“Haworth & Lexon Law Newsletter” is issued every month, mainly introducing the legal change in the fields of Corporate, Securities, Foreign investment, Intellectual property rights, International trade etc. with necessary comment. All the comments do not mean the legal opinion of our firm and the firm does not have any legal liability for such comment. Should you have any interest in any topics or any questions please feel free to contact the firm. You will be expected to have satisfactory response from the professional attorney of our firm.
Guidelines
★ Haworth & Lexon is Recommended as “
★ Circular on “Guide for Articles of Association of Listed Companies” by
★ Latest Laws and Regulations:
1 Rules for Shareholder Meetings in Listed Companies
1 Accounting Standard for Business Enterprises — Basic Standard
1 Interim Regulatory Measures on Developing Projects of State High and New Technology Industry
Haworth & Lexon is Recommended as “
Teaming up with Legalease, China International Business published in February, 2006 has specially recommended the outstanding law firms in China, which listed the ”2005/2006 China's Leading Law Firms and Individual Lawyers”, covering the business aspects including banking & finance, capital markets, merger & acquisition intellectual property rights and shipping.
Haworth & Lexon was elected in the item of “Corporate/Merger &Acquisition”.
Circular on “Guide for Articles of Association of Listed Companies” by
China Securities and Regulatory Committee amended “Guides for Articles of Association of Listed Company” on March 16, 2006. The articles of association (or the drafted ones) of the companies offering initial public offer, should be drafted or amended according to “Guides”; and the companies who have been floated on the stock exchange should amend them in the first shareholder meeting after the publication of “Guides”.
The previous “Guides” limits the listed shares to the common shares. But the requirements in the amendment are “the same kind of shares shall have the equivalent rights” and “the same kind of shares listed in one issuance shall have the same issuing condition and the prices shall be the same”. It can be induced that it allows the existence of other kinds of shares.
New Guides is consistent with “Company Law” on the issue of acquisition of its own shares. It added two cases: one is to distribute the shares to the employees as encouragement; the other is that the shareholders require the companies to acquire its own shares for they object to the resolutions on merger and division. There are different log-off times for the shares acquired by different means. If it’s for distributing to the employees as employment, the Guides has additional conditions: it shall not be more than 5% of the total listed shares; the payment for acquisition should be from the after-tax profit of the company; and the acquired shares shall be transferred to the employees within one years.
The limits on the share transfer have been relaxed to some extent. For example, the quiet period, during which the shares can not be transferred, of the promoters is changed from 3 years to 1 year. It allows the directors, supervisors and management transfer their shares during the tenure, but it should not be less than 25% of the total amount of shares held by them. The above people shall not transfer their shares within one year from the issuance date of the shares of the companies.
On voting procedures of shareholder meeting, the most obvious change is that it deleted the previous article 72. So when voting on related transactions, it’s not allowed to do it according to procedure for non-related transactions. The companies have to convene more shareholders to attend the meeting and hold the meeting again to avoid the controlling of related shareholders.
The Guides listes forbidding conditions for people who want to hold position of director in companies. In order to avoid the listed company controlled by some actual controllers in business and redundant directors and to make the corporate governance keep a more effective balance, the Guide provides that “the number of directors, who are managers or other management personnel and the employee representatives, should not be more than 1/
To the engagement of accounting firm, the Guides clearly provides that it should be appointed by shareholder meeting lest the board changes accounting firm to conceal the financial problems.
Rules for Shareholder Meetings in Listed Companies
China Securities and Regulatory Committee promulgated “Rules for Shareholder Meetings in Listed Companies” on March 16, 2006, which completely amended “Regulatory Opinions on Shareholder Meetings of Listed Companies” effective in 2000.
