(Approved by the State Council of the People’s Republic of China on August 7, 1995 and Promulgated by the Ministry of Foreign Trade Chapter I General Provisions Article 1 This detailed rules are formulated in accordance with the Law of the People’s Republic of China on Sino-Foreign Contractual Joint Article 2 The establishment of a Sino-foreign contractual joint venture (hereinafter referred to as contractual JV) within the Chinese territory Article 3 Contractual JVs shall independently carry out its business activities and management the scope stipulated in the contractual JV agreement, Article 4 A contractual JV may be one with or without the Chinese legal person status. Those without shall follow relevant special regulations Article 5 Unless otherwise regulated by laws and decrees, the administrative authority of a contractual JV is the administrative department Chapter II Establishment of a Contractual JV Article 6 The establishment of a contractual JV is subject to examination and approval by the Ministry of Foreign Trade and Economic Cooperation The establishment of contractual JVs shall be examined and approved by authorized departments of the State Council and local people’s (1) The total amount of investment falls within the limit set by the State Council for examination by authorized departments of the (2) The investment fund is raised independently, and contraction and production conditions of the venture dose not need State balance. (3) The venture’s export dose not need to obtain export quotas or licenses issued by relevant State administrative departments; or (4) Other cases where the establishment of a contractual JV shall be examined and approved by authorized departments of the State Article 7 To establish a contractual JV, the Chinese party shall submit the following documents to the examination and approval authorities: (1)Project proposal for establishing a contractual JV, together with the documents of approval handed out by the administrative departments; (2) Feasibility report jointly prepared by all parties, together with the documents of approval handed out by the administrative departments; (3) Contractual JV agreement, contract and articles of association signed by the legal representatives venture, or their proxies, (4) Business licenses of all parties of the venture, their registration certificates, credit certificates and valid certificates of (5) List of candidates for the chairman, deputy-chairman, directors of the board of the contractual JV, or the director, deputy director (6) Other documents required by the examination and approval authorities. Except for documents listed in item (4) that need to be submitted by the foreign parties, the aforesaid documents must be submitted The examination and approval authorities shall decide whether to approve the application or not within 45 days from receipt of all Article 8 Morftec shall issue approval certificates to the contractual JVs approved for establishment by it and government departments authorized Local people’s governments authorized by the State Council shall issue approval certificates to the ventures it has approved for establishment, Approved contractual JVs shall apply for registration with the administrative authorities for industry and commerce, and obtain business Article 9 Applications for the establishment of contractual JVs shall not be approval on any one of the following conditions: (1) Detrimental to national sovereignty and public interests; (2) Hazardous to national security; (3) Causing pollution on environment; (4) Other conditions that run against laws, decrees or the national industrial policy. Article 10 The contractual JV agreement mentioned in this detailed rules refers to the written document whose principles and major points governing The contractual JV contract mentioned in this detailed rules refers to the written document agreed upon and concluded by all parties The contractual JV articles of association mentioned in this detailed rules refers to the written document drafted according to the In case the contractual JV agreement and the articles of association contradict with the contractual JV, the contract shall prevail. It is not absolutely necessary for cooperative parties to formulate contractual JV agreement. Article 11 The contractual JV agreement, contract, articles of association take effect upon the issuing date of approval certificate handed out Article 12 The contractual JV contract shall include the following items: (1) Names, registration localities, and addresses of all parties, as well as names, professions and nationalities of the legal representatives( (2) Name, address, and business scope of the contractual JV. (3) Total amount of investment, registered capital of the venture, ways and time limit for all parties to contribute investment or (4) Assignment of the investment contributed by all parties or conditions for transfer. (5) Distribution of earnings or products between all parties and ways to share risks and losses. (6) Composition of the board of directors or joint management committee, and distribution of the number of directors of the board (7) Main production facilities and technologies adopted, and their sources of supply. (8) Arrangement for product sales in and outside China. (9) Arrangement for the venture’s foreign exchange income and expenditure. (10) The venture’s duration, dissolution and liquidation. (11) Other obligations of all parties and their liabilities for breach of contract. (12) Principles for handling finance, accounting and auditing. (13) Settlement of disputes between the parties. (14) Procedures for modifying the JV contract. Article 13 The contractual JV articles of association shall include the following items: (1) Names and address of the venture; (2) Business scope and cooperation term; (3) Names, registration