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The Alteration of Investors' Equities in Foreign-funded Enterprises
1. The definition of the alteration of investors' equities in foreign-funded enterprises
Alteration of investors' equities in foreign-funded enterprises refers to alteration of investors of Sino-foreign equity joint ventures, Sino-foreign contractual joint ventures, foreign-funded enterprises set up in the territory of the People's Republic of China or their shares (equities) of investment in the enterprise (including terms of cooperation they provide).
2. The factors of the alteration of investors' equities in foreign-funded enterprises
The following major factors leading to alteration of investors' equities in foreign-funded enterprises:
⑴. Agreed transfer of equities between investors in the enterprise.
⑵. Transfer of equities to other related enterprises or other transferees by an investor in the enterprise with agreement from other investors.
⑶. Alteration of equities of each investing party due to readjustment of registered capital of the enterprise agreed to by investors in the enterprise.
⑷. Ownership of equities of investors by pledges or beneficiaries in accordance with legal terms or contracts that have been pledged by investors in the enterprise to creditors with agreement from other investors.
⑸. Ownership of equities by inheritors, creditors or other beneficiaries in accordance with law due to bankruptcy, dissolution, cancellation, revocation, or death of an investor in the enterprise.
⑹. Inheritance of equities of the initial investor by a successor due to merge or split of investors in the enterprise.
⑺. Alteration of investors or equities due to failure on the part of an investor in the enterprise to perform investment duties as stipulated in enterprise contracts or in articles of association, with approval from departments in charge of examination and approval.
3. The laws involving in the alteration of investors' equities in foreign-funded enterprises
⑴Company Law of the People's Republic of China
⑵ Regulations for the Implementation of the Law of the People's Republic of China on Chinese –foreign Equity Joint Ventures
⑶Law of the People's Republic of China on Chinese –foreign Contractual Joint Ventures
⑷Rules for the Implementation of the People's Republic of China on Foreign-Capital Enterprises
⑸Catalogue for the Encouragement of Foreign Investment Industries
⑹Real Right law of the People's Republic of China
⑺The Guaranty Law of the People's Republic of China
⑻Provisions for the Alteration of Investors' Equities in Foreign-funded Enterprises
4. Several Key Legal Points
⑴.Whatever the reasons are for altering the equities, the alteration of equities by an investor in the foreign-funded enterprise shall be approved by examination and approval departments and submitted for alteration registration with registration departments. Alteration of equities without approval from examination and approval departments shall be invalid.
⑵.Unless a foreign investor transfer all of its equities to the Chinese investor, alteration of equities by an investor in the enterprise shall not result in the sharing of investment by this foreign investor of less than 25 per cent of the registered capital of this enterprise.
⑶.Should changes take place in the equities of an investor in the enterprise due to multiplication of the enterprise's registered capital and the total investment of this enterprise surpass the limit of amount authorized to handle by the original examination and approval department as a result, alteration of the equities of the investors in the enterprise shall be reported for examination and approval to a senior examination and approval department in line with the limit of power of this department and pertinent regulations.
⑷.Different reasons for the alterations, the enterprise shall submit different documents to examination and approval departments. We will talk about the submission of the documents in the next blog.
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