PRC Trust Law

Article 3: This Law shall apply to the civil, business and charitable Trust activities carried out by settlors, trustees and beneficiaries (hereafter collectively referred to as the "Parties to a Trust") in the People's Republic of China.

Article 4: The State Council shall formulate specific procedures for the organization and administration of trustees that engage in Trust activities in the form of a Trust institution.

Article 5: When the Parties to a Trust engage in Trust activities, they must comply with laws and administrative regulations, conform with the principles of voluntariness, fairness and good faith and may not prejudice the interests of the State or the public.

PART TWO: ESTABLISHMENT OF A TRUST

Article 6: A lawful Trust objective is required when establishing a Trust.

Article 7: The establishment of a Trust requires determinate Trust property, which must be lawfully owned by the settlor.

For the purposes of this Law, property includes lawful rights in property.

Article 8: The establishment of a Trust shall be effected in written form.

Written forms shall include Trust contracts, wills and other written documents stipulated in laws or administrative regulations.

If a Trust is established by way of a Trust contract, the Trust is established at the time the Trust contract is entered into. A Trust established by way of another type of written document is established upon the acknowledgment of such Trust by the Trustee.

Article 9: The written document establishing a Trust shall specify the following particulars:

(1) the objective of the Trust;

(2) the names and domiciles of the settlor and trustee;

(3) the beneficiary or the class of beneficiaries;

(4) the scope, type and state of the Trust property; and

(5) the form and manner in which the beneficiary is to obtain the benefits of the Trust.

In addition to the particulars stipulated in the preceding paragraph, the Trust document may stipulate the term of the Trust, the method of managing the Trust property, the remuneration of the trustee, the method of appointing a new trustee, grounds for termination of the Trust, etc.

Article 10: To the extent required by relevant laws and administrative regulations, Trust property shall be registered according to law at the time of establishment of the Trust.

If a Trust was not registered in accordance with the preceding paragraph, it shall be registered retroactively. If the Trust is not registered retroactively, it does not enter into effect.

Article 11: A Trust shall be void if:

(1) the Trust's objective violates laws or administrative regulations or harms the public interest;

(2) the Trust property cannot be determined;

(3) the settlor establishes the Trust with illegal property or property that, pursuant to this Law, may not be used to establish a Trust;

(4) it is specifically established for the purpose of instituting a legal action or for recovering a debt;

(5) the beneficiary or class of beneficiaries cannot be determined; or

(6) another circumstance stipulated in laws or administrative regulations arises.

Article 12: If by establishing a Trust the settlor prejudices the interests of his creditors, the creditors have the right to petition the people's court to nullify such Trust.

If the people's court nullifies a Trust pursuant to the preceding paragraph, such nullification shall not affect the Trust benefits already obtained by a bona fide beneficiary.

The right to petition stipulated in the first paragraph of this Article is extinguished if not exercised within one year from the date the creditor became aware or ought to have become aware of the ground for nullification.

Article 13: When establishing a Trust through a will, the provisions on wills of the Succession Law shall be complied with.

If the person designated in the will refuses or does not have the capacity to act as trustee, the beneficiary shall appoint the trustee. If the beneficiary has no or limited civil capacity, his guardian shall appoint the trustee on his behalf in accordance with the law. If the will otherwise provides for the appointment of a trustee, the provisions of the will shall prevail.

PART THREE: TRUST PROPERTY

Article 14: The property that the trustee obtains as a result of his accepting the Trust is the Trust property.

Property obtained by the trustee due to his management, use, disposal or other circumstances of the Trust property is also included in the Trust property.

Property whose circulation is prohibited by laws or administrative regulations may not be used as Trust property.

Property whose circulation is restricted by laws or administrative regulations may be used as Trust property subject to the approval of the relevant competent authority in accordance with the law.

Article 15: The Trust property and other property of the settlor not part of the Trust shall be kept separate. If the settlor dies or is legally dissolved, legally shut down or declared bankrupt after the establishment of the Trust and the settlor is the sole beneficiary, the Trust shall terminate and the Trust property shall become part of the settlor's estate or liquidation property. If the settlor is not the sole beneficiary, the Trust shall survive and the Trust property shall not become part of the settlor's estate or liquidation property. However, if a settlor that is a co-beneficiary dies or is legally dissolved, legally shut down or declared bankrupt, the settlor's right to benefit from the Trust shall become part of the settlor's estate or liquidation property.

