Conditions for Equity Merger

 

Article 27 The expression of "merger of domestic company by a foreign investor using its equity to pay" mentioned in this Chapter 4 shall refer to that the shareholder of a overseas company, using its equity in the overseas company or using its increased shares of the overseas company to pay, purchases the shareholders' equity in a domestic company or purchases the increased shares of a domestic company.

Article 28 The overseas company mentioned in this Chapter 4 shall be legally established and its registration place shall have a sound legal system on company administration, and the company and its management shall have not been punished by relevant regulatory authority in recent three (3) years. Except the special purpose companies as provided for in Section Three of this Chapter Four, the oversea company shall be a public listed company, and the listing place shall have a sound management system on securities exchange.

Article 29 When a foreign investor merges a domestic company by equity merger, the equity of the domestic and overseas companies involved in the merger shall satisfy the following conditions:

(1) the equity is lawfully held by shareholders and may be assigned according to law;

(2) the equity is free from any dispute over ownership, any pledge or any other property encumbrance;

(3) the equity of the overseas company shall be listed on an overseas open and lawful securities exchange market (excluding any over-the-market counter exchange) for transaction;

(4) the transaction price of the overseas company's equity is stable in the latest one (1) year.

The preceding Item (3) and Item (4) are not applicable to the special purpose companies as provided for in Section 3 of this Chapter 4.

Article 30 When a foreign investor merges a domestic company by equity merger, the domestic company or its shareholders shall employ an intermediary authority established and registered in China to act as its consultant (hereinafter referred to as "the Merger Consultant"). The Merger Consultant shall conduct a due diligence investigation on the authenticity of application documents in the merger, the financial status of overseas company and whether the merger is compliance with the requirements provided for in Article 14, Article 28 and Article 29 hereof, and shall issue a merger consultant's report to give clear and professional advice on the above mentioned contents item by item.

Article 31 The Merger Consultant shall satisfy the following conditions:

(1) to be with good credit standing and experiences in relevant industries;

(2) to be without record of serious violation of law or regulation;

(3) to be with the ability to investigate and analyze the legal system in the registration and listing place of the overseas company as well as the financial status of the overseas company.

 

Section 2 Application Documents and Procedures

 

Article 32 When a foreign investor merges a domestic company by equity merger, it shall submit an application to the MOC, and the domestic company shall also submit the following documents in addition to the documents as required in Chapter 3 of the present provisions:

(1) the statement on alteration in equity and material assets of the domestic company in the latest one (1) year;

(2) the merger consultant's report;

(3) the certificate of incorporation or the identity certificate of the domestic company, overseas company involved in the merger and the shareholders of these companies;

(4) the statement on shareholding status of the shareholders of the overseas company and the name list of shareholders who hold more than 5% equityof the overseas company;

(5) the articles of association of the overseas company and statement on external guarantee provided by the overseas company;

(6) the audited financial statements of the overseas company in recent years and the statement on stock transaction in the latest half a year.

Article33 MOC shall make an examination on the merger application within thirty (30) days as of the receipt of all application documents as required, and if the application can satisfy the conditions, it shall issue a certificate therefore and indicate the following words on the certificate "a foreign investor merges a domestic company by equity merger, which is valid within six (6) months as of the issuance of the business license".

Article 34 Within thirty (30) days as of the receipt of certificate with the above mentioned indication, the domestic company shall go through the procedures on registration of alteration with the competent administrative authority of registration and the foreign exchange administrative authority, and the administrative authority of registration and the foreign exchange administrative authority shall respectively issue the business license for a foreign investment enterprise and the foreign exchange registration certificate to the domestic company, on which it shall indicated the words of "valid within eight (8) months as of its issuance".

When the domestic company goes through procedures on registration of alteration with the administrative authority of registration, it shall in advance submit the application for equity alteration, amendment to the articles of association and the agreement on equity transference signed by the legal representative of the domestic company for the purpose of restoration of equity structure.

Article 35 Within six (6) months as of the issuance of the business license, the domestic company or its shareholders shall apply to the MOC and the foreign exchange administrative authority for approval and registration of establishment of foreign investment enterprise with respect to the equity of an overseas company held by the domestic company.

In addition to the documents to be submitted to the MOC as required in the Provisions on Approval of Investment in and Establishment of Overseas Enterprises, the parties to a merger shall also submit the approval certificate and the business license of the foreign investment enterprise with the indication as mentioned above. After the equity held by a domestic company or its shareholders in an overseas company is approved by the MOC, the MOC shall issue the Approval Certificate of Overseas Investment by Chinese Enterprises to the domestic company, and shall also reissue an approval certificate for the foreign investment enterprise without the above mentioned indication.

Within thirty (30) days as of the receipt of an approval certificate for the foreign investment enterprise without indication, the domestic company shall apply to the administrative authority of registration and the foreign exchange administrative authority for re-issuance of the business license for a foreign investment enterprise and the foreign exchange registration certificate without indication.

Article 36 If the domestic company and the overseas company fail to go through the procedures for alteration of equity within six (6) months since issuance of the business license, the approval certificate with remarks and the approval certificate of overseas investment by Chinese enterprise shall be invalidated automatically. The registration administrative authority shall examine and approve the registration on alteration based on the application documents for registration on equity alteration submitted by the domestic company in advance, so as to restore the equity structure of the domestic company to the status before the equity merger.

If a foreign investor fails to merge the increased shares of a domestic company, the domestic company, before the registration administrative authority approves the registration on alteration in accordance with the preceding paragraph, shall also reduce its registered capital accordingly and make public announcement on the newspaper in accordance with the provisions of Company Law of the People's Republic of China.

If the domestic company fails to go through the procedures of registration in accordance with the preceding paragraph, the registration administrative authority shall settle it in accordance with the relevant provisions of Regulations of the People's Republic of China on Administration of Registration of Companies.

Article 37 Prior to the obtainment of the approval certificate for a foreign investment enterprise and the foreign exchange certificate without indication, the domestic company shall not distribute profits to any shareholder, or provide any guarantee to any of its affiliated company, or assign any equity to any third party, or reduce its registered capital, or make liquidation or any other matters relating to its assets.

Article 38 The domestic company and its shareholders may go through the procedures on registration of taxation alteration with the competent taxation authority with the approval certificate and the business license without indication issued by the MOC and the registration administrative authority.