Essential Knowledge and Legal Practices for Establishing and Operating Companies in China

This book presents the essential knowledge and legal practice for establishing and operating companies in China. The book includes 6 chapters: Establishment of a Company; Shareholders, Directors, Supervisors, Senior Executives; Investment, M&A and Creditor's Rights; Financing and Guarantee; Alteration, Liquidation and Cancellation; Malfeasance Most Likely to be Overlooked. The end is a summary of the laws and regulations involved in the chapters above. From a professional perspective, this book explains and analyzes the key points, practical difficulties and potential risks that an enterprise may encounter in the process of establishment and operation, describes in detail the key points for handling various businesses and matters, the notes for selection of different administrative procedures, and conducts multi-dimensional comparison and case analysis to facilitate readers' understanding. This book is a practical guide for everyone to understand how toestablish and operate a company in China, which is not only suitable for readers who want to start a business or have already started a business, but also suitable for overseas investors to fully understand how to establish and operate a company in China. It is also helpful for investors and entrepreneurs to lead the enterprise to be more standardized and more compliant so as to achieve better operation and development. In addition, this book could be used as a reference book for legal and financial professionals to help professionals become more professional. Preface Contents Part I Establishment of a Company 1 An Overview of Business Entities in the Market 2 An Analysis of Differences Between the Foreign Investment Law and the “Sino-Foreign Joint Venture Enterprise Law” 3 Comparison Between Companies and Partnerships 4 Understanding and Application of Dual (Multi) GP Private Equity 5 Comparison Between a Limited Liability Company and a Joint Stock Limited Company 6 Special Provisions on a One-Person Limited Liability Company 7 General Requirements and Procedures for the Establishment of a Company 8 Rules for Naming a Company 9 Rules and Practices for Foreign-Invested Enterprises to Be Named with “(China)” 10 Difference and Connection Between a Company’s Name and Its Trademark 11 Considerations on Choosing a Registered Address 12 Handling of Inconsistencies Between the Registered Address and the Actual Business Address 13 Advantages of Choosing to Register at a Centralized Registration Site 14 Difference Between the Paid-in System and Subscription System for a Company’s Registered Capital 15 What Are the Forms of Capital Contribution Made by Shareholders? 16 Notes to Non-monetary Capital Contribution—Capital Contribution with Land Use Rights 17 Notes to Nonmonetary Capital Contribution—Capital with Contribution to Equities 18 Notes to Non-monetary Capital Contribution—Capital Contribution with Machinery Equipment 19 Notes to Non-monetary Capital Contribution—Capital Contribution with Creditor's Rights 20 Notes to Non-monetary Capital Contribution—Capital Contribution with Intangible Assets 21 How Will the Selection of the Currency of Registered Capital Affect the Enterprise? 22 Differences Between Three Common Stock Ownership Platform Models 23 Employees’ Sale of Stock in the Limited Partnership Stock Ownership Platform 24 How to Determine the Business Scope of an Enterprise? 25 A Brief Analysis on the Negative List for Market Access (2018) 26 A Brief Analysis of the Catalogue for the Guidance of Foreign Investment Industries (2017 Revision) 27 Considerations on the Formulation of Articles of Association 28 Importance of Employee Handbook to the Company 29 Importance of Personnel Management Manual for a Company 30 Personal Information Processing: Companies Should Pay Attention to These Practical Points 31 Concept and Functions of Total Amount of Investment of Foreign-Invested Enterprises 32 Interpretation of the Recordation System of Foreign-Invested Enterprises 33 “One Single Form and One-Stop Services” Simplifies the Handling Procedures for Foreign-Invested Enterprises 34 Six Must-dos for Enterprises from Overseas and Taiwan in the Face of Foreign Investment Industries (2017 Revision) 35 An Analysis of the Implementation Regulations for the Foreign Investment Law and Supreme Court Legal Interpretations 36 Interpretation of the “Five-in-One” System 37 Distinguishing Between EDI, ICP Filing and ICP Licensing 38 Process of Establishing a Company and a Partnership 39 Analysis of the Requirements for Establishing a Labor Union and Supporting CPC Building Activities in a Company Part II Shareholders, Directors, Supervisors, Senior Executives 40 Comparison of Organization Structures of Companies 41 An Overview of Shareholders’ Rights and Obligations 42 Authorities of a Shareholders’ Meeting or a Shareholders’ Assembly and Rules of Procedure 43 Production and Storage of Capital Contribution Certificate and Register of Shareholders 44 How to Draw Up a Capital Contribution Agreement Among Shareholders? 