China Streamlines, Shifts to E-Filing System for Company Registration
By Jacob Blacklock
Posted: 22nd March 2017 09:59
In late 2016, the Standing Committee of the National People’s Congress of the People’s Republic of China (PRC), revised Law on Wholly Foreign-owned Enterprises. A new Article 23 was added to the law stating in part:
"Where the establishment of wholly foreign-owned enterprises does not involve the implementation of special access administrative measures prescribed by the State, the approval items stipulated in Article 6, Article 10 and Article 20 of this Law are subject to record-filing management…”
Subsequently, the China Ministry of Commerce (MOFCOM) issued its Interim Administrative Measures for the Record-filing of the Incorporation and Change of Foreign-invested Enterprises and at the same time officially launched the new “Foreign Investment Comprehensive Information Administration System”, an online records filing platform.
What does all of this mean? What is “record-filing management” What does it apply to? In short, “record-filing management” is Chinese “legalese” for an online e-filing system and more efficient records handling processes in general. Article 6, Article 10 and Article 20 of the Law on WFOEs refer to WFOE establishment, major corporate governance changes and changes in the WFOE’s approved term of operations. The new Article 23 means that for many new foreign invested enterprises, each of these areas will be handled via an online e-filing system going forward. This is a positive change.
The previous system of WFOE establishment in China required an extensive process of official examinations and approvals. Application matters were all reviewed by individual bureaucrats with the responsibility to ensure each application for company establishment met all legal requirements. This process frequently resulted in the reviewing officer withholding approval to request amendments or clarifications on the documents filed. A typical company establishment, with no problems or delays, would often take at least 3 months.
By amending the Law on WFOEs to require “record-filing management” the powers that be are making a major statement calling for the process of WFOE establishment to be streamlined via the new online e-filing system. Rather than having an officer of the AIC examine and approve each application, documents will be quickly reviewed to ensure all required documentation is present, then the application will be approved, and the documents stored electronically. The record-filing system for foreign invested enterprises (FIEs) has been officially implemented and has thus far been a success.
The local office of the AIC is responsible for approving and reserving a planned company name. This should be done at the start of the company establishment process as the name reservation certificate is one of the documents to be submitted at later stages of the company establishment process. Each company is allowed to register one name, which cannot be the same or similar to the name of another company in the same municipality. The name must include a trading name, the industry the company will be involved in, and must indicate the type organization (for example Co. Ltd.). Once approved, the name reservation will be valid for 6 months, and may be extended for an additional 6 months.
After securing a company name, application may be made to the AIC for a Business License. The China Business License functions similar to a Certificate of Incorporation, In that it is the primary legal document evidencing the existence of the company as a legal entity and granting the company ability to conduct business. The Business License of each company contains a particular “Business Scope” which sets out all areas of business the company may participate in.
In order to obtain the Business License, an application must be made to the AIC, including the certificate of name pre-approval, the company Articles of Association, the corporate governance documentation of the investing company, and official documentation demonstrating that the company has the right to utilize its stated registered address as its primary place of operations.
Additionally, if the planned company is to participate in any specially regulated business activity, such as those categorized as Restricted to foreign investment, approval documentation must be obtained from the relevant governing body with authority to regulate such particular industry or activity.
According to the Administrative Regulations of the People's Republic of China on Company Registration, if the application for company establishment is submitted to the AIC in person, the reviewing officer must make a decision on whether to approve the company establishment on the spot. However, if the application is submitted online, or by post, or if the reviewing officer identifies issues requiring further examination, the AIC must review and make a decision on the Business License within 15 business days. It is highly preferable to submit an application for company establishment to the AIC in person. In most cases, the AIC officer will review the documentation presented and assist in identifying any modifications required to the current documentation. This process is much easier in person than via online submission.
The new company must also be registered with the Ministry of Commerce (MOFCOM), This process has been streamlined by the implementation of MOFCOM’s “Foreign Investment Comprehensive Administration Information System”, an online platform offering a one stop simplified registration procedure.
This required online registration may be performed either prior to or after (within 30 days) the final issuance of the Business License. Materials required to complete the MOFCOM registration include among others, the application materials previously submitted to the AIC as part of name reservation or application to obtain Business License, a Letter of Commitment, and identifying documentation of the investor to the new company and the Legal Representative.
After completing the online filing process, MOFCOM will examine the submission and record the filing within 3 business days. This is a substantial improvement over the past system, in which examination and approval by MOFCOM would take 90 days. Final approval of the filing will be in electronic form. There will be no paper certificate unless specifically requested.
The online filing system continues a trend in China to make company establishment, for foreign parties easier. Taken together with other changes in recent years, such as China’s elimination of substantial Registered Capital minimums and detailed capital contribution deadlines, it is clear company establishment in China for foreign investors is easier than ever before. This is a trend we expect will continue as China shifts away from a highly manufacturing and exports focused economy and attempts to promote a healthy and diverse consumer economy.
Jacob Blacklock, Foreign Legal Counsel with Lehman, Lee & Xu, assists foreign clients in all areas of corporate commercial practice, including company formations, employment, manufacturing and distribution agreements, international transactions and more.
Crys Zheng a Trainee attorney with Lehman, Lee and Xu, majored in corporate governance, international investment and international trade.
Lehman, Lee & Xu, China Law Firm is one of the oldest private law firms establishing in the PRC. Founded in 1992 by Mr. Edward Lehman, and a group of dedicated Chinese lawyers, the firm is a full service China corporate commercial law firm. The firm performed company formations China wide and offers comprehensive legal solutions via dedicated Intellectual Property and Visa & Immigration departments. Mr. Lehman has served as Managing Director of the firm for the past 24 years.
Jacob can be contacted on (86)(10) 8532-1919