Opinion states that the Company Law must be followed for single shareholder companies. See Article 59 ibid for specific rules.

11 Ibid.

12 Paragraph 3 of the Opinion.; see also Article 60 of the Company Law.

13 Paragraph 2 of the Opinion.

14 Article 27 of the Company Law (2004).

15 Paragraph 9 of the Opinion.

16 Paragraph 3 ibid.

17 Paragraph 15 ibid.

18 Paragraph 8 ibid.

19 Paragraph 10 ibid.

20 The Opinion replies to this question by stipulating that funds raised by shareholders of FICs through loans borrowed in the shareholder's name are deemed to be 'self-owned' funds and may be used as capital contribution upon issuance of capital verification certification. See Paragraph 11 ibid.

21 Paragraph 5 ibid.

22 Ibid.

23 Ibid.

24 Paragraph 4 ibid.

25 Paragraph 13 ibid.

26 Paragraph 23 ibid.

27 Paragraph 2(3) of the Circular.

28 Ibid; Paragraph 7 of the Opinion.

29 Paragraph 24 ibid.

30 Paragraph 4 of the Circular.

Abstract (Summary)

With a view to accurately applying the law, carrying out the administration of the examination, approval and registration of foreign investment in a legally compliant and efficient manner that makes matters convenient for people, promoting the healthy development of foreign-invested enterprises and improving the quality and standards of use of foreign investment in China, they hereby set forth the following implementing opinions on how to apply the PRC Company Law (the Company Law), the PRC Regulations for the Administration of Company Registration (the Registration Regulations) and state laws, administrative regulations and policies on foreign investment in the administration of the examination, approval and registration of foreign-invested companies. The Company Law and Registration Regulations shall apply to the administration of the registration of foreign-invested companies, unless laws on foreign-invested enterprises provide otherwise, in which case the provisions of such laws shall apply. If the Company Law, Registration Regulations and laws on foreign-invested enterprises are silent on a matter, administrative regulations on foreign-invested enterprises, decisions of the State Council and other state provisions on foreign investment shall apply.

Full Text (4575 words)

Copyright Euromoney Institutional Investor PLC Jul 2006

(Issued by the State Administration for Industry and Commerce, the Ministry of Commerce, the General Administration of Customs and the State Administration of Foreign Exchange on April 24 2006.)

Gong Shang Wai Qi Zi [2006] No.81

1. The Company Law and Registration Regulations shall apply to the administration of the registration of foreign-invested companies, unless laws on foreign-invested enterprises provide otherwise, in which case the provisions of such laws shall apply. If the Company Law, Registration Regulations and laws on foreign-invested enterprises are silent on a matter, administrative regulations on foreign-invested enterprises, decisions of the State Council and other state provisions on foreign investment shall apply.

2. Foreign companies, enterprises, other economic organizations and natural persons (Foreign Investors) may, in accordance with the law, establish companies in the form of Sino-foreign equity and cooperative joint ventures with Chinese enterprises and other economic organizations or, alternatively, may, in accordance with the law, establish companies in the form of wholly foreign-owned equity joint ventures and wholly owned foreign-invested enterprises.

If a one-person limited liability company is established in the form of a wholly owned foreign-invested enterprise, in accordance with the law, the minimum limit on its registered capital shall comply with the provisions of the Company Law on one-person limited liability companies. One-person limited liability companies established by foreign natural persons shall additionally comply with the provisions of the Company Law on the limits on investments of one-person limited liability companies in third parties. Matters shall remain unchanged for wholly owned foreign-invested companies established in accordance with the law before January 1 2006, however, changes in their registered capital and the investments that they make in third parties shall comply with the foregoing provisions.

3. The board of directors of a Sino-foreign equity or cooperative joint venture limited liability company shall be the company's highest authority. The organizational structures of such companies shall be specified by the company in its articles of association pursuant to the Sino-foreign Equity Joint Venture Law or the Sino-foreign Cooperative Joint Venture Law and the Company Law.

