With respect to foreign investors acquire non-foreign-invested enterprises in China and engage in strategic investments in listed companies that do not involve special administrative measures, and the application of recordation administration to acquisitions of related entities, the Ministry of Commerce decided on July 30, 2017 to amend the Interim Administrative Measures for the Incorporation and Amendment Recordation of Foreign-invested Enterprises promulgated in 2016 (the “Decision”). A total of five articles are amended, with a primary concern on the recordation issues involving the aforementioned acquisitions and strategic investments, as well as the types of documents required for incorporation or amendment recordation. Specific details are as below:
1. Additional circumstances where an “incorporation form” and an “amendment recordation form” should be filled out and filed
Pursuant to the Decision, one paragraph is added to the original Article 5 plus a new article in Article 7 to specifically require that the completion and filing of the incorporation form if a non-foreign-invested enterprise becomes a foreign-invested enterprise via acquisition or absorptive consolidation, and if a foreign investor makes a strategic investment in a non-foreign-invested listed company. When a foreign-invested listed company introduces new strategic investments from new foreign investors, an amendment recordation form shall be filled out and filed. The definition of acquisitions, absorptive consolidations and strategic investments may be found in the Ministry of Commerce’s Announcement No. 37 on Matters Concerning the Incorporation and Amendment Recordation Administration of Foreign-invested Enterprises as released on the same date.
2. Expansion of the scope of amendment recordation
The Decision added to the original Article 6 another matter that requires amendment recordation. To wit, an enterprise is now required to file amendment recordation for “changes to the basic information of an acquisition for the establishment of a foreign-invested enterprise.” However, the Decision does not further explain “changes to the basic information of an acquisition for the establishment of a foreign-invested enterprise.” It is expected that a local commerce committee should still be consulted for specific details when in actual practice.
3. Specific requirements for the registration procedure for listed companies
The Decision pointed out in the newly added Article 7 that when a foreign investor makes strategic investments in non-foreign-invested listed companies, and when a foreign-invested listed company is introduces strategic investments from new foreign investors, the formalities for incorporation or amendment recordation shall be handled 30 days before or after registration with a securities depository and clearing institution.
In addition, if there is a change to the recordation information for the strategic investment after the recordation is completed, the recordation should be amended within five days after the day the disclosure obligations under the Securities Law and relevant requirements are performed.
4. Additional documents to be uploaded and submitted
The Decision added two requirements to the original Article 7 (Article 8 after amendment). Firstly, a shareholding structure chart detailing the ultimate controlling shareholders of the foreign-invested enterprise shall be provided, unless the change does not affect the ultimate controlling shareholders of the foreign-invested enterprise. Secondly, if a foreign investor intends to provide payment in the form of compliant shares of an offshore company, the onshore enterprise that receives those shares is required to provide a “Certificate of Offshore Investment.”
5. Deletion of forms in the original schedule
The Decision deletes the “incorporation form” and “amendment recordation form” in the original schedule with new recordation forms available in the aforementioned Announcement No. 37.
The Decision came into effect on July 30. From then on, new requirements shall be followed for any of the aforementioned matters involving incorporation or amendment recordation. Special attention should be paid to the “Certificate of Offshore Investment” when shares are used as payment. To determine if a matter falls within the scope of recordation, whether an enterprise is an enterprise within a free trade zone pursuant to aforementioned Announcement No. 37 should be considered. The Special Management Measures (Negative List) for Foreign Investment Access in Pilot Free Trade Zones (2017 Version) applies to all enterprises within a free trade zone after July 10, 2017, while the Catalogue of Industries for Guiding Foreign Investment (2017 Revision) applies to enterprises outside of a free trade zone after July 28, 2017.