SAIC to Draft Measures for Registration of Capital Contribution in the Form of Equity (for Comments)

On December 17, 2008, the State Administration for Industry and Commerce (the "SAIC") released the Measures for Registration of Capital Contribution in the Form of Equity (draft for comments) (the "Draft") to solicit public opinions on the Draft. A "draft for comments" is still in the legislative process and is not yet legally valid or enforceable. Although the government may or may not revise the draft, it does, however, illustrate the main structure and contents of the future promulgation. The Draft expressly states that the registration of capital contribution to a Chinese domestic company in the form of equity the investor holds in another Chinese domestic company shall be governed by the Draft. The Draft further specifies the types of equity that can be used to invest and the procedures to fulfill registration of such equity as a form of capital contribution. The prevailing view is, as previously indicated in two local ordinances concerning a similar matter issued by Shanghai and Zhejiang officials, that the Draft shall not be applicable when the company in which the investor holds equity, or the company to be invested in by the investor using equity in another company, is a foreign-invested enterprise ("FIE"). However, it is unclear whether an FIE, as the investor, may invest in a Chinese domestic company by using equity held in another Chinese domestic company. It is expected that the final version of the Draft may clarify this issue.


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