The organizational structures of wholly foreign-owned equity joint venture and wholly owned foreign-invested limited liability companies and of foreign-invested companies limited by shares shall comply with the Company Law and the company's articles of association.

4. The time limit for the application for the registration of the establishment of a foreign-invested company shall comply with the Registration Regulations. However, if a company is established in the form of a Sino-foreign cooperative joint venture, wholly foreign-owned equity joint venture or wholly owned foreign-invested company, the application for registration of its establishment shall, in accordance with the Sino-foreign Cooperative Joint Venture Law or the Wholly Foreign-owned Enterprise Law, be made to the company registry within 30 days of the date of receipt of its approval document. If the application for the registration of establishment is made late, the applicant shall report to the examination and approval authority for confirmation of the validity of its original approval document or carry out the examination and approval procedures anew.

5. The entity qualification certificate or proof of identity of a Foreign Investor submitted to the examination and approval authority, and the registry when applying for the examination and approval and the registration of establishment of a foreign-invested company shall have been notarized by a notary office in the country where the Foreign Investor is located and authenticated by the embassy or consulate of China in such country. A notarial deed from a local notary office shall be provided, in accordance with the law, together with the entity qualification certificate or proof of identity of an investor from Hong Kong, Macao or Taiwan.

When applying for the examination and approval of a foreign-invested company and registration of its establishment, in addition to the documents specified in Article 20 or 21 of the Registration Regulations, the Power of Attorney for Service of Legal Documents signed by the Foreign Investor (the authorizing party) and the domestic receiver of legal documents (the attorney) shall be submitted to the examination and approval authority and the registry. The power of attorney shall expressly authorize the domestic attorney to accept service of legal documents on the behalf of the authorizing party, and state the address and method of contacting the attorney. The attorney may be a branch or sub-branch established by the Foreign Investor, a company it intends to establish (if the attorney is a company that the Foreign Investor intends to establish, the power of attorney will enter into effect after the establishment of the company) or other relevant work unit or individual in China.

When a company adds a new overseas investor, it shall also submit the aforementioned documents to the examination and approval authority and the registry.

When a foreign-invested company applies to the company registry for registration of its establishment or amendment of its registration after an equity transfer, it shall no longer be required to submit the equity or cooperative joint venture contract or the investors' certificates of creditworthiness.

6. Based on the application, the company registry shall, in accordance with the law, register a foreign-invested company either as a "limited liability company" or a "company limited by shares" and, depending on the form in which it is established, add the words "(Sino-foreign equity joint venture)", "(Sino-foreign cooperative joint venture)", "(wholly foreign-owned equity joint venture)", "(wholly owned by a foreign legal person)", "(wholly owned by a foreign economic organization without legal personality)", "(wholly owned by a foreign natural person)", "(equity joint venture between Taiwan, Hong Kong or Macao investors and foreign investors)", "(equity joint venture between Taiwan, Hong Kong or Macao investors and domestic investors)", "(cooperative joint venture between Taiwan, Hong Kong or Macao investors and domestic investors)", "(equity joint venture between Taiwan, Hong Kong and/or Macao investors)", "(wholly owned by a Taiwan, Hong Kong or Macao legal person)", "(wholly owned by a Taiwan, Hong Kong or Macao economic organization without legal personality)", "(wholly owned by a Taiwan, Hong Kong or Macao natural person)", etc. after "limited liability company", or the words "(Sino-foreign equity joint venture, unlisted)", "(Sino-foreign equity joint venture, listed)", "(wholly foreign-owned equity joint venture, unlisted)", "(wholly foreign-owned equity joint venture, listed)", "(equity joint venture between Taiwan, Hong Kong or Macao investors and foreign investors, unlisted)", "(equity joint venture between Taiwan, Hong Kong or Macao investors and foreign investors, listed)", "(equity joint venture between Taiwan, Hong Kong or Macao investors and domestic investors, unlisted)", "(equity joint venture between Taiwan, Hong Kong or Macao investors and domestic investors, listed)", "(equity joint venture between Taiwan, Hong Kong and/or Macao investors, unlisted)", "(equity joint venture between Taiwan, Hong Kong and/or Macao investors, listed)" after "company limited by shares".

