Equity transfer of Sino-foreign joint ventures

1. The equity transfer of Chinese-foreign equity joint ventures and Chinese-foreign contractual joint ventures must be approved by all shareholders. The Company Law requires that the transfer of the equity of a domestic limited liability company must be agreed by half of the shareholders. On the other hand, the Law on Chinese-foreign Joint Ventures (hereinafter referred to as the Law on Joint Ventures) and the Law on Chinese-foreign Cooperative Ventures (hereinafter referred to as the Law on Cooperation) clearly stipulate that a shareholder's transfer of capital contribution must be approved by all shareholders. This provision is not only aimed at the equity transfer of Chinese investors in foreign-invested enterprises, but also at the equity transfer of foreign investors. Obviously, this stricter practice than domestic enterprises aims to maintain a stronger human factor in foreign-funded enterprises and reflect the country's expectation for long-term stable operation of foreign-funded enterprises. In addition, if other shareholders do not intend to transfer to a third party, it is not stipulated in the Law on Sino-foreign Joint Ventures and the Law on Sino-foreign Cooperative Ventures. However, according to the Company Law, "this Law shall apply to foreign-invested limited liability companies, and if there are other provisions on Sino-foreign joint ventures, Chinese-foreign cooperative ventures and foreign-funded enterprises, their provisions shall apply". If they do not agree to transfer the equity, they shall purchase the equity, otherwise. Two, the transfer of foreign equity must be approved by the original examination and approval authority (business department) of the enterprise, and handle the industrial and commercial change registration. First of all, just as newly established foreign-invested enterprises and foreign investors must obtain legal approval to acquire the equity of domestic enterprises, the transfer of overseas equity of foreign-invested enterprises must also be approved by the original government authorities. Secondly, after the equity transfer is approved, the industrial and commercial change registration must be carried out. Article 20 of the Regulations for the Implementation of the Law on Chinese-foreign Joint Ventures stipulates that "if a joint venture transfers all or part of its shares to a third party, it must obtain the consent of the other party to the joint venture and report it to the examination and approval authority for approval, and go through the formalities of change registration with the registration authority. In violation of the above provisions, its transfer is invalid. " In other words, the effectiveness of the foreign equity transfer contract is based on the approval of the original government examination and approval department and industrial and commercial registration, both of which are indispensable. 3. Restrictions and conditions of transfer to third parties. Article 35 of the Company Law and Article 20 of the Regulations for the Implementation of the Law on Sino-foreign Joint Ventures stipulate that when one party to a joint venture transfers all or part of its equity, the other party to the joint venture has the preemptive right. The conditions for a joint venture to transfer its equity to a third party shall not be superior to those of the other joint venture. This system design is based on the human factors of limited liability companies to protect the rights of the relative shareholders of joint ventures. It is also applicable to Chinese-foreign joint ventures and Chinese-foreign cooperative enterprises with legal personality. Four. Restrictions on the pledge of shares and the transfer of pledged shares with inadequate investment by foreign investors. The contribution of foreign investors must comply with the provisions of laws and relevant contracts, otherwise their equity will be restricted accordingly. According to the "Several Provisions on Equity Change of Foreign-invested Enterprises", foreign investors may not pledge the undelivered shares before the foreign capital contribution is in place; After the pledge, the pledgee may not transfer the pledged equity without the consent of the pledger and other investors of the enterprise; Without the consent of the pledgee, the pledgor investor may not transfer the pledged equity. At the same time, when foreign investors pledge their shares, they must also be approved by the original government examination and approval department, and they may not pledge their shares without approval. Five, after the partial transfer of foreign equity, the proportion of foreign equity shall not be less than 25%. Generally speaking, the state requires that the proportion of foreign investment in newly established foreign-invested enterprises shall not be less than 25%, that is to say, laws and regulations do not prohibit the establishment of foreign-invested enterprises with a foreign equity ratio of less than 25%. At the same time, the Notice on Strengthening the Administration of Examination and Approval, Registration, Foreign Exchange and Taxation of Foreign-invested Enterprises and the Interim Provisions on the Merger and Acquisition of Domestic Enterprises by Foreign Investors allow the establishment of foreign-invested enterprises with a foreign capital ratio of less than 25% due to mergers and acquisitions. However, laws and regulations do not allow existing foreign-invested enterprises to reduce the proportion of foreign equity to less than 25% through equity transfer. Article 5 of "Several Provisions on the Change of Investors' Equity in Foreign-invested Enterprises" stipulates that unless the foreign investors transfer all their equity to China investors, the change of enterprise investors' equity shall not result in the contribution ratio of foreign investors being less than 25% of the registered capital of the enterprise. In other words, foreign investors in foreign-invested enterprises cannot make their shares less than 25% by transferring their shares, or transfer them all, or the proportion of shares after transfer is still higher than 25%. 6. Foreign equity shall not be partially transferred to domestic individuals (if it is completely transferred, it is not subject to this restriction because it is no longer a foreign-funded enterprise after the transfer). Part of the transfer of overseas equity shall not be transferred to individual citizens of China, except in accordance with the provisions of Article 5 above. Both the Joint Venture Law and the Cooperative Enterprise Law stipulate that individual citizens and foreign businessmen are not allowed to set up foreign-invested enterprises. On February 30th, 2002, the Ministry of Foreign Economic Relations and Trade Cooperation, State Taxation Administration of The People's Republic of China and the State Administration for Industry and Commerce issued the Notice on Strengthening the Administration of Examination, Approval, Registration, Foreign Exchange and Taxation of Foreign-invested Enterprises, which further clarified that the China natural person shareholder of the former domestic company, who had enjoyed the shareholder status in the original company for more than 1 year, can continue to be the Chinese investor of the foreign-invested enterprise after approval. Tencent creates space, a platform for entrepreneurship. However, China still does not allow natural persons to establish foreign-invested enterprises with foreign companies, enterprises, other economic organizations or individuals by means of new establishment or acquisition. In other words, laws and regulations allow the original individual shareholders of foreign-invested enterprises formed by foreign capital mergers and acquisitions to continue to exist, but foreign investors are not allowed to transfer some shares to domestic individuals, thus forming the existence of foreign-invested enterprises with domestic individual shareholders. 7. Restrictions on equity transfer of promoters of foreign-invested joint stock limited companies. According to the Interim Provisions on Several Issues Concerning the Establishment of Foreign-invested Joint-stock Companies, if a foreign investor is the promoter of a foreign-invested joint-stock company, his foreign equity shall not be transferred within three years after the establishment of the company, and the subsequent transfer shall be approved by the original government examination and approval department. This is also the requirement of the company law for the establishment of promoters of domestic joint stock limited companies.