The Rule divides the convening bodies of shareholder meetings into board of directors, board of supervisors and shareholders who separately or jointly hold more than 10% of the total shares. There are two results for the shareholder meetings which are convened by the board of supervisors and shareholders who separately or jointly hold more than 10% of the total shares. One is that the boards of directors agree with the suggestion and then convene the shareholder meetings. The other is that they disagree and then the board of supervisors and the relevant shareholders convene the meetings on their own. The differences consist in the convening people and the assumer of the expenses incurred from the meetings.
The Rule adds much new contents. It allows the shareholders to attend the meetings by network or others on condition that the shareholder meetings are lawful and effective. The inquiry rights of shareholders are ensured, for the directors, supervisors and management personnel shall explain and make out for the inquiries presented by shareholders. The Rule also complements some articles on count of votes, supervision of votes, accumulating votes and so on, which makes the rule more practical. In addition, the Rule provides that the secretary of board of directors is responsible for the records of shareholder meeting, and the directors, secretary, convening person or its representative, and chairman shall sign on the records. The Rule also adds directive litigations.
Accounting Standard for Business Enterprises — Basic Standard
Ministry of Finance amended “Accounting Standard for Business Enterprises—Basic Standard” on February 15, 2006, which will be effective on July 1, 2007.
It was amended because “Regulation for Financial Reports of Enterprises”, promulgated in 2000, redefines the asset, debt, owners’ benefits, income, expenses and profit, which replaced the previous provisions on these factors. The amended Standard is made according to “Regulation for Financial Reports of Enterprises”, which is also the essential part of this amendment.
The Standard adds stipulations for financial accounting reports. It requires the enterprises to make accounting recognition, measurement and report basing on the practical transactions or items and faithfully reflect all the accounting factors and other information. It also put forward requirements on the quality of accounting information, such as trueness and credibility, completeness of content, reflection of financial condition, business achievement and cash flow and other important transactions.
The Standard redefines the asset and debt, and it provides conditions to be defined as assets.
The Rule points out that the source of owners’ benefits include capital invested by owners, profit and loss counted into the owners’ benefits and profit on hand.
The Rule stipulates that income should only be confirmed when the economic interests may flow in, which leads to increasing of assets or reduction of debts, and the amount of economic interests can be measured assuredly. However, the expenses are vice versa. It should only be confirmed when the economic interests may flow out, which leads to reduction of assets or increasing of debts, and the amount of economic interests can be measured assuredly. The following items are counted into current losses and profits.1. The expenses coming from production of products and provision of labor, attributable to product costs or labor costs, should be counted into current losses and profits when confirming the sales income or labor income. 2. If the payouts of the enterprises do not have any economic interests, or the economic interests do not conform to asset confirming conditions, it should be confirmed as expenses when it incurs. 3. The transaction or item makes the enterprise assume a debt, it shall be confirmed when it happens and counted into current losses and profits.
The Rule introduces the definition of “profit” and “loss” as international standard.
“Accounting measurement” is a new content. Its attributes mainly include historical costs, replacement cost, net realizable value, present value and fair value.
Interim Regulatory Measures on Developing Projects of State High and New Technology Industry
National Development and Reform Committee promulgated “Interim Regulatory Measures on Developing Projects of State High and New Technology Industry” on February 28, 2006, which will be effective on April 1, 2006.
The Measures applies only to the developing projects which are approved by NDRC to be state high and new industries, and granted discount in the interest on loans. The Measures divided high technology items into industrialization items, great technology equipment development and great industrialization technology development items and state high technology industrialization upgrades and structure adjustment items.
The Measures enumerates the basic conditions for application for high technology item, and it clearly provides for specific conditions on each items. The relevant administrative department will review the application report, if it is eligible, then it will be transferred to NDRC.
The Measures provides that the resource of find comes from the fund from enterprises, fund from state, fund from other departments of State Council or local governments, bank loan and the funds collected by the enterprises by other means. Anyway, the self-collected funds shall not be less than 30% of the new investment. State aided fund is divided into investment aid and discount in the interest on loans aid.