A company registry may, based on state policy on the use of foreign investment in industry and relevant provisions, add the relevant classification identifier after the company type (e.g. "(foreign investment percentage below 25%)", "(A-share merger/acquisition)", "(A-share merger/acquisition 25% or above)", etc.).

With respect to foreign-invested companies established before January 1 2006, company registries shall make the appropriate revisions in accordance with the foregoing provisions when such companies carry out the procedures for the amendment of their registration.

7. Once a foreign-invested company is established, it may make domestic investments in accordance with the law. The company registry shall not longer issue relevant proof of qualifications to make domestic investments.

If the detailed company type is not indicated on the business licence of a foreign-invested company as specified in Article 6 hereof and such company applies to establish a one-person limited liability company, the company registry shall issue a certificate of its being "wholly owned by a person other than a natural person".

8. The registered capital of a foreign-invested company may be expressed either in renminbi or a freely convertible currency. The translation of the foreign currency part of the registered capital of a company into renminbi or between two currencies shall be made at the median of the exchange rates posted by the People's Bank of China on the date of payment.

9. The first instalment of the capital contributions of the shareholders of a foreign-invested limited liability company (including one-person limited liability companies) shall comply with laws and administrative regulations. If the entire amount of a capital contribution is to be paid in, in one lump sum, the full amount shall be paid within six months of the date of establishment of the company. If the capital contributions are to be paid in, in instalments, the amount of the initial instalments may not be less than 15% of the capital contributions subscribed to, nor lower than the statutory minimum registered capital, and shall be paid in within three months of the date of establishment of the company. The time limits for the remainder of the capital contributions shall comply with the Company Law, laws on foreign investment and the Registration Regulations. If other laws or administrative regulations require the shareholders to pay in the entire amounts of their capital contributions at the time of establishment of the company, such requirements shall apply.

The capital contributions to a foreign-invested company limited by shares shall comply with the Company Law.

10. The capital contribution methods of the shareholders of a foreign-invested company shall comply with Article 27 of the Company Law, Article 14 of the Registration Regulations and the Provisions for the Administration of Registration of the Registered Capital of Companies. Until the State Administration for Industry and Commerce together with relevant departments formulate provisions on capital contributions made in the form of property other than cash, physical goods, intellectual property rights and leaseholds, if a shareholder is to make its capital contribution in the form of property other than the property specified in the second paragraph of Article 14 of the Registration Regulations, such property shall be subject to appraisal and valuation by an appraisal institution lawfully established in China. When the property is verified, its value may not be over or underestimated. When the capital contribution is actually made, a capital verification must be carried out by a capital verification institution lawfully established in China, which shall issue a capital verification certificate.

When a shareholder of a Sino-foreign equity joint venture limited liability company is to make its capital contribution in the form of non-monetary property (excluding leaseholds), such as physical goods (including equipment), industrial property rights, etc., as specified in the Sino-foreign Equity Joint Venture Law, the value thereof may be discussed and determined by the parties.

11. The funds raised by a shareholder of a foreign-invested company in the form of a loan, etc. taken out in its own name shall be deemed funds owned by such shareholder and, after issuance of a capital verification certificate by a capital verification institution, may serve as such shareholder's capital contribution.

12. The time limit for a foreign-invested company to apply for amendment of its registration shall comply with the Registration Regulations. If laws or administrative regulations specify or if the State Council decides that a company and its registered particulars require approval before amendment of registration, the company shall carry out the procedures for the amendment of its registration within 30 days of the date of approval by the examination and approval authority. If the application is made late, the applicant shall report to the original examination and approval authority for confirmation of the validity of its document or carry out examination and approval procedures anew.

