Merger and Division of Foreign-invested Enterprises Provisions (Revised)

Article 3: For the purposes of these Provisions, the term "merger" means the joining of two or more Companies to become one Company through the conclusion of an agreement pursuant to the relevant provisions of the Company Law.

The merger of Companies may take the form of merger by absorption or merger by new establishment.

The term "merger by absorption" means that a Company admits another Company into its own Company, whereby the admitting Company survives and the admitted Company or Companies is or are dissolved.

The term "merger by new establishment" means that two or more Companies merge to establish a new Company, whereby each party to the merger is dissolved.

Article 4: For the purposes of these Provisions, the term "division" means that a Company is divided into two or more Companies pursuant to the relevant provisions of the Company Law, by means of a resolution of the highest organ of authority of the Company.

The division of Companies may take the form of survived division or division by dissolution.

The term "survived division" means that a Company is split into two or more Companies, whereby the Company itself survives and one or more new Companies are established.

The term "division by dissolution" means that a Company is broken up into two or more Companies, whereby the existing Company is dissolved and two or more new Companies are established.

Article 5: The merger or division of Companies shall be conducted in accordance with China's laws and regulations and these Provisions, and conform to the principle of voluntariness, equality and fair competition. The merger or division of Companies may not harm the public interest or the lawful rights and interests of creditors.

The merger or division of Companies shall comply with the provisions of the Directing of Foreign Investment Tentative Provisions and the Foreign Investment Industrial Guidance Catalogue and may not lead to a situation where a foreign investor wholly owns, has a controlling interest in, or holds a dominant position in any Company active in an industry in which foreign investors are not permitted to wholly own, have a controlling interest in or hold a dominant position in Companies.

If a Company becomes active in another industry or a change occurs in its scope of business as a result of its merger or division, such change of industry or change in business scope shall conform to relevant laws and regulations and the State's industrial policy, and the relevant examination and approval procedures shall be carried out.

Article 6: The merger or division of Companies shall comply with the regulations promulgated by relevant authorities such as the customs, taxation and exchange control authorities. Following verification by the examination and approval authority, customs and the tax authority, etc., a Company which survives or is newly established following a merger or division shall continue to enjoy all items of foreign-invested enterprise treatment which were enjoyed by the original Company or Companies.

Article 7: The merger or division of a Company shall be subject to the approval of the original examination and approval authority of the Company or Companies and require registration of the establishment, change or de-registration of the relevant Companies with the registration authority.

If the original examination and approval authorities or registration authorities of the parties to a proposed Company merger number two or more, the examination and approval authority shall be the authority in charge of foreign economic relations and trade of the domicile of the post-merger Company, and the registration authority shall be the registration authority authorized by the State Administration for Industry and Commerce (SAIC).

If the sum of the total amounts of investment of the parties to a proposed Company merger exceeds the approval limit of any of the original examination and approval authorities of the parties or that of the examination and approval authority of the place where the post-merger Company is to be domiciled, the merger shall be subject to the examination and approval of an examination and approval authority with the appropriate approval limit.

If at least one of the parties to a proposed Company merger is a Company limited by shares, the merger shall be subject to the examination and approval of the Ministry of Foreign Trade and Economic Cooperation of the People's Republic of China (MOFTEC).

Article 8: If the merger or division of an existing Company will cause such Company to be dissolved or a new Company to be established elsewhere, the opinion of the examination and approval authority of the place where the Company to be dissolved or established is to be located must be obtained.

Article 9: Companies may not be merged or divided until the investors have made their capital contributions or provided their cooperation conditions in full in accordance with the Company's contract and articles of association, and the Company has actually commenced production or business. Where investors have made their capital contributions or provided their cooperation conditions in full in accordance with the Company's contract and articles of association, the Company may merge with a wholly Chinese-owned enterprise.

Article 10: The Company in existence after the merger of limited liability Companies shall be a limited liability Company. The Company in existence after the merger of Companies limited by shares shall be a Company limited by shares.

