CHINA

China Issues Regulation on Implementation of Administrative System for Registration of Registered Capital under New Company Law

On 1 July 2024, the same day when the new PRC Company Law came into force, the People's Republic of China ("PRC") State Council promulgated the Regulation on the Implementation of the Administrative System for the Registration of Registered Capital under the PRC Company Law (国务院关于实施《中华人民共和国公司法》注册资本登记管理制度的规定, "Regulation") to facilitate the implementation of the new PRC Company Law's requirements on registered capital. 

This Regulation also came into force on 1 July 2024. Below is a summary of the key highlights of the Regulation.

1. Three-Year Transition Period for Adjustment of Capital Contribution Period

According to the new PRC Company Law, the registered capital of a limited liability company must be paid in full within five years of its establishment, with the same rules applying to any increase in capital. According to the Regulation, companies incorporated before 30 June 2024 ("Existing Companies") shall change the capital contribution schedule to five years before 30 June 2027, if the remaining time period for their shareholders to contribute their subscribed registered capital is more than five years from 1 July 2027. The shareholders shall fully contribute their subscribed registered capital within the adjusted deadline. Effectively, this makes 30 June 2032 the deadline for the full capital contribution of companies incorporated before 30 June 2024.


2. Deletion of Special Capital Reduction During Transition Period

Compared with the draft of the Regulation for public comments released by the PRC State Administration for Market Regulation on 6 February 2024 ("Draft Regulation"), it is noteworthy that the officially issued Regulation has removed the special capital reduction procedure in the Draft Regulation, which was deemed specifically designed for qualifying Existing Companies to reduce their registered capital during the transition period.

However, it is uncertain whether there will be the introduction of any special capital reduction procedure for Existing Companies during the transition period. For the time being, these companies may have to apply for the capital reduction procedure stipulated under the new PRC Company Law for their capital reduction needs.

Overall, the Regulation aims to enhance the regulation of capital contributions, ensure the authenticity and reasonableness of capital registration, and align with the broader goals of the new PRC Company Law.

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China Issues New Fair Competition Review Rules to Improve Business Environment

On 6 June 2024, the State Council of the People's Republic of China ("PRC") promulgated the Fair Competition Review Rules (公平竞争审查条例, "Rules"), which will come into effect on 1 August 2024. The Rules require that administrative authorities and organisations authorised by laws with the function of managing public affairs (collectively, "Drafting Authorities") shall conduct fair competition reviews when drafting laws, administrative regulations, local regulations, rules, normative documents, and specific policies and measures (collectively, "Policies and Measures") to ensure fair competition among market entities. The key highlights are summarised below.

1. Prohibited Content in Policies and Measures

The Policies and Measures drafted or to be drafted by the Drafting Authorities are prohibited from including content which may:

• directly or indirectly restrict market access and exit, which includes:
• illegally setting approval procedures for industries, fields, and businesses outside the negative list for market access;
• setting or granting concessions in violation of the law;
• restricting operations, purchases, or the use of goods or services provided by specific operators; or
• setting unreasonable or discriminatory conditions for market entry and exit.

• restrict the free flow of goods and materials, which includes:
• restricting non-local or imported goods and materials from entering into the local market, or obstructing local operators from moving out or goods and materials being exported;
• excluding, restricting, forcing or indirectly forcing non-local operators to invest and operate locally or establish local branches;
• excluding, restricting or indirectly restricting non-local operators from participating in local governments' procurement and bidding;
• setting discriminatory charges, standards, prices or subsidies for non-local or imported goods and materials; or
• setting discriminatory requirements for non-local operators to invest and operate locally in terms of qualification standards, regulatory enforcement, etc.

• affect costs of production and operation (except for those with regulatory basis or approval from the State Council), which includes:
• granting tax preferences to specific operators;
• granting selective, differentiated financial rewards or subsidies to specific operators; or
• granting preferences to specific operators in terms of acquisition of materials, administrative fees, government funds, social insurance fees, etc.