13. When a foreign-invested company applies for amendment of its registration it shall submit the relevant documents as specified in Article 27 and Article 29, 31, 32, 33, 34 or 35 of the Registration Regulations. When carrying out the procedures for the amendment of registration for a change in the registered particulars set forth below, the examination and approval document issued by the original examination and approval authority and the amended approval certificate shall additionally be submitted:

(1) registered capital;

(2) company type;

(3) scope of business;

(4) term of operation;

(5) the capital contribution amount subscribed to by a shareholder or promoter, or the capital contribution method;

(6) the merger or division of the foreign-invested company;

(7) a change of address that crosses the jurisdiction of the examination and approval authority; or

(8) a transfer of the equity of a limited liability company or shares in a company limited by shares (unless the particulars recorded on the business licence and approval certificate are not affected).

In circumstances other than those specified in the preceding paragraph, if the registered particulars of a foreign-invested company are changed such that amendment of the company's articles of association is involved, amendment procedures shall be carried out with the examination and approval authority within 30 days after carrying out the procedures for the amendment of registration.

14. If a foreign-invested company is to be relocated (beyond the jurisdiction of the original company registry), the procedures for relocation shall be carried out with the original company registry. If the relocation crosses examination and approval authority jurisdictions, an application shall be submitted to the examination and approval authority of the place to where the company is relocating. The examination and approval authority of the place to where the company is relocating shall seek the opinion of the examination and approval authority of the place from where the company is relocating within five working days of receipt of the application. The examination and approval authority of the place from where the company is relocating shall reply within five working days of receipt of the letter seeking its opinion. The examination and approval authority of the place to where the company is relocating shall issue its official reply within three working days of receipt of the opinion. The original company registry shall seek the opinion of the company registry of the place to where the company is relocating within five working days of receipt of the application. The registry of the place to where the company is relocating shall reply within five working days. The original company registry shall recover the business licence and issue a relocation certificate based on the opinions consenting to the relocation issued by the company registry and the examination and approval authority of the place to where the company is relocating and, within 10 working days, forward the application materials and the company registration file to the company registry of the place to where the company is relocating. The company applying for relocation shall return its approval certificate to the examination and approval authority of the place from where it is relocating on the strength of the relocation certificate and the approval document of the examination and approval authority, collect its approval certificate from the examination and approval authority of the place to where it is relocating and apply to the company registry of the place to where it is relocating for amendment of its registration and collect its business licence.

15. If a foreign-invested company increases its registered capital, and the company is a limited liability company (including a one-person limited liability company) or a company limited by shares established through promotion, the shareholders shall pay in 20% of the capital increase at the time the company applies for amendment of the registration of its registered capital. The schedule for the payment of the remainder shall comply with the Company Law, laws on foreign investment and the Registration Regulations. If other laws or administrative regulations provide otherwise, such provisions shall prevail.

When a company limited by shares issues new shares to increase its registered capital, the subscription for new shares by shareholders shall be handled in accordance with provisions on the payment of subscription moneys for the establishment of a company limited by shares.

16. When an applicant applies for a change in its registered capital under the circumstances set forth below, if imported goods that are to serve as a capital contribution, made in the form of physical goods, may be exempted from duties and tax in accordance with provisions, the applicant shall explain the relevant circumstances to customs in writing and shall first carry out the procedures for the release on bond of imported equipment on the strength of a Confirmation as a Domestic or Foreign-invested Project Whose Development is Encouraged by the State and, after obtaining its amended business licence, carry out the relevant duty and tax reduction or exemption procedures:

(1) when a foreign-invested company is to increase its registered capital, it applies to have a capital contribution made in the form of imported physical goods and receives the approval of the examination and approval authority therefor;

(2) when a Foreign Investor or a foreign-invested company acquires a domestic enterprise and is to increase its registered capital, it applies to have a capital contribution made in the form of imported physical goods and receives the approval of the examination and approval authority therefor; or

(3) a foreign-invested company applies for the import of physical goods in connection with another change in its registered capital and receives the approval of the examination and approval authority therefor.