The Company in existence after the merger of a listed Company limited by shares and a limited liability Company shall be a Company limited by shares. The Company in existence after the merger of a non-listed Company limited by shares and a limited liability Company may be either a Company limited by shares or a limited liability Company.

Article 11: If two or more Companies limited by shares merge with each other or if the Company in existence after the merger of Companies is a limited liability Company, the registered capital of the post-merger Company shall be the sum of the registered capitals of the original Companies.

If the Company in existence after the merger of a limited liability Company and a Company limited by shares is a Company limited by shares, the registered capital of the post-merger Company shall be the sum of (i) the share amount derived by converting the net asset value of the original limited liability Company according to the net asset value per share of the Company limited by shares with which it is to merge and (ii) the total share amount of the original Company limited by shares.

Article 12: Where Companies merge in accordance with the first paragraph of Article 11 hereof, the ratio of each investor's equity in the post-merger Company shall be specified in the post-merger Company's contract and articles of association as agreed between the investors or according to the result of the appraisal by an appraisal institution of the value of each investor's equity share in its original Company, in accordance with relevant State regulations. However, the ratio of the foreign investor's equity may not be less than 25% of the registered capital of the post-merger Company.

Article 13: The registered capital of post-division Companies shall be determined by the highest organ of authority of the pre-division Company pursuant to the laws and regulations concerning foreign-invested enterprises and the relevant regulations of the registration authorities. However, the sum of the registered capital of each post-division Company shall be equal to the registered capital of the pre-division Company.

Article 14: The ratio of each investor's equity in the post-division Companies shall be specified by the investors in each post-division Company's contract and articles of association. However, the ratio of the foreign investor's equity may not be less than 25% of the registered capital of each post-division Company.

Article 15: Where Companies are merged by absorption, the date of establishment of the admitting Company shall be the date of establishment of the post-merger Company. Where Companies are merged by new establishment, the date on which the registration authority approves the registration of establishment and issues a business licence shall be the date of establishment of the post-merger Company.

When a new Company is established as a result of the division of an existing Company, the date on which the registration authority approves the registration of establishment and issues a business licence shall be the date of establishment of such post-division Company.

Article 16: Where a merger or division involves a listed Company limited by shares, such merger or division shall comply with the relevant laws and regulations and with the listed company regulations of the State Council regulatory authority for securities, and the necessary examination and approval procedures shall be carried out.

Article 17: The merger between a Company and wholly Chinese-owned enterprise must comply with China's laws and regulations on the use of foreign investment and the requirements of China's industrial policy, and meet the following conditions:

(1) the wholly Chinese-owned enterprise to be merged is a limited liability company or company limited by shares organized pursuant to the model set forth in the PRC, Company Law;

(2) the investors possess the qualifications which laws, regulations and departmental rules require for investors in the relevant industry in which the post-merger Company is to engage;

(3) the equity ratio of the foreign investor is not less than 25% of the registered capital of the post-merger Company; and

(4) each party to the merger agreement warrants to fully employ or to make reasonable arrangements for the existing staff and workers of the Companies to be merged.

Article 18: The company in existence after the merger of a Company and a wholly Chinese-owned enterprise shall be a foreign-invested enterprise. Its total amount of investment shall be the sum of the total amount of investment of the original Company and the total amount of asset of the wholly Chinese-owned enterprise as recorded in the financial audit report. The registered capital shall be the sum of the registered capital of the original Company and that of the wholly Chinese-owned enterprise. The ratio of the registered capital to the total amount of investment of the post-merger Company shall comply with the State Administration for Industry and Commerce, Sino-foreign Equity Joint Ventures Ratio of Registered Capital to Total Investment Tentative Provisions. In special circumstances where the provisions cannot be implemented, it shall be approved by MOFTEC and SAIC.