Article 16: The Trust property and the property owned by the trustee (Own Property) shall be kept separate and the Trust property may not be included in the trustee's Own Property or become a part of the trustee's Own Property.

If the trustee dies or is terminated due to its being legally dissolved, legally shut down or declared bankrupt, the Trust property shall not become a part of the trustee's estate or liquidation property.

Article 17: No enforcement measures may be taken against Trust property unless:

(1) before the establishment of the Trust, a creditor was entitled to priority repayment from the Trust property and he legally exercises such right;

(2) a creditor demands the discharge of a debt arising from the trustee's handling of Trust affairs;

(3) taxes are owed on the Trust property itself; or

(4) another circumstance stipulated in law arises.

If enforcement measures are taken against Trust property in violation of the preceding paragraph, the settlor, trustee or beneficiary has the right to file an opposition with the people's court.

Article 18: The claims arising from the trustee's management, use or disposal of the Trust property may not be used to set off the debts arising from the trustee's Own Property.

The claims and debts arising from a trustee's management, use or disposal of the Trust property of different settlors may not be set off against each other.

PART FOUR: PARTIES TO A TRUST

Section One: Settlor

Article 19: A settlor shall be a natural person or a legal person or other legally established organization with full civil capacity.

Article 20: A settlor has the right to be apprised of the management, use and disposal of his Trust property and the details of receipts and expenditures connected therewith, and he also has the right to require the trustee to give explanations thereof.

The settlor has the right to review, transcribe and photocopy Trust accounts related to his Trust property and other documents related to the handling of Trust affairs.

Article 21: If due to special circumstances unforeseeable at the time of establishment of the Trust, the method of managing the Trust property becomes inimical to the realization of the Trust's objective or inconsistent with the interests of the beneficiary, the settlor has the right to require the trustee to adjust the method of managing the Trust property.

Article 22:If the trustee's disposal of Trust property runs counter to the Trust's objective or if the trustee causes loss in respect of the Trust property due to a breach of his management responsibilities or improper handling of Trust affairs, the settlor has the right to petition the people's court to nullify the said disposal and the right to require the trustee to return the Trust property to its original state or pay compensation. If the transferee of the Trust property was well aware that the transfer ran counter to the Trust's objective but nonetheless accepted the said property, he shall return the property or pay compensation.

The right to petition stipulated in the preceding paragraph is extinguished if not exercised within one year from the date the settlor became aware or ought to have become aware of the reason for nullification.

Article 23: If the trustee's disposal of Trust property runs counter to the Trust's objective or if the trustee is grossly negligent in his management, use or disposal of Trust property, the settlor has the right to dismiss the trustee in accordance with the Trust document or petition the people's court to dismiss him.

Section Two: Trustee

Article 24: A trustee shall be a natural person or legal person with full civil capacity.

If laws or administrative regulations contain other trusteeship conditions, such provisions shall prevail.

Article 25: A trustee shall comply with the provisions of the Trust document and handle the Trust affairs in the best interest of the beneficiary.

When managing Trust property, the trustee must scrupulously carry out his responsibilities and perform his obligation of honest, trustworthy, prudent and efficient management.

Article 26: A trustee may not use Trust property for his own profit, except to obtain remuneration as stipulated herein.

If a trustee breaches the preceding paragraph by using Trust property for his own profit, the profits obtained shall be included in the Trust property.

Article 27: A trustee may not make Trust property his Own Property. If a trustee makes Trust property his Own Property, he must return such Trust property to its original state. If such act causes loss in respect of the Trust property, he shall be liable for compensation.

Article 28: A trustee may not conduct transactions between his Own Property and Trust property or conduct transactions between the Trust property of different settlors, unless otherwise provided in the Trust document(s) or unless the settlor(s) or beneficiary/beneficiaries agree(s) and the transaction is conducted at fair market price.

If a trustee breaches the preceding paragraph causing loss in respect of Trust property, he shall be liable for compensation.

