Law of the PRC on Foreign-funded Enterprises

Article 16 The articles of association of a foreign-funded enterprise shall become effective upon the approval by the examining and approving authority. The same procedure shall apply whenever any amendment thereto is made.

Article 17 Any division or merger of foreign-funded enterprises or any of their significant changes in capital resulting from any other causes shall be subject to the approval by the examining and approving authority, and for which changes, the relevant enterprises shall engage a Chinese certified public accountant to make verification and render a capital verification report; upon approval by the examining and approving authority, the enterprises shall go through the procedures for the change of registration with the administrative department for industry and commerce.

Chapter III Form of Organization and Registered Capital

Article 18 The form of organization of a foreign-funded enterprise shall be a limited liability company. Other liability forms may be adopted by approval.

In case of a limited liability company, the foreign investor shall be liable for the enterprise to the extent of what he has contributed for the capital.

In case of any other liability form, the foreign investor shall be liable for the enterprise according to Chinese laws and regulations.

Article 19 The total amount of investment of a foreign-funded enterprise refers to the total amount of funds required for opening the foreign-funded enterprise, i.e. the sum total of the funds invested in capital construction in accordance with the production scale and the circulating funds for production.

Article 20 The registered capital of a foreign-funded enterprise refers to the total amount of capital registered with the administrative department for industry and commerce for the purpose of establishing the foreign-funded enterprise, i.e. the total amount of investment that the foreign investor undertakes to contribute.

The amount of registered capital of a foreign-funded enterprise must be in keeping with the enterprise's operation scale, and the ratio between the registered capital and the total amount of investment shall conform to the relevant Chinese provisions.

Article 21 In its operating period, no foreign-funded enterprise may reduce their registered capital. If however, it is really needed to make such reduction due to some changes such as those in the total amount of investment or production scale, it may be reduced upon the approval by the examining and approving authority.

Article 22 Any increase or assignment of the registered capital of a foreign-funded enterprise shall be subject to the approval by the examining and approving authority, and then the enterprise shall go through the procedures for change of registration with the administrative department for industry and commerce.

Article 23 Where any foreign-funded enterprise intends to mortgage or assign its assets or right and interests to a third party, the case shall be submitted to the examining and approving authority for approval, and then to the administrative department for industry and commerce for record.

Article 24 The legal representative of a foreign-funded enterprise is the person-in-charge who, in accordance with the enterprise's articles of association,executes his/her functions and powers on behalf of the enterprise.

If the legal representative is unable to execute his/her functions and powers, he/she shall entrust in writing an agent with the execution of his/her functions and powers.

Chapter IV Form of Investments and Time Limit for Contributing Investments

Article 25 The foreign investors may make their investments with convertible foreign currencies, or with machinery and equipment, with industry property rights and proprietary technology by appraising the values of them.

Upon the approval by the examining and approving authority, the foreign investors may also make their investments with their profits in Renminbi from any other enterprises established in China with their investments.

Article 26 Machinery and equipment to be contributed by the foreign investor as investment must be those needed for the production of the foreign-funded enterprise.

The appraised value of the machinery and equipment may not be higher than the normal price of machinery and equipment of the same kind in international market at that time.

An inventory must be made for all the machinery and equipment to be contributed as investment, it shall include the name, type, quantity and appraised value of the machinery and equipment, and shall be submitted to the examining and approving authority together with the application for the establishment of the foreign-funded enterprise as an attachment to the application.