By Wu Wang
The Provisional Regulations on Disclosure of Enterprises’ Information (the “Provisional Regulations”) has been promulgated on August 7, 2014 and will become effective as of October 1, 2014. By this article, the author will not summarize the main contents of the Provisional Regulations as there have been many of such can be found on internet, while the author wants to do some discussions on the following five points highlighted by the author when reading the Provisional Regulations:
Point One: Though the paid-in capital has no longer been required to be registered with the enterprise registration authorities, it still needs to be disclosed and posted on the “corporate credit information publicity platform” (the “Credit Platform”) (by the enterprises themselves) in accordance with Article 10 of the Provisional Regulations. Meanwhile, it is noteworthy that in the case of a company limited by shares, it’s only required to disclose and post the information of its sponsor shareholders’ paid-in capital.
Point Two: Pursuant to Article 10 of the Provisional Regulations, the changes occurred to the shareholdings in a limited liability company are required to be disclosed and posted on the Credit Platform within 20 working days starting from the day on which such information has been formed (the “Day One”). But for this point, it’s not certain how to define the “Day One”, whether it will be (i) the effective day of the share transfer agreement, (ii) the day of issuing the share certificate / the day of revising the register of shareholders / the day of amending the articles of association, or (iii) the day of completing the filing with the enterprise registration authorities. The question concerned is in the event that the same shares are sold to different persons, whether the disclosed purchaser can use such to defend against the not-disclosed purchaser(s)? In addition, please note that the above discussions are referred to the limited liability companies only and not to the companies limited by shares which are also not mentioned in the Provisional Regulations in this regard.
Point Three: The enterprise registration authorities are required to disclose the enterprises’ filing information regarding the share pledge and chattel mortgage, but which is subject to a qualification—such pledge and mortgage are statutorily required to be filed with the enterprise registration authorities, which may indicate that the share pledge information of a listing company will not be disclosed and posted by the enterprise registration authorities on the Credit Platform, because such share pledge is not registered with the enterprise registration authorities but with the securities registration and clearing institution. Please also note that though the share pledge (of a private company) and chattel mortgage are both registered with the enterprise registration authorities, it will bring about different legal effects: only when a share pledge is registered with the enterprise registration authorities, such share pledge can be said “established”, while the chattel mortgage is not established as a result of such registration whereas it is established as of the effective day of the chattel mortgage contract while the registration with the competent authorities can be used to defend against other third persons.
Point Four: Though the IP mortgages are not registered with the enterprise registration authorities (which means the enterprise registration authorities are not able to disclose such information), the enterprises are required to disclose and post such information on the Credit Platform by themselves (when registered with the competent authorities).
Point Five: The recently adopted policy of annual report (by the enterprises) has replaced the policy of annual examination (by the enterprise registration authorities). Under the annual examination policy, the enterprises are required to submit, among other things, their Balance Sheet and Income Statement, while under the annual report policy, it will be the enterprises themselves to decide whether or not to disclose and post such financial information (including the total assets, total liabilities and equities, total revenues, business income, gross profit, net profit, etc.) on the Credit Platform. Please note, though it is optional to disclose and post the financial information, the enterprises still need to prepare the annual financial statement and engage an accounting firm to do the annual audit in accordance with the PRC Company Law.
Mr. Wu Wang is a Beijing-based associate with Global Law Office who specializes in merger & acquisition, private equity investment, venture capital investment, foreign direct investment, corporate financing, and corporate public offering and listing. (E-mail: wangwu@glo.com.cn)