Article 29: A trustee must separately manage and keep separate accounts for Trust property and his Own Property and must separately manage and keep separate accounts for the Trust property of different settlors.

Article 30: A trustee shall manage Trust affairs himself unless otherwise specified in the Trust document or in circumstances where there is no alternative, in which case he may entrust a third party to handle the Trust affairs on his behalf.

If a trustee legally entrusts a third party to handle Trust affairs on his behalf, he shall be liable for such third party's handling of Trust affairs.

Article 31: If there are two or more trustees for the same Trust, they are joint trustees.

Joint trustees shall jointly handle Trust affairs, unless the Trust document provides that certain specific matters shall be handled by separate trustees, in which case such provisions shall prevail.

If joint trustees disagree in their joint handling of Trust affairs, the matter shall be handled in accordance with the Trust document. If the Trust document is silent on such matter, the decision shall be made by the settlor, the beneficiary or a person with a material interest therein.

Article 32: Joint trustees shall bear joint and several liability to discharge debts to third parties arising from their handling of Trust affairs. A declaration of intent made by a third party to one joint trustee shall be equally valid for the other trustee(s).

If one joint trustee's disposal of Trust property runs counter to the Trust's objective or if he causes loss in respect of the Trust property due to a breach of his management responsibilities or improper handling of Trust affairs, the other trustee(s) shall bear joint and several liability for compensation.

Article 33: A trustee must keep complete records of his handling of Trust affairs.

A trustee shall regularly report on an annual basis his management, use and disposal of the Trust property and the details of receipts and expenditures connected therewith to the settlor and the beneficiary.

A trustee shall have the legal obligation to maintain the confidentiality of the settlor, the beneficiary and the particulars of and documentation connected with his handling of Trust affairs.

Article 34: A trustee shall bear the obligation to pay the beneficiary the Trust benefits to the extent of the Trust property.

Article 35: A trustee is entitled to receive remuneration in accordance with the provisions of the Trust document. If the Trust document is silent on the subject of remuneration for the trustee, supplementary provisions may be agreed upon through consultations between the Parties to the Trust. In the absence of both original provisions and supplementary provisions, the trustee may not charge remuneration.

The stipulated remuneration may be increased or reduced if the Parties to the Trust so agree after consultations.

Article 36: If a trustee's disposal of Trust property runs counter to the Trust's objective or if the trustee causes loss in respect of Trust property due to a breach of his management responsibilities or improper handling of Trust affairs, he may not ask for the payment of his remuneration until the Trust property has been returned to its original state or he has paid compensation.

Article 37: The expenses paid, and debts to third parties incurred, in the course of a trustee's handling of Trust affairs shall be borne from the Trust property. If the trustee advances the payment of such expenses and debts from his Own Property, he shall be entitled to priority repayment from the Trust property.

In the event a debt to a third party is incurred or a loss is incurred by the trustee himself due to his breaching his management responsibilities or improperly handling Trust affairs, the trustee shall bear such debt or loss from his Own Property.

Article 38: After the establishment of a Trust, the trustee may resign with the consent of the settlor and the beneficiary. Where this Law contains other provisions for the resignation of trustees of charitable trusts, such provisions shall prevail.

A trustee shall continue to perform his responsibilities of managing Trust affairs until a new trustee has been appointed.

Article 39: A trustee's responsibilities shall terminate if:

(1) he dies or is legally declared dead;

(2) he is legally declared to have no or limited civil capacity;

(3) it is legally shut down or declared bankrupt;

(4) it is legally dissolved or it loses its legal status;

(5) he resigns or is dismissed; or

(6) another circumstance provided for in laws or administrative regulations arises.

When a trustee's responsibilities terminate, his successor(s), the executor or administrator of his estate, his guardian or its liquidator shall take due care of the Trust property and assist the new trustee in taking over the Trust affairs.

Article 40: When a trustee's responsibilities terminate, a new trustee shall be appointed in accordance with the Trust document. If the Trust document is silent on the appointment of a new trustee, the settlor shall make such appointment. If the trustee fails to make or is incapable of making such appointment, the appointment shall be made by the beneficiary. If the beneficiary has no or restricted civil capacity, the appointment shall be legally made by his guardian on his behalf.