45 What “Joint Liabilities” Should Shareholders Pay Attention To? 46 What “Liabilities of Compensation” Should Shareholders Pay Attention To? 47 Legal Risk of Dormant Shareholding 48 Legal Liability for Shareholders’ Failure of Capital Contribution as Agreed 49 Shareholders’ Right to Know and Right to View the Company's Account Books 50 Shareholders’ Response to the Company’s Failure to Distribute Any Dividends 51 How Does a One-Person Company Build the “Joint Liability Firewall”? 52 Discussing “Confusion of Personality” from the Perspective of “Frequent Fund Transaction Between Shareholders and Company Being Judged as Joint Liability for Debts” 53 Defective Resolutions Made at the Shareholders’ Meeting and Remedies That Must Be Known by Shareholders, Directors and Supervisors 54 Circumstances Where Shareholders Request to Dissolve a Company 55 Conditions and Considerations in Circumstances Where Shareholders Request to Dissolve a Company in the Event of a Corporate Deadlock 56 Legal Representative of a Company and His Authorities 57 Analysis of Possible Legal Responsibilities of Legal Representatives 58 Authorities, Convening and Rules of Procedure of Board of Directors and Rights of Directors 59 How Is a Company’s Remuneration to Directors Taxed? 60 Impact of Changes in the Individual Income Tax Law on Foreign Shareholders and Senior Executives 61 What Are the Legal Obligations and Responsibilities of Directors and Senior Executives to a Company? 62 Under What Circumstances Shareholders Can Directors and General Managers Be Held Accountable for Their Negligence of Duty? 63 Supervisors’ Authorities 64 One Useful Attempt of Limited Judicial Intervention in Corporate Autonomy—The Judicial Interpretation of the Company Law (IV) Part III Investment, Mergers and Acquisitions, and Creditor’s Rights 65 Differences Between Subsidiary Companies and Branch Companies 66 How to Set Up a Branch and Points to Note 67 Purchase of Company Equity (I)—Due Diligence 68 Purchase of Company Equity (II)—Transfer and Capital Increase 69 Purchase of Company Equity (III)—Tax Burden 70 Mergers by Absorption of Other Companies 71 Domestic Reinvestment by Foreign-Invested Enterprises 72 Discretionary Settlement of Capital of a Foreign-Invested Enterprise and Investment-Related Regulations and Practices 73 Outbound Investment by Domestic Enterprises 74 What Is “Round-Trip Investment”? 75 Foreign Investment in China Real Estate 76 “Civil Code” Effective on January 1, 2021: Chinese Residential Land Will Be Automatically Renewed When It Expires. Fees to Be Determined 77 How to Comprehensively Recover Corporate Creditor’s Rights? 78 General Rules of the Civil Law of the People’s Republic of China: Questions Raised by the Extension of the Statute of Limitations to Three Years 79 How to Determine the Liability of Compensation for Damages Caused by Property Preservation Mistakes? 80 How Shall the Creditor’s Rights Be Settled When Multiple Creditors Apply for the Enforcement of the Same Person? 81 Three Major Breakthroughs in the Supreme People’s Court’s New Regulations on Property Investigation During Enforcement 82 Interpretation of the Guiding Opinions of the Supreme People’s Court on Several Issues Concerning the Transfer of Enforcement Cases for Bankruptcy Examination 83 “Guarantee for Enforcement”—Alleviating the Dilemma Where the Person Subject to Enforcement Has No Property to Enforce 84 Subrogation Litigation—Another Way of Debt Relief 85 Is “Signature/Seal” Truly the Same as “Signature and Seal” When a Contract Is Signed? 86 How Important Is the “Service Clause” in a Contract? Introduction Part IV Financing and Guarantee 87 Introduction to Modes of Corporate Financing 88 Corporate Financing Mode (1)—Financing Factoring 89 Corporate Financing Mode (2)—Financial Leasing 90 Corporate Financing Mode (3)—“Full-Covered” Cross-Border Borrowing 91 Corporate Financing Mode (4)—“Investment Balance” and “Full-Covered” 92 Corporate Financing Mode (5)—Lending Among Enterprises 93 Corporate Financing Mode (6)—Borrowing from Shareholders 94 Corporate Financing Mode (7)—Borrowing from Individuals Other Than Shareholders 95 Corporate Financing Mode (8)—Internet Financing 96 Corporate Financing Mode (9)—Free Trade Account 97 Corporate Financing Mode (10)—Introducing Angel Investment, VC, PE 98 Corporate Financing Mode (11)—Introducing Strategic Investors 99 Corporate Financing Mode (12)—Multilevel Capital Market 100 4 Sets of Numbers to Accurately Analyze the Science and