The Ministry of Commerce promulgated the Interim Measures for Amending the Recordation Administration of the Establishment and Amendment of Foreign-Invested Enterprises (the “Decision”) on June 29, 2018. The Decision simplifies some of the procedures for recording the establishment and amendment of foreign-invested enterprises to better reflect the implementation of the state policy to provide “one form and one-stop service” for the commercial recordation and the industrial and commercial registration in the establishment of a foreign enterprise, optimize the recording procedure and further enhance the level of facilitation for foreign investment. The Decision consists of the following changes:
I. The industrial and commercial registration proceeding simultaneously with the commercial recordation
According to the Decision, Paragraphs 1 and 2 of Article 5 are amended as follows: “To the extent that the establishment of a foreign-invested enterprise falls within the scope of recordation under the Measures, when a representative designated by all investors (or the board of directors of a foreign-invested company limited by shares) or a jointly retained agent registers the establishment of the enterprise with the industry, commerce and market supervision authorities, the recordation information shall be concurrently submitted online. When a non-foreign-invested enterprise becomes a foreign-invested enterprise due to a merger or acquisition or absorptive consolidation and falls within the scope of recordation under the Measures, the establishment recordation information of the foreign-invested enterprise shall also be submitted online at the same time as submitting the amendment registration with the industrial, commercial and market supervision authorities.”
One paragraph is added to Article 5 as Paragraph 3, which provides: “When receiving recordation information transmitting by the industrial, commercial and market supervision authorities, the recordation agency shall commence with the recordation formalities and inform the investors.”
In addition, the Decision also deletes the requirement that “for investors of a foreign-invested enterprise who have submitted recordation information before a business license is issued, if the actual status of the investment has changed, the amendment recordation formalities shall be completed with the recordation agency within 30 days after the business license is issued.”
To wit, when a foreign-invested enterprise is established, regardless of whether it is a new entity or formed through a merger, the original sequence of formalities in either first going with the industrial and commerce authorities before the commerce departments or the other way around, both formalities will now proceed at the same time, thereby eliminating the possibility of inconsistent information.
II. Clarification of the priority vis-a-vis securities registration
The Decision also amends Article 7 by deleting Paragraphs 1 and 3 and the wording “before registration or” in Paragraph 2. As a result, if a foreign-invested listed company introduces a new foreign investor’s strategic investment which this falls within the scope of recordation, the amendment recordation formalities shall be handled by completing an “amendment application” within 30 days after completing the securities registration process with the securities registration and clearing institution. For a non-foreign-invested listed company seeking to introduce strategic investment of a foreign investor, and the scenario where recordation information about a strategic investment has changed after recordation has been completed, no further requirements are imposed.
III. Adjustment of the order of certain wording and correction of logical flaws of the law
Pursuant to the Decision, the formal completeness and accuracy of information as indicated will not be verified until each recordation agency has obtained the establishment or amendment recordation information of the foreign-invested enterprise, in contrast to the original practice where the verification process would commence upon an investor’s submission. This will reduce the time pressure on the recordation agency. With respect to supplements in the same establishment or amendment matter, the Decision provides that a foreign-invested enterprise or its investors are required to separately apply to supplement the recordation information to the recordation agency with respect to the same establishment or amendment matter within five working days, in contrast to the original requirement that only applications for supplements are only required within five working days if it is for the same establishment or amendment matter “that has been implemented”.
In short, although the Decision does not make any particularly material revisions to the Interim Measures for the Recordation Administration of the Establishment and Amendment of Foreign-Invested Enterprises, it nevertheless better reflects the procedural experiences that the administrative agencies have accumulated since the implementation of such measures. After the amendments, a foreign-invested enterprise may be established more rapidly with less likelihood of errors and with more accuracy in the schedule projections, which is clearly a boon for enterprises.