China Improves Enterprise Information Access

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Recent progress of enactment and establishment relating to the publicity of enterprise credibility information in order to cooperate with the implementation of the latest amended Company Law.

Background Information

According to the news released on July 23, the State Council of China passed the Interim Regulations of Enterprise Information Publicity (Draft) (“the Draft”), which is the latest big move for the reform of the registered capital registration system subsequent to the implementation of the amended Company Law this March.

The amended Company Law no longer
requires minimum registered capital, nor the actual paying in of registered capital any more when establishing an enterprise. Furthermore, it changes the annual check system to the annual report system. Under such circumstances, it sets forth higher requirements for the enterprise information transparency in order for individual or entity to search for relevant information of businesses, and calls for the government to establish and perfect relevant information publicity systems.

Annual Reporting System

In accordance with the Draft, enterprises are responsible for submitting its previous annual reports to the AIC departments through the Publishing System of National Enterprise Credibility Information (“the System”) during the period from January 1 to June 30 every year. Such reports will be published in the System and available to the public. The content of the annual report includes:

1) Information relating to committed or actual paid-in registered capital by shareholders of limited liability company or founders of corporation in terms of amount, time, method etc.;
2) Information relating to employees, address, postcode, contact and emails etc.;
3) Operation information relating to opening, good standing, suspending and liquidating etc.;
4) Information relating to investment to establish other enterprises;
5) Online operation information, such as website, or name, website of online store;
6) Information relating to enterprise’s total amount of assets, debts, sales, paid tax, income of major operating business, total revenue, net profit, and ownership interest.

The information in the first five items above must be published in the said System. In addition, an enterprise’s following information shall be published by the AIC departments in the System within 20 days after the formation thereof: a) information relating to committed or actual paid-in registered capital by shareholders of limited liability company or founders of corporation in terms of amount, time, method etc.; b) information relating to administrative obtainment and change; c) information relating to IP rights pledge registration; d) information relating to administrative penalty; and e) other information that should be published in accordance with laws.

Besides, information formed due to performance of governmental duties by the AIC and other government authorities, such as chattel mortgage registration, share pledge registration, administrative penalty and administrative approval etc., shall also be published in the System in accordance with the Draft.

Other Drafted Supporting Regulations

In order to ensure the credibility of the information published in the System, the said Draft stipulates that any individuals or entities may report to the AIC departments in case of founding mistakes or fraud in the published information. The AIC departments shall also carry on random inspections of enterprises as to the authenticity of the published information thereof. Thus, the SAIC also drafted the following rules to support and clarify the Draft:

 Measures for Random Inspection of Enterprise Published Information (Drafted for soliciting opinions)

According to the drafted Measures, the AIC departments over provincial level will make a name list of enterprises to be inspected within the jurisdiction thereof amount to 3-5% of the total enterprises therein based on the principle of fairness. The random inspection is aimed at inspecting the information on the annual report as well as other published information. Such inspection can be carried on by the AIC departments themselves or the professional institution, such as accounting firm, law firm etc. which authorized by the AIC departments. The enterprise being inspected is liable to be cooperative with the inspection. Otherwise, such uncooperative record may be published in the System. In case enterprise does not publish the information in accordance with the Draft mentioned above and refuses to perform such obligation after ordering by the AIC department, such enterprise will be listed in the operation abnormal directory. In case enterprise hides information or publish fraudulent information, it will be recorded in the enterprise list of severe violation.

 Administrative Measures for Directory of Operation Abnormal (Drafted for soliciting opinions)

The drafted Administrative Measures specifies situations that need to be add to or remove from the directory. For example, an enterprise will be added to the directory, if it does not upload its annual report to the System, or refuses to publish information within the time ordered by the AIC department, or cannot be contacted by the registered address (operated location). It also stipulates situation to be listed in the enterprise list of severe violation. For those has been listed in the directory, they would also be entitled to legal remedies in accordance with the drafted Administrative Measures.

 Regulations on Publishing AIC Administrative Penalty Information through the Publishing System of Enterprise Credibility Information

The drafted Regulations stipulates the procedures on publishing the AIC administrative penalty information in the System. As a result, any individual or entity would be able to check an enterprise’s AIC administrative penalty information, including abstract of the administrative penalty case and the decision thereof.

Publishing System of National Enterprise Credibility Information

Although the Draft and other supporting regulations have not been formally effective yet, the System has been launched since March of this year. In addition, some provinces or cities, such as Liaoning Province, have implemented the annual report system already. In some areas, annual reports are even available to the public now.

In the System, the published information can be divided into two parts: information published by the AIC departments which includes registration information, recordal information and administrative penalty information; and, information published by the enterprise which includes investors & investment information and annual report stipulated by the said Draft above mentioned.

By checking some randomly picked companies’ information in the Liaoning AIC database of the System, and comparing it with past experience of using the enterprise credibility websites as well as visiting the AIC bureau for file inquiry, this new System is definitely much more convenient to use than before and will make due diligence work much easier in future:

Firstly, the System has access to any enterprise’s information in China as long as it is registered in the AIC system. In the past, the local AIC’s database was not connected to each other. So, you have to search and log in different database to find the information, if you need to look up several companies that all locating in different cities. But now, you can visit either the SAIC database or any provincial level AIC database within the System.

Secondly, the System discloses the annual report to the public. Unlike the old system of annual check, if we want look into an enterprise’s annual check report, we have to pay a visit to the AIC bureau where the enterprise locates and applies for inquiring the files with required documents. An inquiry like this would be very time- and-money-consuming, especially if this enterprise is located in rural areas. However, after the full implementation of the annual report system, such report will be published online for the public to view at any time and any place which is no doubt a welcomed progress.

Thirdly, the System also requires enterprise to publish investment information of shareholders (founders) of enterprise, including information about names, committed registration capital, the actual paid-in registered capital, method and time of the registered capital. This will not only help the public have a better understanding of shareholders/founders of an enterprise, but also put those investors under the public supervision.

It is estimated that the new annual report system will be fully implemented nationwide this October. There is no doubt that the establishment of the system will further help the information openness and transparency in China.

Fei Dang is an Associate in the MMLC Group.

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.

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