• affect activities of production and operation, which includes:
• forcing or indirectly forcing operators to engage in monopolistic behaviour, or providing favourable conditions for operators to engage in monopolistic behaviour;
• setting government-guided prices and government pricing beyond their authority, thereby providing preferential prices for specific operators; or
• illegally intervening in the price level of goods and materials which implement market-regulated prices.

  b.  Exemptions

The Rules provide exemptions under which the Drafting Authorities are permitted to include content that could be deemed as restricting competition in their Policies and Measures, provided:

• there is no alternative plan that has a less negative impact on fair competition;
• a reasonable implementation period or termination conditions have been determined; and
• at least one of the following conditions is satisfied:
• the inclusion of content is to safeguard national security and development interests;
• the inclusion of content is to promote scientific and technological progress and enhancing national innovation capabilities;
• the inclusion of content is to achieve social public interests such as energy conservation, environmental protection, and disaster relief; or
• other circumstances as stipulated by laws and regulations.

Private companies, especially foreign-invested companies, have concerns over equal access to government bidding projects and market access to certain industries. The issuance of the Rules form part of the central government's efforts to establish a "national unified market", for the purpose of improving the business environment and breaking down local protectionism across different provinces.

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China Introduces Requirement on Filing of Beneficial Ownership Information

To enhance market transparency, maintain market and financial order, and prevent and curb money laundering and terrorist financing activities, the People's Bank of China (PBOC) and the PRC State Administration for Market Regulation (SAMR) have jointly issued the Administrative Measures for Beneficial Owner Information (受益所有人信息管理办法, "Measures") introducing a requirement to file information on beneficial ownership. These Measures will come into effect on 1 November 2024. Below are the key highlights of this new requirement.

Scope of Filing Subjects

According to the Measures, companies, partnerships, and branches of foreign companies ("filing subjects") shall file the information of beneficial owners (including names, contact details, beneficial ownership type etc.) via the relevant registration system. However, entities that meet the following conditions may be exempted from the filing obligation:

1. The registered capital of the entity does not exceed RMB10 million (or equivalent foreign currency);
2. All shareholders or partners of the entity are natural persons;
3. There are no natural persons other than shareholders or partners who have actual control over the entity or derive benefits from it; and
4. There is no control over the entity or benefit derived from it through means other than equity or partnership interests.

Definition of Beneficial Owners

According to the Measure, a beneficial owner is defined as a natural person who ultimately owns or actually controls the filing subject, or enjoys the ultimate benefits of the filing subject. The Measures further stipulate that natural persons who satisfy any of the conditions listed below shall be identified as beneficial owners:

1. A natural person who ultimately holds more than 25% of the equity, shares, or partnership interests of the filing subject, either directly or indirectly.
2. A natural person who ultimately enjoys more than 25% of the rights to profits or voting rights of the filing entity, even if Item (a) above is not met.
3. A natural person who exercises actual control over the filing subject, either alone or in conjunction with others, even if Item (a) above is not met.

The term "actual control" in Item (c) includes but is not limited to, exercising control through agreements, close relationships, and other means. This may involve decisions regarding the appointment or dismissal of legal representatives, directors, supervisors, senior management personnel, or managing partners; making or implementing significant business and management decisions; managing financial income and expenses; and having long-term actual use or control over significant assets or main funds.

If none of the three conditions outlined above is met, the individual responsible for the daily management of the entity should be filed as the beneficial owner.

Deadlines for Filing

The Measures require that entities established before 1 November 2024 shall complete the filing by 1 November 2025. For newly-established entities, the filing shall be completed through the relevant registration system at the time of registration of its establishment. In the event that there is a change of the beneficial owner (or its information filed with the registration system) or the entity no longer meets the conditions for exemption, it shall file the information or amended information within 30 days from the date of change or when it does not meet conditions for exemption.

Overall, the Measures signify a significant step towards enhancing market transparency and regulatory oversight, aligning with global standards for the disclosure of beneficial ownership.

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