In order to implement the Notice on the Ban of Direct Sale Activities of the State Council (Guo Fa [1998] No. 10) and do a good job in changing the sale method (hereinafter abbreviated as transformation) of the foreign-invested enterprises which originally engaged in direct sale activities (hereinafter referred to as foreign-invested direct sale enterprises), this notice on relevant issues is hereby issued with the approval from the State Council: I. Foreign-invested direct sale enterprises shall change to store operation (including setting up counters at shops, selling their II. Enterprises that have changed to store operation are divided into those hiring sales personnel (referring to personnel who are III. Requirements and procedures for transforming to enterprises that do not hire sales personnel (I) Applicant enterprises for transformation shall meet the following conditions: 1. The enterprise is established with legal approval; 2. The enterprise must be a manufacturing enterprise and can only sell products produced by itself; 3. The enterprise has not conducted any law-violating activities in its production and operation and has passed the joint annual inspection (II) Procedures for transformation: 1. Enterprises which have pyramid or direct sale business clearly specified in their contracts, articles of association or approval (1) Investors in the enterprise shall modify the contract and articles of association; (2) The agreement on the modification of contract and articles of association shall be sent to the original approving agencies for (3) The enterprises shall complete the procedures for registration changes at the original registration agencies with the newly-issued 2. The enterprises with no contents on pyramid or direct sale in their contracts, articles of association or approval certificates IV. Requirements and procedures for transforming to enterprises which hire sales personnel (I) Applicant enterprises for transformation shall meet the following requirements: 1. The enterprise shall fulfill the three requirements in Section (I) of Article (III); 2. The enterprise shall have a total investment above US$10 million (not including investments for the establishment of branch sales 3. Foreign investor in the enterprise shall have direct sale as its core business. (II) Procedures for transformation: 1. Investors in the enterprise shall modify relevant articles in the contract and articles of association according to the principles 2. The enterprise shall report the agreement on the modification of contract and articles of association to MOFTEC according to legal 3. The enterprise shall complete the procedures for registration changes at the State Administration for Industry and Commerce with (III) The transformation plan shall satisfy the following principles: 1. The enterprise must have shops with product prices clearly marked; 2. The enterprise shall formulate rules on after-sale service and customer refund in conformity with the requirements of various laws 3. The enterprise shall sign labor contract with the sales personnel and the enterprise shall bear the legal liability arising from 4. The qualifications of the sales personnel shall satisfy the stipulations of relevant State laws and regulations and sales personnel 5. Sales personnel shall not buy up products from the enterprise and can only get compensation for the sales volume directly realized 6. Sales management personnel shall be formal staff members of the enterprise. V. The government shall print and issue uniform certificate of sales personnel. VI. Applications for transforming to commercial retail enterprises which sell products of other enterprises (including individual VII. Branch sales offices set up by transformed enterprises shall be subject to re-verification. Branch offices without independent VIII. For enterprises transformed to those that do not hire sales personnel, relevant departments shall complete various procedures Ministry of Foreign Trade and Economic Cooperation State Administration for Industry and Commerce State Bureau of Internal Trade June 18th,1998.
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