On 3 May the Shanghai Financial Services Office, Shanghai Administration for Industry and Commerce, Shanghai Finance Bureau and Shanghai Local Taxation Bureau published the revised Industrial and Commercial Registration and Other Matters Regarding Equity Investment Companies in Shanghai Notice in a bid to further promote the development of equity investment companies in the city. The notice has effect from 3 June 2011 to 2 June 2016.
Shareholders’ contibutions
An equity investment company refers to a company established by law and engaged in equity investment as its principal business.
- A shareholder or a partner should make any capital contribution in their own name, and that name should be disclosed;
- The registered capital (contribution amount) must be a monetary contribution of no less than RMB100 million (US$15.7 million). The capital contribution by a single natural person shareholder (partner) should not be less than RMB 5 million; and
- If an equity investment company is formed as a limited company or a partnership, the number of shareholders or partners should not exceed 50. If it is established as an unlisted joint stock limited company, the number of shareholders should not be more than 200.
An equity investment management company refers to a company appointed by an equity investment company and engaged in equity investment management as its major business.
- If an equity investment management company is established as a joint stock limited company, its registered capital should not be less than RMB5 million; and
- If it is established as a limited liability company, its paid-up capital should not be less than RMB1 million.
If capital contribution is made in the name of a trust company, the type of equity should be clarified at the time of registration to ensure the risks associated with the trust property are isolated.
Business registration
? Form of establishment: companies engaged in equity investment and equity investment management should be established in the form of a partnership or a company.
? Investors: investors may be natural persons, legal persons and other organizations incorporated in China as well as foreign natural persons, legal persons and other organizations incorporated outside China as stipulated under national laws and administrative regulations.
? Company name: the industry designation appearing in the name of an equity investment company or an equity investment management company can be respectively represented as “equity investment” and “equity investment 尘补苍补驳别尘别苍迟”, or “equity investment 蹿耻苍诲” and “equity investment fund 尘补苍补驳别尘别苍迟”. If appropriate, they may affix “First Tranche”, “Second Tranche”, “Third Tranche” and so forth after their names.
? Business scope: the business scope of an equity investment company and an equity investment management company should be consistent with the industry descriptions in their company names.
? Place of business: an equity investment company may have a place of business that is the same as that of an equity investment management company that undertakes management responsibilities.
With respect to industrial and commercial registration as well as other matters concerning foreign equity investment companies, these companies are also required to meet the special requirements under the Shanghai Pilot Scheme for Foreign-invested Equity Investment Enterprises Implementing Measures.
Tax policy
As to the income derived from the business operations of an equity investment company or an equity investment management company established in the form of a partnership, as well as other income, the partners should pay income tax as taxpayers on the respective income based on the principle that profit from this income is distributed first before tax is paid.
Protection of investors
- An equity investment company must promptly disclose its annual report to its shareholders or partners after the end of each fiscal year. In particular, the financial accounting reports should be audited by an accounting firm.
- To ensure the assets of a partner are secure, the assets of an equity investment company established in the form of a limited partnership should be entrusted with a bank that operates trust business.
Other matters
The notice encourages equity investment companies to form a trade association, with the Shanghai Financial Services Office as the competent authority overseeing the industrial practices of the trade association. The equities or capital contributions of an equity investment company are tradable on major assets and equity exchanges in Shanghai. By referring to this notice, the authorities in the Pudong New Area may formulate relevant measures for promoting the development of equity investment companies and equity investment management companies in Pudong.
Business Law Digest is compiled with the assistance of Haiwen & Partners. The authors can be emailed at baochen@haiwen-law.com. Readers should not act on this information without seeking professional legal advice.
