Provisions on the Merger and Acquisition of Domestic Enterprises by Foreign Investors (Revised in 2009)
Provisions on the Merger and Acquisition of Domestic Enterprises by Foreign Investors (Revised in 2009)
Provisions on the Merger and Acquisition of Domestic Enterprises by Foreign Investors (Revised in 2009)
Order of Ministry of Commerce [2009] No. 6
June 22, 2009
For the purpose of ensuring the consistency of the Provisions on the Merger and Acquisition of Domestic Enterprises by Foreign Investors, the Anti-monopoly Law and the Provisions of the State Council on the Threshold for the Reporting of Undertaking Concentrations, it is hereby amended the Provisions on the Merger and Acquisition of Domestic Enterprises by Foreign Investors as follows:
Article 1 Chapter V "Anti-monopoly Investigation" shall be deleted, and a new article shall be added in the Supplementary Provisions as Article 51, which shall be stated as: "In accordance with the provisions of the Anti-monopoly Law, where the merger or acquisition of domestic enterprises by foreign investors satisfy the reporting standards as stipulated in the Provisions of the State Council on the Threshold for the Reporting of Undertaking Concentrations, the foreign investors shall report to the Ministry of Commerce beforehand, and no transaction shall be conducted without reporting."
The succeeding articles, sections, chapters thereof shall be adjusted correspondingly.
Article 2 The following articles shall be amended literally:
1. Paragraph 4 of Article 16 "Where a foreign investor establishes a foreign-invested enterprise by merging and acquiring a domestic enterprise, if the proportion of its contribution is less than 25 per cent of the enterprise's registered capital and if the investors make capital contribution in cash" shall be amended to be "Where a foreign investor establishes a foreign-invested enterprise by merging and acquiring a domestic enterprise, if the proportion of its contribution is less than 25 per cent of the enterprise's registered capital and the investors make capital investment in cash".
2. Paragraph 1 of Article 36 "Within 6 months as of the date of issuance of a business license, in case the domestic and overseas companies fail to go through the formalities of equity modification, the approval certificate with annotation and approval certificate of Chinese enterprise overseas investment shall be invalid automatically. The registration administration shall, pursuant to the application documents for registration of equity modification submitted by the domestic company in advance, examine and approve the alteration registration and resume the equity structure of the domestic company to the status before the equity M&A" shall be amended to be "Within 6 months as of the date of issuance of a business license, in case the domestic and overseas companies fail to go through formalities for equity alteration, the approval certificate with annotation and approval certificate of Chinese enterprise overseas investment shall be invalid automatically. The registration administration shall, pursuant to the application documents for registration of equity alteration submitted by the domestic company in advance, examine and approve the alteration registration and resume the equity structure of the domestic company to the status before the equity M&A. "
3. "Final controller" as stipulated in Item 1., Paragraph 1 of Article 42 and Item 3., Paragraph 1 of Article 44 shall be amended to be "actual controller".
This Decision shall come into effect on the date of promulgation.
The Provisions on the Merger and Acquisition of Domestic Enterprises by Foreign Investors shall be amended correspondingly in accordance with this Decision and be re-promulgated.
Director Chen Deming
Attachment: Provisions on the Merger and Acquisition of Domestic Enterprises by Foreign Investors (Revised in 2009)
Contents
Chapter I General Provisions
Chapter II Basic Rules
Chapter III Examination, Approval and Registration
Chapter IV Foreign Investors' Merger and Acquisition of Domestic Companies by Payment of Equities
Section 1 Requirements for Equity M&A
Section 2 Application Documents and Procedures
Section 3 Special Provisions on Company with Special Purpose
Chapter V Supplementary Provisions
Chapter I General Provisions
Article 1 For the purposes of promoting and regulating foreign investors' investment in China, introducing foreign advanced technology and management experience, enhancing the level of utilizing foreign investment, realizing reasonable allocation of resources, ensuring employment, safeguarding fair competition and national economic security, these Provisions are hereby formulated in accordance with the laws and administrative regulations on foreign-invested enterprises, the Company Law and other relevant laws and administrative regulations.
