Department of Public Offering Supervision of China Securities Regulatory Commission, Standards for Examination and Verification of Share Issues Memorandum (No. 15): Examination and Verification Guidelines on Issues Concerning Continuing Profitability in the Recent Three Years and Continuous Calculation of Operating Results

Issued: September 27 2002

Main contents: The Guidelines provide the criteria for determining whether an issuer can be deemed profitable for the last three years in accordance with Articles 137 and 152 of the PRC Company Law. These criteria include positive net profits both before and after deduction of recurring losses and gains and non-consolidated investment incomes, no material change in the business, operating assets and management of the issuer for the last three years, and no material change in the shareholder structure of the issuer in the previous year (Section One). Where at the time of the examination and verification, the issuer has been incorporated by means of sponsorship for less than three years, its operating results can be traced back to those of its principal sponsor, provided that its principal sponsor was a medium- or large-sized State-owned enterprise or a State-owned institution operating as an enterprise, that the equity contribution from such sponsor were operating assets with operating results and that there has been no material change in the business, operating assets and management of such sponsor for the last three years as well as in the shareholder structure of such sponsor for the previous year (Section Two). For the purposes of the Guidelines, a principal sponsor is the largest shareholder of the issuer who holds no less than 30% of interest in the issuer. The same continuous calculation shall be applied to an issuer converted from a limited liability company if its share capital is converted from its net assets as audited at the date of the conversion and if there has been no material change in its business, operating assets and management for the last three years as well as in its shareholder structure for the previous year (Section Three).
Related legislation: PRC Company Law (Amended), Oct 27 2005, CLP 2005 No.10 p21; Certain Questions on the Establishment of Foreign-funded Companies Limited by Shares Tentative Provisions, Jan 10 1995; Standards for Examination and Verification of Share Issues Memorandum (No. 2) and Standards for Examination and Verification of Share Issues Memorandum (No. 3)