The new trustee shall succeed to the original trustee's rights and obligations in handling Trust affairs.

Article 41: If a trustee's responsibilities are terminated due to one of the circumstances specified in Items (3) to (6) of Article 39 hereof, he shall prepare a report on his handling of Trust affairs and shall carry out the procedures for turning over the Trust property and Trust affairs to the new trustee.

After the approval of the report mentioned in the preceding paragraph by the settlor or beneficiary, the original trustee is released from liability for the Trust affairs mentioned therein, with the exception of liability for any improper acts committed by him.

Article 42: If the responsibilities of one joint trustee terminate, the Trust property shall be managed and disposed of by the other trustee(s).

Section Three: Beneficiary

Article 43: The beneficiary is the person entitled to enjoy the benefits of a Trust. A beneficiary may be a natural person or a legal person or other legally established organization.

The settlor may be a beneficiary and may be the sole beneficiary of the same Trust.

The trustee may be a beneficiary but may not be the sole beneficiary of the same Trust.

Article 44: The beneficiary is entitled to benefit from the Trust from the date the Trust enters into effect, unless otherwise provided in the Trust document, in which case the provisions thereof shall prevail.

Article 45: Co-beneficiaries enjoy the benefits of a Trust in accordance with the provisions of the Trust document. If the Trust document is silent on the ratio or method for the distribution of the Trust benefits, each beneficiary shall enjoy the benefits of the trust in equal proportion.

Article 46: A Trustee may waive his right to benefit from a Trust.

If all the beneficiaries of a Trust waive their rights to benefit from the Trust, the Trust shall terminate.

If some beneficiaries waive their rights to benefit from a Trust, the ownership of the waived rights to benefit from the Trust shall be determined in the order set forth below:

(1) the person(s) stipulated in the Trust document;

(2) the other beneficiary/beneficiaries; or

(3) the settlor or his successors.

Article 47: If a beneficiary is insolvent, his right to benefit from the Trust may be used to discharge his debt, unless there are restrictive provisions in laws, administrative regulations or the Trust document.

Article 48: A beneficiary's right to benefit from a Trust may be assigned and succeeded to according to law, unless there are restrictive provisions in the Trust document.

Article 49: A beneficiary may exercise the rights enjoyed by the settlor under Articles 20 to 23 hereof. If, in the beneficiary's exercise of the aforementioned rights, the beneficiary and the settlor disagree, the beneficiary may petition the people's court for a ruling.

If the trustee commits one of the acts stipulated in the first paragraph of Article 22 hereof, and one of the co-beneficiaries petitions the people's court to nullify the disposal of the Trust property, the nullification ruling rendered by the people's court is valid for all the co-beneficiaries.

PART FIVE: VARIATION AND TERMINATION OF A TRUST

Article 50: If the settlor is the sole beneficiary, he or his successor may terminate the Trust, unless otherwise provided in the Trust document, in which case such provision shall prevail.

Article 51: After the establishment of a Trust, the settlor may change the beneficiary or dispose of the beneficiary's right to benefit from the Trust if:

(1) the beneficiary materially infringes upon the rights of the settlor;

(2) a beneficiary materially infringes upon the rights of other co-beneficiaries;

(3) the beneficiary gives his consent; or

(4) another circumstance stipulated in the Trust document arises.

If one of the circumstances stipulated in Item (1), (3) or (4) of the preceding paragraph arises, the settlor may terminate the Trust.

Article 52: A Trust shall not terminate due to the death, loss of civil capacity, legal dissolution, legal shutdown or the declaration of bankruptcy of the settlor or trustee, nor shall a Trust terminate due to the resignation of the trustee, unless otherwise provided in this Law or the Trust document.

Article 53: A Trust shall terminate if:

(1) a termination event stipulated in the Trust document occurs;

(2) the continuance of the Trust would run counter to the Trust's objective;

(3) the Trust's objective has been realized or is impossible to realize;

(4) the Parties to the Trust have consulted with one another and agreed to terminate it;

(5) the Trust is nullified; or

(6) the Trust is terminated.

Article 54: When a Trust terminates, the Trust property shall vest in the person stipulated in the Trust document. In the event the Trust document is silent on such point, ownership shall be determined in the following order:

(1) the beneficiary or his successor;

(2) the settlor or his successor.