17. The foreign exchange departments shall no longer require the applicant to submit its amended business licence when handling the following matters:

(1) when a foreign-invested company increases its registered capital and applies for amendment of its foreign exchange registration or for the opening or changing of a capital account;

(2) when a Foreign Investor or a foreign-invested company acquires a domestic enterprise, increases its registered capital and applies for foreign exchange registration or for the opening of a capital account;

(3) when a foreign-invested company reduces its registered capital and carries out the procedures with the foreign exchange department for a capital reduction approval document; or

(4) when a foreign-invested company carries out the procedures for other amendments to its foreign exchange registration due to a change in its capital.

18. The following particulars of a foreign-invested company and changes thereto shall be reported to the company registry for the record:

(1) proposed amendments to the company's articles of association or the amended articles of association of the company that do not involve registered particulars and that were approved by the examination and approval authority (including changes to the total investment);

(2) the company's directors, supervisors or managers;

(3) the establishment or closing down of branches of the company; and

(4) the list of the members and person in charge of the company's liquidation committee.

The carrying out of record filing procedures shall no longer be required for extensions granted to shareholders of a foreign-invested company to make their capital contributions or the paid-in registered capital of such company, rather, the relevant procedures for amendment of registration shall be carried out in accordance with the Registration Regulations.

When a foreign-invested company carries out the procedures for the record filing of a matter, it shall submit to the company registry a record filing application signed by its legal representative (or the person in charge of its liquidation committee) and relevant documents evidencing the occurrence of the matter to be recorded. Once the record filing documents are complete, the company registry shall grant record filing and, as required by the applicant, issue a record filing certificate.

19. When a Foreign Investor (authorizing party) changes its domestic receiver of legal documents (attorney), it shall sign a new Power of Attorney for Service of Legal Documents, and report the same to the company registry for the record in a timely manner. If such particulars as the name or address of the attorney change, the same shall likewise be reported to the company registry for the record in a timely manner. The company registry shall record such particulars in the company's registration file.

If a Foreign Investor fails to carry out the aforementioned record filing procedures, when the company registry serves a domestic legal document on the attorney recorded by the company registry, the same shall be deemed to have been served on the Foreign Investor.

20. When a shareholder of a foreign-invested company carries out the procedures for the record filing of a pledge of its equity, it shall submit to the company registry the application for record filing of a pledge of equity issued by the company, the approval document from the examination and approval authority and the pledge contract. After the company registry accepts the same for record filing, it may, at the request of the applicant, issue a record filing certificate that records such particulars as the name of the shareholder making the pledge, the percentage of the enterprise's equity accounted for by the pledged equity, the name of the pledgee, the pledge term, the examination and approval authority for the pledge contract, etc. During the pledge term, the shareholder that made the pledge may not transfer or re-pledge the pledged equity without the consent of the pledgee and may not reduce its corresponding capital contribution amount.

21. If a foreign-invested company applies for cancellation of the amendment of its registration pursuant to Article 22 of the Company Law, it shall submit an application for cancellation of the amendment of its registration and the judgement or ruling of the people's court to the company registry. If approved foreign investment particulars were involved, the approval document of the examination and approval authority shall additionally be submitted. If the same comply with the Company Law, the company registry shall render a decision permitting the cancellation of the amendment of registration, and, if particulars recorded on the business licence were involved, it shall replace the business licence.

22. If a foreign-invested company fails to establish a liquidation committee within the time limit specified in the Company Law to liquidate the company after grounds for liquidation have arisen and its creditors fail to apply to a people's court to appoint a liquidation committee to liquidate the company, the highest authority of the company, its shareholders or its creditors may apply, in accordance with the Measures for the Liquidation of Foreign-invested Enterprises, to the examination and approval authority for the carrying out of special liquidation. The customs procedures for goods under customs surveillance shall be carried out first, and the relevant duties and taxes paid retroactively.

