If the domestic company fails to go through the procedures of registration in accordance with the preceding paragraph, the registration administrative authority shall settle it in accordance with the relevant provisions of Regulations of the People's Republic of China on Administration of Registration of Companies.

Article 37 Prior to the obtainment of the approval certificate for a foreign investment enterprise and the foreign exchange certificate without indication, the domestic company shall not distribute profits to any shareholder, or provide any guarantee to any of its affiliated company, or assign any equity to any third party, or reduce its registered capital, or make liquidation or any other matters relating to its assets.

Article 38 The domestic company and its shareholders may go through the procedures on registration of taxation alteration with the competent taxation authority with the approval certificate and the business license without indication issued by the MOFCOM and the registration administrative authority.

Section III Special Provisions on Special

Purpose Companies

Article 39 The "special purpose company" shall refer to an overseas company directly or indirectly controlled by a domestic company or Chinese natural person to realize the interests of a domestic company actually owned by the aforesaid domestic company or Chinese natural person by means of overseas listing.

Where the shareholders of a special purpose company use its equity in the company as the means of payment, or a special purpose company uses its increased shares as the means of payment, for the purpose of realizing oversea listing, to purchase the shareholders' equity right in a domestic company or the increased shares of a domestic company, the provisions of this Section 3 shall apply.

Where a party to the merger takes an overseas company, as the subject of overseas listing, the overseas company shall meet the relevant requirements on special purpose companies as provided for in this Section 3.

Article 40 Where a special purpose company to be listed overseas, the listing shall be proved by the securities regulatory authority under the State Council.

The country or region where the special purpose company is listed shall have a sound legal and regulatory system, and the securities regulatory authority of such country or region has concluded a memorandum of understanding on cooperation in regulation with the securities regulatory authority under the State Council, and has kept the effective relationship of cooperation in regulation.

Article 41 A domestic company whose shares are listed overseas as mentioned in this Section Three shall meet the following conditions:

(1) to be with a clear ownership and is free from any dispute or potential dispute over its equity;

(2) to be with a complete business operation system and good sustainable business capacity;

(3) to be with a sound corporate governance structure and internal management system;

(4) the company and its major shareholders have no record of material violation of laws or regulations in recent three (3) years.

Article 42 Where a domestic company intends to establish a special purpose company overseas, it shall submit an application to the MOFCOM for approval. When submitting the application, in addition to the documents to be submitted to the MOFCOM as required in the Provisions on Approval of Investment in and Establishment of Overseas Enterprises, the domestic company shall also submit the following documents to the MOFCOM:

(1) the identity certificate of the actual controller of the special purpose company;

(2) the business proposal for overseas listing of the special purpose company;

(3) The evaluation report made by the Merger Consultant on the potential issuing price of shares when the special purpose company is listed overseas.

Upon obtainment of the approval certificate of overseas investment by Chinese enterprises, the promoter or the controller shall apply to the foreign exchange administrative authority of its locality for the corresponding registration of foreign exchange in overseas investment.

Article 43 The total value of shares of the special purpose company to be issued overseas shall not be less than the total value of share right of the merged domestic company as evaluated by a corresponding asset valuation institution in China.

Article 44 Where a special purpose company merges a domestic company by equity merger, the domestic, in addition to the documents to be submitted to the MOFCOM as required in Article 32 hereof, shall also submit the following documents:

(1) the approval documents and certificates for investment in and establishment of overseas enterprises when setting up the special purpose company;

(2) the registration form of foreign exchange in overseas investment for the special purpose company;

(3) the identity certificate or incorporation certificate and articles of association of the actual controller of the special purpose company;

(4) the business proposal for overseas listing of the special purpose company;

(5) the evaluation report made by the Merger Consultant on the potential issuing price of shares when the special purpose company is listed overseas.

If an overseas company holding the equity of a special purpose company is the subject of overseas listing, the domestic company shall also submit the following documents:

(1) the incorporation certificate and articles of association of the overseas company;

(2) the detailed statement on the transaction arrangement and evaluation method for the equity of the merged domestic company between the special purpose company and the overseas company.

Article 45 If the MOFCOM approves the documents as provided for in Article 44 hereof in the preliminary examination, it shall issue a letter of reply in principle, and the domestic company may use this letter of reply to submit the documents for application of public listing to the securities regulatory authority under the State Council. The securities regulatory authority under the State Council shall decide on whether approve it or not within twenty (20) business days.

After the obtainment of approval, the domestic company shall apply to the MOFCOM for the approval certificate. The MOFCOM shall issue an approval certificate indicated with the following words to the domestic company: "Holding share right by an overseas special purpose company, valid within one (1) year as of the issuance of the business license."

Where the equity or any other matters of a special purpose company is changed due to the merger, the domestic company or natural person who holds the share right of the special purpose company shall use the approval certificate for a foreign investment enterprise with the above mentioned indication to go through the procedures with the MOFCOM on approval of alteration in the enterprise invested and established overseas with respect to the relevant matters of the special purpose company, and shall apply to the foreign exchange administrative authority of its locality for alteration in registration of foreign exchange in overseas investment.

Article 46 Within thirty (30) days as of the receipt of certificate with the above mentioned indication, the domestic company shall go through the procedures on registration of alteration with the competent registration administrative authority and the foreign exchange administrative authority, and the registration administrative authority and the foreign exchange administrative authority shall respectively issue the business license for a foreign investment enterprise and the foreign exchange registration certificate to the domestic company, on which it shall indicated the words of "valid within fourteen (14) months as of its issuance."

When the domestic company goes through procedures on registration of alternation with the registration administrative authority, it shall in advance submit the application for equity alternation, amendment to the articles of association and the agreement on equity transference signed by the legal representative of the domestic company for the purpose of restoration of equity structure.

