Originally published February 18, 2010
Keywords: RMB Fund, foreign invested partnership, SAIC, corporate governance, foreign enterprises, Partnership Enterprise Law, PRC, FIPs
The State Administration for Industry and Commerce (the "SAIC") wishes to see the management experience, techniques and corporate governance of foreign enterprises and individuals applied to promote the development of the private equity industry in China. In this regard, the SAIC has recently issued Decree 47 which paves the way for the registration and operation of PRC law governed, foreign invested partnerships ("FIPs").
The Partnership Enterprise Law of the PRC (the "Partnership Law") came into force on 1 June 2007. Article 108 of the Partnership Law contemplates the formation of FIPs. Pursuant to Article 108, the State Council issued the Measures for the Administration on the Establishment of Partnership Business by Foreign Enterprises or Individuals in China (the "Measures") with effect from 1 March 2010.
The Measures allow private equity funds, in the form of FIPs, to be registered with a local SAIC office without approval from the Ministry of Commerce. Article 14 of the Measures contemplates the publication of more detailed measures and procedures to apply to FIPs.
Pursuant to Article 14, the SAIC issued the Administrative Measures for the Registration of Foreign-invested Partnership Enterprises ("Decree 47"), also with effect from 1 March 2010. Decree 47 sets forth rules and procedures for the registration and operation of FIPs. This update relates to Decree 47.
In accordance with Decree 47, an FIP is required to register with the local SAIC office where the principal place of business of the FIP is located. Foreign invested private equity funds, in particular, are required to register with local SAIC office at the provincial or sub-provincial level. A representative authorized or appointed by all partners is required to submit the following information: name of the FIP; the principal place of business; the names of the partners in charge of partnership affairs; the scope of business; type of FIP (i.e. general or limited partnership); the names, addresses and categories of the partners and the form and amount of their capital commitments/contributions, the commitment period, and valuation methodology.
The local SAIC office may approve the registration and issue the business license on receipt of the prescribed registration documents if the documents submitted comply with the requirements of Decree 47. If not, the local SAIC office is required to notify the applicant of its decision, in writing, within 20 days of receiving such documents.
In the event of any change to the information filed with the local SAIC office including increases or reductions of capital commitments, the admission of new partners and/or transfers of partnership interests, an FIP is required to apply to the local SAIC office to amend its registration within 15 days of such change.
An FIP and its branch office are required to submit annual inspection reports, between March 1 and June 30 in each year, in accordance with the requirements of the local SAIC office.
An FIP may establish a branch office by registering with local SAIC office where the branch office is to be located, and then completing a filing with the local SIAC office where the FIP was registered within 30 days of the establishment of such branch office.
Prohibited and Restricted Industries
As expected, FIPs must comply with the Catalogue for the Guidance of Foreign Investment Industries ( http://www.fdi.gov.cn/pub/FDI_EN/Laws/law_en_info.jsp?docid=87372) issued by the State Development and Reform Commission and the Ministry of Commerce in 2007 (the "Catalogue") - Decree 47 prohibits the registration of FIPs whose investment policy includes investment in 'prohibited foreign investment industries' and 'restricted foreign investment industries' that are either reserved for equity or contractual joint ventures or require a majority shareholding by Chinese parties, as more fully described in the Catalogue. FIPs are therefore on a level playing field with wholly foreign owned enterprises and other foreign invested enterprises operating in China.
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