23. When a foreign-invested company applies for de-registration, it shall submit the relevant documents in accordance with Article 44 of the Registration Regulations. The liquidation report shall be accompanied by the proofs of de-registration issued by the tax authorities and proof issued by customs that the customs procedures have been carried out or proof that customs registration procedures were not carried out. If a foreign-invested company terminates its business operations early and applies for de-registration, it shall additionally submit the approval document issued by the examination and approval authority (unless it was ordered to dissolve or declared bankrupt by a court, or was ordered to close down, had its business licence revoked, had its establishment permission revoked or had its establishment registration cancelled by an administrative authority).

24. When a foreign-invested company establishes or closes down a branch, it shall apply for registration directly to the foreign-invested company registry of the place where the branch is located without passing through its original company registry.

If, pursuant to laws, administrative regulations, a decision of the State Council or special state provisions on foreign investment in projects in the restricted category or on the trade in services sector, the establishment or closing down of a branch requires the approval of the relevant departments, the registration application shall be made within 30 days of the approval date. If the application is made late, the applicant shall report to the original examination and approval authority for confirmation of the validity of its document or carry out examination and approval procedures anew.

25. Company registries shall no longer carry out registration procedures for the offices of foreign-invested companies. Procedures for the amendment of the registration or the renewal of the term of offices that have previously been registered shall no longer be carried out. Upon expiration of their terms, they shall either carry out de-registration procedures or, as required, apply for establishment as a branch. The branches of a foreign-invested company may engage in liaison, consulting and other such business within the scope of business of the company.

Company registries shall investigate and handle business activities engaged in ostensibly as an office.

26. If a shareholder or promoter of a foreign-invested company fails to make or fails to make on time its cash capital contribution or capital contribution in the form of non-monetary property, the company registry shall impose penalties in accordance with the applicable principles of the Provisions for the Administration of Registration of the Registered Capital of Companies. For companies established prior to January 1 2006, the capital contribution deadlines applicable at the time of the registration of their establishment shall prevail.

If a shareholder in a Sino-foreign cooperative joint venture company fails to perform its capital contribution obligation on schedule, the company registry shall order it to perform such obligation within a specified period of time in accordance with Article 9 of the Sino-foreign Cooperative Joint Venture Law. If it still fails to perform its obligation, the matter shall be handled in accordance with the first paragraph of this Article. If a shareholder in a wholly foreign-owned equity joint venture or wholly owned foreign-invested company fails to make payment on schedule, the company registry may, in addition to handling the matter in accordance with the first paragraph of this Article, revoke the company's business licence in accordance with Article 9 of the Wholly Foreign-owned Enterprise Law.

27. If a foreign-invested company exceeds its approved scope of business to engage in business activities in the encouraged or permitted categories of the Foreign Investment Industrial Guidance Catalogue without authorization, the company registry shall apply Article 73 of the Registration Regulations in imposing penalties.

If a foreign-invested company exceeds its approved scope of business to engage in business activities in the restricted or prohibited categories of the Foreign Investment Industrial Guidance Catalogue without authorization, the company registry may determine that it has "operated in violation of the law by exceeding its approved and registered scope of business in engaging, without authorization, in business activities that may only be engaged in after obtaining a permit or other approval document", and apply the Measures for Investigating, Handling and Shutting Down Unlicensed Business Operations in imposing penalties. If a criminal offence is established, the company's criminal liability shall be pursued in accordance with the law.

28. The administration of the examination, approval and registration of companies invested in and established by investors from Taiwan, the Hong Kong Special Administrative Region and the Macao Special Administrative Region, Chinese citizens resident abroad (overseas Chinese), as well as foreign-invested investment companies and companies invested in and established by foreign-invested venture investment companies shall, mutatis mutandis, be governed in accordance with these Opinions.