Technology Innovation Board 101 Analysis of New Regulations for Foreign-Invested Enterprises Listed in China and Quoted on NEEQ 102 A-Share Listing of Schools Is No Longer a Dream 103 Corporate Financing Mode (13)—Corporate Bonds 104 Corporate Financing Mode (14)—Asset Securitization 105 Three Major Misunderstandings in the Registration of Pledge or Transfer of Accounts Receivable 106 Notes for Guarantee for Others 107 Cross-Border Guarantee (I)—Overseas Lending Secured by Domestic Guarantee 108 Cross-Border Guarantee (II)—Domestic Lending Secured by Overseas Guarantee 109 Implement Property Right Practice in Cross-Border Guarantee Through the Special Procedure for Realizing Guaranteed Property Rights 110 Key Points for Enterprises to Register Overseas Lending Secured by Domestic Guarantee 111 The Validity of the Guarantee Contract for Unregistered Overseas Lending Secured by Domestic Guarantee 112 Company Fund Management (I)—Cross-Border Bilateral RMB Cash Pool 113 Company Fund Management (II)—Cross-Border Foreign Currency Cash Pool Part V Change, Liquidation, and Cancellation 114 FAQ for Company Name Change 115 FAQ for the Change of Company’s Business Scope 116 Change in Registered Capital—FAQ for Capital Increase 117 Change in Registered Capital—FAQ for Capital Decrease 118 FAQ for Company’s Change of Shareholders 119 FAQ for Company’s Change of Equity Ratio 120 FAQ for Company Domicile Change 121 FAQ for the Change of Company’s Legal Representative 122 FAQ for the Change of Company’s Articles of Association 123 Company Separation Procedure and Matters to Take Note of 124 Causes of Company Dissolution and Ways of Liquidation 125 Company Cancellation Procedure and Notes 126 Company Cancellation More Convenient Since March 1, 2019 Part VI Malfeasance Most Likely to be Overlooked 127 Market Supervision Department—Unpermitted Business Operations Appendix 128 Market Supervision Department—False Publicity 129 Market Supervision Department—Product Quality 130 Market Supervision Department—List of Enterprises with Abnormal Operations 131 Market Supervision Department—Infringement of Registered Trademark Rights 132 Market Supervision Department—Commercial Bribery 133 Market Supervision Department—False Capital Contribution, Capital Withdrawal 134 Market Supervision Department—Trade Secret Infringement 135 Market Supervision Department—Unfair Competition 136 Nine Highlights of the 2017 Anti-Unfair Competition Law 137 The Anti-Unfair Competition Law Was Amended in 2019 to Strengthen the Protection for Trade Secrets 138 Environmental Protection Department—Nuisance to the People 139 Development and Reform Commission—Violation of the Price Law 140 Customs—Crime of Smuggling of Ordinary Goods 141 Foreign Exchange—Evasion 142 Foreign Exchange—Arbitrage 143 Foreign Exchange—Illegal Remittance of Foreign Exchange to Domestic Account 144 Foreign Exchange—Illegal Settlement or Change of Settlement Use 145 Foreign Exchange—Unauthorized Borrowing of Foreign Debts or Provision of Foreign Guarantee 146 Tax Department—Falsifying VAT Invoices 147 Tax Department—Unlicensed Operation at Different Places 148 Human Resources and Social Security Department—Extra Compensation Payments 149 Labor Administrative Department—Illegal Employment or Hire Appendix This book presents the essential knowledge and legal practice for establishing and operating companies in China. The book includes 6 chapters: Establishment of a Company; Shareholders, Directors, Supervisors, Senior Executives; Investment, M&A and Creditor's Rights; Financing and Guarantee; Alteration, Liquidation and Cancellation; Malfeasance Most Likely to be Overlooked. The end is a summary of the laws and regulations involved in the chapters above. From a professional perspective, this book explains and analyzes the key points, practical difficulties and potential risks that an enterprise may encounter in the process of establishment and operation, describes in detail the key points for handling various businesses and matters, the notes for selection of different administrative procedures, and conducts multi-dimensional comparison and case analysis to facilitate readers' understanding. This book is a practical guide for everyone to understand how to establish and operate a company in China, which is not only suitable for readers who want to start a business or have already started a business, but also suitable for overseas investors to fully understand how to establish and operate a company in China. It is also helpful for investors and entrepreneurs to lead the enterprise to be more standardized and more compliant so as to achieve better operation and development. In addition, this book could be used as a reference book for legal and financial professionals to help professionals become more professional