localities and addresses of all parties, as well as names, professions and nationalities of the legal representatives (4) Total amount of investment, registered capital of the venture, ways and time limit for each party to contribute investment or (5) Distribution of earnings or products between all parties and ways to share risks and losses; (6) Composition, duties and powers, and rules of procedures for the board of directors or the joint management committee, term of (7) Formation, duties and powers, and rules of procedures for the operation and management organization, and duties, appointment and (8) Labor management regulations on employment, training, labor contract, salaries, social insurance, welfare and labor protection; (9) Rules for finance, accounting and auditing; (10) Ways for dissolution and liquidation; (11) Procedures for modifying the articles of association. Chapter III Organizational Formation & Registered Capital Article 14 The contractual JV that is accorded Chinese legal person status by law is a limited liability company. Unless otherwise stipulated The contractual JV is liable to the venture’s debts with all its assets. Article 15 The total amount of investment of a contractual JV refers to the total sum of capital required by the production and operation scale Article 16 The registered capital of a contractual JV refers to the total sum of capital agreed to be contributed by all parties and registered The registered capital of a contractual JV shall not be decreased within the term of cooperation. In case it is absolutely necessary Chapter IV Investment & Conditions for Cooperation Article 17 Each party shall contribute its investment or cooperation input to the contractual JV according to laws, decrees and contractual JV Article 18 The investment or cooperation input contributed by all parties may be provided in cash or in kind or other property rights such as Asset appraisal shall be conducted according to relevant laws and decrees if the investment or cooperation input of the Chinese party In a contractual JV without the status of a Chinese legal person, specific requirements for investment or cooperation input contributed Article 19 The investment or cooperation input contributed by each party shall be the property or property right under its ownership, and shall Article 20 The contractual JV contract shall set down time limit for all parties to contribute investment or cooperation input according to laws In case a party fails to contribute the investment or cooperation input according to the contractual JV contract, the administrative Article 21 The party that fails to contribute investment or cooperation input according to the contract JV contract shall be liable for breach Article 22 An accountant registered in China shall verify the investment or cooperation input contributed by the parties and issue a verification (1) Name of the contractual JV; (2) Establishment date of the JV; (3) Name or each party; (4) Contents of the investment or cooperation input contributed by each party; (5) Dates of contribution of the investment or cooperation input by each party; (6) Serial number and issuing date of the investment certificate. Copies of the investment certificates shall be put on the record of the examination and approval authorities, and administrative authorities Article 23 In case one party intends to transfer all or part of its rights with the venture to the other party or to the third party, written Chapter V Organizational Institution Article 24 A contractual JV shall set up a board of directors or a joint management committee, which is the power organ of the venture and shall Article 25 The board of directors or joint management committee shall consist of no fewer than three members. Distribution of the number of directors Article 26 Appointment and replacement of the directors of the board or members of the committee shall be made separately by respective parties Article 27 Term of office for the director of the board or the member of the committee shall be regulated in the articles of association, each Article 28 The board of directors or joint management committee shall convene at least one meeting each year, called and presided over by the A meeting of the board of directors or joint management committee should be participated by more than two-thirds of the directors Notice shall be given to all members of the board or the joint management committee 10 days prior to a meeting of the board of directors Article 29 Unanimous agreement is required of all the members of the board of directors or joint management committee for making any resolution (1) Modification of the articles of association; (2) Increase or decrease of the registered capital; (3) Dissolution of the JV; (4) Assets mortgage of the JV; (5) Merger, split-up or change of organization from of the JV; (6) Other matters that require unanimous agreement of the meeting of the board or joint management committee for a resolution. Article 30 Rules of procedure and voting procedures of the meeting of board or joint management committee shall be regulated in the venture’s Article 31 The chairman of the board or the director of the committee is the legal representative of the venture. In case the chairman or director Article 32 The contractual JV shall appoint the general manager, to be in charge of the daily operation and management of the venture and accountable The general manager shall be appointed and dismissed by the board of directors or joint management committee. Article 33 The general manager and other high-ranking management personnel may be Chinese or foreign citizens. Members of the board of directors or joint management committee may concurrently hold the positions general manager and other high-ranking Article 34 In case of incompetence, graft or serious dereliction of duty on the part of the general manager or other high-ranking management Article 35 If a contractual JV chooses to entrust a third party to operate and manage the venture after its establishment, unanimous agreement The JV shall then report for approval to the examination and approval authorities the resolution of the board or committee, the signed