Article 47 Within thirty (30) days after the special purpose company or an overseas company have affiliation relationship with the special purpose company has completed the overseas listing, the domestic company shall report the situation of overseas listing and the proposal of financing income retrieval to the MOFCOM, and shall apply to the MOFCOM for re-issuance of an approval certificate for foreign investment enterprises without indication. Furthermore, within thirty days as of the completion of overseas listing, the domestic company shall report the situation of overseas listing and submit relevant documents for reference to the securities regulatory authority under the State Council. The domestic company shall also submit the proposal of financing income retrieval to the foreign exchange administrative authority, and the foreign exchange administrative authority shall supervise over the implementation of this proposal. Within thirty (30) days as of the receipt of an approval certificate for foreign investment enterprises without indication, the domestic company shall apply to the registration administrative authority and the foreign exchange administrative authority for re-issuance of the business license for foreign investment enterprises and the foreign exchange registration certificate without indication.

Where the domestic company fails to report to the MOFCOM within the above mentioned time limit, the approval certificate with indication issued for the domestic company shall be automatically invalidated, and the equity structure of the domestic company shall be restored to the status before the share right merger, and the domestic company shall go through the procedures on registration of alteration in accordance with Article 36 hereof.

Article 48 The financing income of a special purpose company from overseas listing shall be retrieved and used inside the territory of China in accordance with the proposal of financing income retrieval filed with the foreign exchange administrative authority and with the current effective laws and regulations on foreign control. The financing income may be retrieved into the territory of China by any of the following means:

(1) to provide commercial loans to the domestic company;

(2) to establish a new foreign investment enterprise inside the territory of China;

(3) to merge a domestic enterprise.

The retrieval of overseas financing income of a special purpose company by any of the above mentioned means shall be subject to the relevant laws and administrative regulations of China on foreign investment and overseas debt administration. Where the retrieval of overseas financing income of a special purpose company causes the share right held by a domestic company and natural person in the special purpose company to be increased or causes the net assets value of the special purpose company to be increased, the parties thereto shall disclose the fact and submit an application for approval. After the obtainment of approval, the parties thereto shall go through the procedures on registration of foreign exchange in overseas investment and registration of alteration in overseas investment.

If a domestic company and natural person gain any profits, dividends from the special purpose company or gain foreign exchange income from the alteration in capital, it shall retrieve such profits, dividends or income into the territory of China within six (6) month as of its gaining. The profits and dividends may be accrued to the foreign exchange under current account or be settled as foreign exchange. With respect to the foreign exchange income from the alteration in capital, upon approval of the foreign exchange administrative authority, it may be deposited in a special account for capital item, or may be settled as foreign exchange upon approval of the foreign exchange administrative authority.

Article 49 If the domestic company fails to obtain an approval certificate without indication within one (1) year as of the issuance of the business license, the approval certificate with indication shall be invalidated automatically, and the domestic company shall go through the procedures on registration of alteration in accordance with Article 36 hereof.

Article 50 After the special purpose company has completed its overseas listing and the domestic company has obtained the approval certificate without indication and the business license, if the parties thereto continue to merge a domestic company using the share right of the special purpose company as the means of payment, it shall be subject to the provisions of Section 1 and Section 2 of this Chapter 4.

Chapter V Supplementary Provisions

Article 51 According to the provisions of the Antimonopoly Law, where merger and acquisition of a domestic enterprise by a foreign investor meets the thresholds for declaration of the Provisions of the State Council on Thresholds for Declaration of Concentrations of Undertakings, the foreign investor shall make a declaration with the MOFCOM and shall not carry out the deal without declaration.

Article 52 An investment company that is established by a foreign investor inside the territory of China in accordance with the law shall be governed by the present provisions to merge a domestic enterprise.

Where a foreign investor purchases the equity of a domestic foreign investment enterprise or subscribes the increased capital of a domestic foreign investment enterprise, it shall be subject to the current laws, administrative regulations on foreign investment enterprises and the relevant provisions on alteration in investors' share right of foreign investment enterprises. If there is no such applicable provision, it shall be handled by reference to the present provisions.

Where a foreign investor merges or acquires a domestic enterprise by its foreign investment enterprise established in China, it shall be subject to the relevant provisions on merger and division of foreign investment enterprises, and the relevant provisions on domestic investment by foreign investment enterprises. If there is no such applicable provision, it shall be handled by reference to the present provisions.

Where a foreign investor merges a domestic limited liability company and reauthorizes it into a joint stock company, or the domestic company is a joint stock company, it shall be subject to the relevant provisions on establishment of foreign investment joint stock companies. If there is no such applicable provision, it shall be subject to the present provisions.

Article 53 The applicant or reporter shall sort relevant documents and attach a file list thereof in accordance with the present provisions. All the documents to be submitted shall be in Chinese.

Article 54 A Chinese natural person shareholder of the domestic company merged by equity merger, upon approval, may continue to be the Chinese investor in the foreign investment enterprise established after the merger.

Article 55 If the nationality of a natural person shareholder of the domestic company is changed, the nature of the company will not be affected therefore.

Article 56 The personnel of relevant governmental agencies must be faithful to their duties, perform their responsibilities according to law, and shall not seek any unlawful interests by taking advantage of their positions, and shall be liable to keep the confidentiality of any business secret.

Article 57 The mergers by investors from Hong Kong Special Administrative Region, Macau Special Administrative Region and Taiwan region of the enterprises in other regions inside the territory shall be handled by referring to the present provisions.

Article 58 The present provisions shall come into force on the day of its release.

Source: www.fdi.gov.cn