Article 19: An enterprise that has been invested in and established by the wholly Chinese-owned enterprise merged with the Company shall be an enterprise in which the post-merger Company holds shares, and it shall comply with the requirements of China's industrial policy on the use of foreign investment and the Investment Within China by Foreign-invested enterprises Tentative Provisions. The post-merger Company may not hold equity in enterprises that are in industry from which foreign investment is prohibited.

Article 20: Where Companies are merged by absorption, the admitting Company shall be the applicant. Where Companies are merged by new establishment, the parties to the merger shall consult with each other and decide on one applicant.

The applicant shall submit the following documents to the examination and approval authority:

(1) the written application for Company merger, and the Company merger agreement, signed by the legal representative of each Company;

(2) the Company merger resolution adopted by the highest organ of authority of each Company;

(3) the contract for, and articles of association of, each Company;

(4) photocopies of the approval certificate and business licence of each Company;

(5) the capital contribution verification reports issued by Chinese statutory appraisal institutions in respect of each Company;

(6) a balance sheet and property list of each Company;

(7) each Company's audit report for the preceding year;

(8) a list of each Company's creditors;

(9) the contract for, and articles of association of, the post-merger Company;

(10) a list of the members of the highest organ of authority of the post-merger Company; and

(11) other documents which the examination and approval authority requires to be submitted.

In case of a merger of a Company and a wholly Chinese-owned enterprise, the applicant shall also submit to the examination and approval authority photocopy of the business licence of the enterprise invested in and established by the wholly Chinese-owned enterprise to be merged.

Article 21: A Company merger agreement shall include the following main particulars:

(1) the name, domicile and legal representative of each party to the merger agreement;

(2) the name, domicile and legal representative of the post-merger Company;

(3) the total amount of investment and the registered capital of the post-merger Company;

(4) the form of the merger;

(5) the claims and debts of each party to the merger agreement and the plan for the succession thereto;

(6) the arrangements made for the staff and workers;

(7) liability for breach of contract;

(8) method of dispute resolution;

(9) the date and place of execution of the agreement; and

(10) other particulars which, in the opinion of the parties to the merger agreement, need to be stipulated.

Article 22: If the parties to a proposed Company merger do not all have the same original examination and approval authority, any Company to be dissolved shall submit an application for dissolution by reason of Company merger to its original examination and approval authority before submitting the relevant documents to the examination and approval authority pursuant to Article 18 hereof.

The original examination and approval authority shall make an official reply as to whether or not it consents to the dissolution within 15 days of the date on which it receives the dissolution application mentioned in the preceding paragraph. If the original examination and approval authority fails to make an official reply within 15 days, it shall be deemed to have consented to the Company's dissolution.

If the original examination and approval authority replies, within the time limit specified in the preceding paragraph, that it does not consent to the relevant Company's dissolution, the Company to be dissolved may submit the dissolution application to the authority in charge of foreign economic relations and trade at a level which is both above that of its original examination and approval authority and above that of the examination and approval authority for the Company merger. Such authority shall give a ruling within 30 days after it receives the application for dissolution of the Company.

If the examination and approval authority does not consent to or not approve the Company merger, the official reply in respect of the dissolution of the relevant Company shall automatically become void.

Article 23: A Company to be divided shall submit the following documents to the examination and approval authority:

(1) the written application for division of the Company signed by the Company's legal representative;

(2) the Company division resolution adopted by the Company's highest organ of authority;

(3) the Company division agreement signed by the Company to survive and/or the Company or Companies to be newly established (the Parties to the Division Agreement);

(4) the contract for, and articles of association of, the Company;

(5) photocopies of the approval certificate and business licence of the Company;

(6) the capital contribution verification reports issued by a Chinese statutory appraisal institution in respect of the Company;

(7) a balance sheet and property list of the Company;

(8) a list of the Company's creditors;

(9) the contract for, and articles of association of, each post-division Company;

(10) a list of the members of the highest organ of authority of each post-division Company; and

(11) other documents which the examination and approval authority requires to be submitted.

If the division of a Company will lead to the establishment of a new Company elsewhere, the Company must also submit to the examination and approval authority the signed opinion on the establishment of such new Company by the examination and approval authority of the place where such new Company is to be located.

Article 24: A Company division agreement shall include the following main particulars:

(1) the proposed name, domicile and legal representative of each of the Parties to the Division Agreement;

(2) the total amount of investment and the registered capital of the post-division Company;

(3) the form of the division;

(4) the plan for division among the Parties to the Division Agreement of the property of the Company to be divided;

(5) the plan for succession by the Parties to the Division Agreement to the claims and debts of the Company to be divided;

(6) the arrangements made for the staff and workers;

(7) liability for breach of contract;

(8) method of dispute resolution;

(9) the date and place of execution of the agreement; and

(10) other particulars which, in the opinion of the Parties to the Division Agreement, need to be stipulated.

Article 25: The Company which survives or is newly established upon a merger shall succeed to all of the claims and debts of the Company or Companies which was or were dissolved as a result of the merger.

The Companies in existence after a division shall succeed to the claims and debts of the original Company in accordance with the division agreement.

Article 26: The examination and approval authority shall make a written preliminary official reply as to whether or not it consents to a merger or division within 45 days of the date on which it receives the relevant documents to be submitted under Article 18 or 21 hereof.

If the examination and approval authority for a Company merger is MOFTEC, and MOFTEC considers the merger to tend towards monopolization of the industry or to possibly control the market for particular merchandise or a particular service and thus obstruct fair competition, it may, after having received the relevant documents mentioned in the preceding paragraph, convene a meeting of relevant authorities and organizations to hear evidence from the Companies to be merged and to investigate the said Companies and the market concerned. The time limit for examination and approval specified in the preceding paragraph may be extended to 180 days.

Article 27: Within 10 days of the date on which the examination and approval authority makes its preliminary official reply on a Company merger or division, the Companies to be merged or the Company to be divided shall issue written notification to their or its creditors and, within 30 days, announce the proposed merger or division at least three times in a nationally circulated newspaper at or above the provincial level.

In the said written notification or announcement, the Companies or Company shall specify the plan for succession to existing Company debts.

Article 28: Creditors of a Company shall, within a period of 30 days commencing from the date of receipt of the written notification mentioned in Article 25 hereof, or within a period of 90 days commencing from the date of the first announcement for those who do not receive written notification, have the right to demand that the Company modify its debt succession plan or to claim full repayment or corresponding security from the Company.

If a Company creditor fails to exercise his relevant rights within the time limit specified in the preceding paragraph, he shall be deemed to consent to the plan for succession to the claims and debts of the Companies to be merged or the Company to be divided, and no claims made by such creditor may affect the merger or division process of the Companies or Company.

Article 29: If the creditors of Companies to be merged or the creditors of a Company to be divided raise no objections within 90 days of the date of the first announcement, the applicant among the Companies to be merged, or the Company to be divided, shall submit the following documents to the examination and approval authority:

(1) proof that the Companies or Company have or has published an announcement of the merger or division in a newspaper three times;

(2) proof that the Companies have notified their creditors or the Company has notified its creditors;

(3) details of the Companies' disposal of their claims and debts or the Company's disposal of its claims and debts; and

(4) other documents which the examination and approval authority requires to be submitted.

Article 30: The examination and approval authority shall decide whether or not to approve the Company merger or division within 30 days of the date on which it receives the documents specified in Article 27 hereof.

Article 31: Where a Company merger takes the form of merger by absorption, the admitting Company shall carry out the procedures for change of its foreign-invested enterprise approval certificate with the original examination and approval authority and register the change in the Company with the registration authority; and the admitted Company shall return its foreign-invested enterprise approval certificate to the original examination and approval authority for cancellation and de-register with the registration authority.

Where a Company merger takes the form of merger by new establishment, each party to the proposed merger shall return its foreign-invested enterprise approval certificate to the original examination and approval authority for cancellation and de-register with the registration authority; and the newly established Company shall, through the applicant, obtain a foreign-invested enterprise approval certificate from the examination and approval authority and register its establishment with the registration authority.