Chapter VI Material Purchase & Product Sales Article 36 A contractual JV makes the production and operation plans by itself according to the approved business scope and operation scale. Article 37 A contractual JV may decide by itself, from in or outside the Chinese territory, the purchase of machinery, equipment, raw materials, Article 38 The State encourages a contractual JV to sell its products on the world market. A JV may either sell the products on the world market The product prices of a contractual JV are subject to the venture’s own decision according to law. Article 39 Customs duty and import intermediary tax shall be exempted on the import of machinery, equipment, parts and other materials serving Article 40 A contractual JV shall not export products at prices notably lower than the reasonable prices of similar products on the world market, Article 41 Product sales of a contractual JV shall abide by the stipulations of the approved contractual JV contract. Article 42 To import or export products that are subject to license and quota control, a contractual JV shall go through the application formalities Chapter VII Income Distribution and Investment Recovery Article 43 The foreign and Chinese parties may distribute their income by distributing the profits, products or by other methods agreed upon In case of income distribution by distributing the products or by other methods, the amount of taxes due shall be calculated according Article 44 If the ownership of all fixed assets of a contractual JV is to be given to the Chinese party upon expiration of the term of cooperation (1) Based on the distributing according to investment or cooperation input, the contractual JV contract may regulate an enlarged ratio (2) Upon examination and approval of the finance and tax authorities according to State taxation regulations, the foreign party may (3) Other investment recovery methods approved by the finance and tax authorities, and examination and approval authorities. In case the foreign party recovers its investment within the term of cooperation according to the above paragraphs, the foreign and Article 45 The application that is put forward by the foreign party that chooses to first recover the investment according to (2), (3) of Article Article 46 A contractual JV shall appoint an accountant registered in China to check and examine the accounts and certificates according to relevant Chapter VIII Term and Dissolution Article 47 The term of cooperation of a contractual JV shall be decided upon through consultation of the foreign and Chinese parties and regulated If all parties agree to extend the term upon its expiration, an application for extension shall be filed with the examination and Upon approval to extend the cooperation term, the JV shall go through registration formalities for the alteration with the approval If the contractual JV has stipulated that the foreign party first recovers its investment, and the investment recovery has been completed, Article 48 A contractual JV shall dissolve under one of the following situations: (1) Expiration of the cooperation term; (2) Inability to continue operation due to heavy losses, or heavy losses caused by irresistible force; (3) Inability to continue operation due to the failure of one or more than one of the foreign and Chinese parties to fulfill the obligations (4) Occurrence of other reasons for dissolution described in the JV contract and articles of association; (5) The JV is ordered to close by law for having violated laws and decrees. In cases described in (2) and (4), the board of directors or joint management committee of the JV shall make an dissolution application Article 49 The liquidation of a contractual JV shall be carried out in accordance with laws, decrees and stipulations of the contractual JV agreement, Chapter IX Special Regulations on a Contractual JV Without the Legal Person Status Article 50 A contractual JV without the legal person status together with all of its parties shall bear civil liabilities according to regulations Article 51 A contractual JV without the legal person status shall be register with the administrative authorities for industry and commerce the Article 52 The investment or cooperation input contributed by each party of a JV without the legal person status shall be separately owned by The investment or cooperation input contributed by each party of a JV without the legal person status shall be jointly managed and Article 53 A contractual JV without the legal person status shall set up a joint management body, which shall consist of delegates appointed All major issues pertaining to the venture shall be decided by the joint management body. Article 54 A contractual JV without the legal person status shall set up unified account books at its location; each party shall set up separately Chapter X Supplement Article 55 Laws of the PRC shall be applied to contractual JV contract on its draft, powers, explanation, implementation and settlement of disputes. Article 56 Relevant regulations of the laws, decrees shall be applied to the matters of a venture that are not stipulated in this detailed rules Article 57 Establishment of a contractual JV by companies, enterprises and other economic organizations or individuals from Hong Kong, Macao Article 58 The detailed rules shall come into effect from the data of promulgation. (English Translations are for Reference Only)
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