Article 55: After the ownership of the Trust property has been determined pursuant to the preceding article, the Trust shall be deemed to continue to exist and the beneficiary shall be deemed the owner of the rights therein during the process of transfer of the Trust property to the owner of the rights therein.

Article 56:. After the termination of a Trust, if the people's court carries out enforcement against the original Trust property pursuant to Article 17 hereof, the owner of the rights therein shall be the person against whom enforcement is carried out.

Article 57: After the termination of a Trust, if the trustee exercises his right to claim payment of remuneration or to obtain compensation from the Trust property in accordance herewith , he may place a lien on the Trust property or lodge a claim with the owner of the rights in the Trust property.

Article 58: When a Trust terminates, the trustee shall prepare a liquidation report on his handling of Trust affairs. If the beneficiary or the owner of the rights in the Trust property does not have any objections to the liquidation report, the trustee is released from liability for the matters mentioned therein, with the exception of liability for any improper acts committed by him.

PART SIX: CHARITABLE TRUSTS

Article 59: Charitable trusts shall be governed by this Part. Where this Part is silent, this Law and other relevant laws shall apply.

Article 60: A Trust established for one of the charitable objectives set forth below constitutes a charitable Trust:

(1) aiding the poor;

(2) assisting victims of disasters;

(3) supporting the disabled;

(4) developing education, science and technology, culture, the arts and sports;

(5) developing medical and public health care;

(6) developing environmental protection and safeguarding the natural environment; and

(7) developing other charitable causes.

Article 61: The State encourages the development of charitable Trusts.

Article 62: The establishment of a charitable Trust and the determination of its trustee shall be subject to the approval of the institution administrating the relevant charitable cause (Charitable Cause Administrator).

Activities may not be carried out in the name of a charitable Trust without the approval of the Charitable Cause Administrator.

The Charitable Cause Administrator shall support the activities of the charitable Trust.

Article 63: The Trust property of a charitable Trust and the benefits therefrom may not be used for non-charitable objectives.

Article 64: A charitable Trust shall have a Trust controller.

The Trust controller shall be stipulated in the Trust document. If the Trust document does not stipulate the Trust controller, he shall be appointed by the Charitable Cause Administrator.

Article 65: The Trust controller is empowered to institute legal actions or take other legal steps in his own name in order to safeguard the interests of the beneficiaries.

Article 66:. The trustee of a charitable Trust may not resign without the approval of the Charitable Cause Administrator.

Article 67: The Charitable Cause Administrator shall examine the trustee's handling of charitable Trust matters and the state of the Trust property.

The trustee shall prepare a report on his handling of Trust affairs and the state of the property at least once per year. After approval by the Trust controller, such report shall be submitted to the Charitable Cause Administrator for approval and then published by the trustee.

Article 68: If the trustee of a charitable Trust breaches his Trust obligations or is incapable of performing his responsibilities, the Charitable Cause Administrator shall replace him.

Article 69: If after the establishment of a charitable Trust a circumstance unforeseeable at the time of establishment arises, the Charitable Cause Administrator may amend the relevant terms of the Trust document in accordance with the Trust's objective.

Article 70: When a Trust terminates, the trustee shall report the grounds for and the date of the termination to the Charitable Cause Administrator within 15 days of the date the grounds for termination arose.

Article 71: When a Trust terminates, the liquidation report prepared by the trustee on his handling of Trust affairs shall, after approval by the Trust controller, be submitted to the Charitable Cause Administrator for approval and then published by the trustee.

Article 72: When a Trust terminates and there is no owner of the rights in the Trust property or the owner of the rights in the Trust property is an unspecified public, the trustee shall, subject to the approval of the Charitable Cause Administrator, use the Trust property for an objective similar to the original charitable objective, or transfer the Trust property to a charitable organization, or to another charitable Trust, with a similar objective.

Article 73: If a Charitable Cause Administrator violates this Law, the settlor, trustee or beneficiaries have the right to institute an action in the people's court.

PART SEVEN: SUPPLEMENTARY PROVISIONS

Article 74: This Law shall be implemented as of October 1 2001.