Article 2 For the purpose of these Provisions, the term "merger and acquisition of domestic enterprises by foreign investors" shall mean a foreign investor purchases the stock right of a shareholder of a non-foreign-invested enterprise in China ("domestic company") or capital increase of a domestic company so as to convert and re-establish a domestic company as a foreign-invested enterprise ("equity M & A"); or, a foreign investor establishes a foreign-invested enterprise and purchases and operates the assets of a domestic enterprise by the agreement of that enterprise, or, a foreign investor purchases the assets of a domestic enterprise by agreement and uses this asset investment to establish a foreign-invested enterprise and operate the assets ("asset M & A").
Article 3 Foreign investors' merger and acquisition of domestic enterprises shall comply with the laws, administrative regulations and rules of China and follow the principles of fairness and reasonableness, consideration for equal value and good faith, shall not result in excessive concentration, exclusion or restriction of competition, shall not mess up social economic order or harm social public interests, and shall not cause state-owned assets to lose.
Article 4 Foreign investors' merger and acquisition of domestic enterprises shall comply with the requirements stipulated by laws, administrative regulations and rules of China, and policies concerning industry, land and environment.
According to the Catalogue on the Guidance for Foreign Investment in Industries, to an industry that is not allowed to be wholly operated by foreign investors, its merger and acquisition shall not result in foreign investors' holding the enterprise's entire equity. To an industry that needs Chinese party to have the holdings or have relative holdings, and the Chinese party shall maintain its holdings or relative holdings in the enterprise after the enterprise in that industry is merged and acquired. To an industry that is forbidden to be operated by foreign investors, the foreign investors shall not merge or acquire any enterprise in that industry.
The business scope of the original invested enterprise of the merged or acquired domestic enterprise shall satisfy the requirements of the policy concerning foreign-invested industry. Whichever does not meet the requirements shall be readjusted.
Article 5 A foreign investor's merger or acquisition of domestic enterprises involving the transfer of state owned equity and management of state owned equity of listed companies shall abide by relevant provisions on the management of state owned assets.
Article 6 Where a foreign investor establishes a foreign-invested enterprise by merging or acquiring a domestic enterprise, it shall be subject to the approval of the examination and approval authority in accordance with the provisions of these Provisions and go through registration with the registration authority for alteration or establishment particulars.
In case the merged enterprise is a domestic listed company, it shall go through relevant formalities with the securities regulatory authority under the State Council in accordance with the Administrative Measures for Strategic Investment by Foreign Investors in Listed Companies.
Article 7 Various parties involved in the foreign investor's merger and acquisition of domestic enterprises shall pay tax and be subject to the supervision of tax authority in accordance with the PRC Tax Law.
Article 8 Various parties involved in the foreign investor's merger and acquisition of domestic enterprises shall abide by the laws and administrative regulations of China on foreign exchange control, go through the formalities of foreign exchange examination and approval, registration, filing and alteration with the foreign exchange authority in a timely manner.
Chapter II Basic Rules
Article 9 In case the ratio of capital contribution of a foreign investor in the registered capital of the foreign-invested enterprise established after the merger and acquisition (M&A) is more than 25 percent, this enterprise shall enjoy the treatment of a foreign-invested enterprise.
If the ratio of capital contribution of the foreign investor in the registered capital of the foreign-invested enterprise established after merger and acquisition is less than 25%, this enterprise shall not enjoy the treatment of a foreign-invested enterprise except for separate provisions stipulated by laws and administrative regulations. Its Borrowing external debts shall be handled according to relevant provisions relating to domestic non-foreign-invested enterprises' borrowing external debts. The examination and approval authority shall issue to it the Approval Certificate of Foreign-invested Enterprises with annotations "ratio of foreign investment less than 25%" (Approval Certificate). The registration administration authority and foreign exchange administration authority shall issue separately to it the Business License for foreign-invested enterprises with annotations "ratio of foreign investment less than 25%" and Foreign Exchange Registration Card.
If domestic companies, enterprises or natural persons merge or acquire the domestic companies that have something to do with them in the name of the companies legally established or controlled by them in foreign countries, the established foreign-invested enterprises shall not enjoy the treatment of foreign-invested enterprises except that if the company in foreign countries offers to subscribe the capital increase of domestic companies, or increase capital to the enterprises established by this company in foreign country after merger, the sum of capital increase takes more than 25 percent of the enterprise's registered capital.
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