Where a Company division takes the form of survived division, the surviving Company shall carry out the procedures for change of its foreign-invested enterprise approval certificate with the examination and approval authority and register the change in the Company with the registration authority; and the newly established Company or Companies shall obtain a foreign-invested enterprise approval certificate from the examination and approval authority and register its or their establishment with the registration authority.

Where a Company division takes the form of division by dissolution, the original Company shall return its foreign-invested enterprise approval certificate to the original examination and approval authority for cancellation and de-register with the registration authority; and the newly established Companies shall obtain a foreign-invested enterprise approval certificate from the examination and approval authority and register their establishment with the registration authority.

Where a merger is between a Company and a wholly Chinese-owned enterprise, the Company shall carry out the relevant procedures regarding its foreign-invested enterprise approval certificate.

Article 32: Within 30 days of the date on which the examination and approval authority approves a merger or division, the applicant among the Companies to be merged, or the Company to be divided, shall carry out with the relevant examination and approval authority the procedures for return for cancellation, change or obtaining of a foreign-invested enterprise approval certificate in connection with the dissolution, survival or new establishment of a Company due to merger or division.

Article 33: A Company shall de-register, change its registration or register its establishment with the registration authority pursuant to regulations such as the PRC Administration of Enterprise Legal Person Registration Regulations and the PRC Administration of Company Registration Regulations after the date on which it returns for cancellation, changes or obtains its foreign-invested enterprise approval certificate.

Registration of establishment shall be carried out after the procedures for change of registration or de-registration of the relevant Company have been completed.

The following documents shall be deemed to constitute the liquidation report to be submitted at the time of de-registration: (i) the plan for disposal of Company property and the plan for succession to claims and debts specified in the Company merger or division agreement and (ii) the document by which the examination and approval authority approved the Company merger or division.

Article 34: After existing Companies have been de-registered for purposes of a merger by new establishment, or after an existing Company has been de-registered or the registration of an existing Company has been changed for purposes of a division, a party or the parties shall bear corresponding legal liability if it or they fails or fail to register the establishment of the relevant new Company or Companies according to the law.

Article 35: The amended contract for, and articles of association of, a Company signed by the investors of the Company by reason of a Company merger or division shall become effective on the date on which the examination and approval authority changes or issues the foreign-invested enterprise approval certificate.

Article 36: The Company which survives or is newly established after a merger or a company which survives or is newly established after a division shall, within 30 days of the date on which its business licence is changed or obtained, issue a notice of change in debtor and creditor to the creditors and debtors of the Companies or Company which were or was dissolved as a result of the merger or division, and announce the change in a nationally circulated newspaper at or above the provincial level.

Article 37: The Company which survives or is newly established after a merger or a company which survives or is newly established after a division shall, within 30 days of the date on which its business licence is exchanged or obtained, carry out corresponding registration procedures with relevant authorities such as the tax, customs, land administration and exchange control authorities.

In case of a merger of a Company and a wholly Chinese-owned enterprise, a Company that survives or is newly established shall carry out the corresponding examination and approval procedures with authorities such as tax, customs, land administration and exchange control authorities in accordance with the relevant provisions on foreign-invested enterprises.

Article 38: Where a Company merger or division involves the assignment of equity, the matter shall be handled pursuant to relevant laws and regulations and the provisions concerning changes in the equity of investors in foreign-invested enterprises.

Where foreign investors purchase the equity of the shareholders of the wholly Chinese-owned enterprise in a merger between a Company and a wholly Chinese-owned enterprise, the payment conditions for the acquisition price of the equity shall be satisfied in accordance with the Supplementary Provisions.

Article 39: Mergers and divisions of companies which investors from Hong Kong, Macao and Taiwan have invested in and established elsewhere in China shall be handled by reference to these Provisions.

Article 40: MOFTEC and SAIC shall be in charge of interpreting these Provisions.

Article 41: These Provisions shall be implemented as of the date of promulgation.