12 January 2015
Client Alert | China | M&A / Corporate
The State Administration for Industry and Commerce (“SAIC”) has issued a series of new regulations (the “New Rules”) governing China’s new reporting and disclosure system for businesses, which applies to all enterprises registered with SAIC or its local branches (the “AICs”) — including foreign-invested companies — operating in China. Investors should take note of the many changes brought by this new system, including new compliance requirements and potential benefits.
Background
To spur development, the State Council has sought a more efficient, “market-oriented” approach to regulating business activities. For example, earlier this year, the new Company Law removed minimum capital requirements and replaced the paid-in capital verification system with a simple reporting system . Then, in August, it issued the Interim Regulations on Enterprise Information Disclosure, replacing the old annual inspection system with an annual reporting system.
The old system required all companies to undergo rather complicated formalities, including the submission of financial statements, to pass the AIC’s annual inspection. Such formalities, while theoretically allowing great regulatory oversight, placed a huge burden on companies in terms of both time and costs.
The new system created by the State Council and SAIC’s New Rules aims to ease this burden by reducing the amount of administrative formalities, as well as to increase transparency by making such annual reports available to the public. The New Rules, which went into effect on October 1, 2014, include:
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