China: Provisional Rules On Enterprise Information Disclosure And Their Implications

Last Updated: 5 September 2014
Article by Lester Ross and Kenneth Zhou

China's State Council approved the Provisional Rules on Enterprise Information Disclosure (企业信息公示暂行条例) (the Disclosure Rules) on July 23, 2014, which take effect on October 1, 2014.1 The Disclosure Rules apply to all companies registered in the People's Republic of China, including foreign invested enterprises (FIEs), and are part of a larger process under China's new leadership to accomplish three broad goals: (i) foster economic growth by reducing unnecessary burdens on companies and giving them greater flexibility; (ii) reduce reliance on the static concept of registered capital (capital paid in or committed to be paid in) as a measure of company creditworthiness; and (iii) collect and release to the public more information about companies so the market, rather than officials, can determine who succeeds and who fails.

The amendment of the Company Law last year started the process, especially by liberalizing registered capital contribution scheduling requirements. Then, earlier this year, the State Council issued the Plan on the Reform of the Registered Capital Registration System (国务院关于印发注册资本登记制度改革方案的通知) (Reform Plan).2 Some of the major changes include: (i) elimination of minimum registered capital requirements (except for companies in certain regulated industries); (ii) replacement of "paid-in capital" by "subscribed capital" (i.e., elimination of mandatory requirements on timing of capital contributions, capital verification procedure and ratio between capital contributions in cash vs. non-cash assets, which will now be solely determined by the company's shareholders); and (iii) replacement of annual inspections by annual reports. The Reform Plan generally places responsibility for compliance on the companies and their legal representatives and responsible persons.3 Companies that fail to comply may be "blacklisted," which will subject such companies to restrictions with respect to their future business activities. 

The Disclosure Rules detail the Reform Plan and will be administered by the State Administration for Industry and Commerce (SAIC) in its capacity of company registrar. To enable the public or the market to better evaluate a company's creditworthiness, the Disclosure Rules require government agencies and the companies themselves to submit certain information to the publicly available Enterprise Credit and Information Disclosure System for public disclosure on a real-time basis. Such information consists of registration information, registration of ownership change, mobile assets mortgages and pledges, equity pledges, administrative penalties, and other information as may be required by law within SAIC's domain.4 Such information is required to be disclosed within 20 days after it is available. 

In addition, companies, including FIEs, are required to submit annual reports for public disclosure (annual reports for the preceding year must be submitted by June 30 of the following year), which replaces the annual inspection system. The annual report must be in Chinese and include such information as contact information, liquidity status, equity investments and formation of entities, subscribed capital, timing and method of capital contributions as agreed by the shareholders, ownership changes and company website. Disclosure of detailed financial information is no longer mandatory and companies can now decide whether to include such detailed financial information as work force, total assets and liabilities, pledges and guarantees, shareholders equity, operating revenue, profits, and taxes paid. In the past, companies were required to submit their audited financial statements during the annual inspection.

The purpose of the Disclosure Rules is to enable the public to gain a better understanding of companies with which they may deal or in which they may choose to invest while enhancing the protection of proprietary business information of non-public companies. Companies and others will be able to submit requests for the correction of erroneous information. 

Under the Disclosure Rules, enterprises with abnormal operational activity or serious violations of law will be listed in the operational abnormity list which will be published on the Enterprise Credit and Information Disclosure System. Such measures as credit restrictions, government procurement restrictions or bars, and restricted eligibility to bid on projects and purchases of state-owned land may be imposed on enterprises that fail to release their information within designated periods or engage in fraudulent concealment.5

To cope with the new disclosure system, SAIC released five related rules on August 27, 2014, namely the Provisional Rules on Enterprise Information Disclosure Spot Checks, Provisional Rules on the Administration of the Operational Abnormity List, Provisional Rules on the Annual Reports of Individually-Owned Businesses, Provisional Rules on the Annual Reports of Specialized Farmers' Cooperatives and Provisional Rules on the Disclosure of Information related to Administrative Penalties.

These rules were all issued while the government was cracking down on unauthorized access to and disclosure of sensitive company information by journalists and others, detaining and prosecuting some. The Disclosure Rules show that the government recognizes the need for more disclosure in the interest of economic reform, but wants to control and constrain that flow.

Footnotes

1 See Provisional Rules on Enterprise Information Disclosure adopted by the State Council on July 23, 2014, and effective as of Oct. 1, 2014, available at news.xinhuanet.com/2014-08/23/c_1112198556.htm.

2 See Reform Plan on the Registration Regime of Company Registered Capital issued by the State Council on Feb. 7, 2014, available at www.saic.gov.cn/zcfg/xzfggfxwj/xxb/201402/t20140219_141923.html.

3 The "legal representative" is a natural person appointed to act on the company's behalf. The General Principles of Civil Law define the role as the "responsible person who performs the duties and powers on behalf of a legal person in accordance with the law or the constituent documents of the legal person." Under the Company Law, all businesses established in China must have a legal representative. "Responsible person" refers to those individuals with direct responsibility for conduct, compliance in this instance.

4 See Article 6 of the Disclosure Rules.

5 See Articles 17, 18 of the Disclosure Rules.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions