Alert – NDRC formally regulates equity investment enterprises on a nationwide basis

16 December 2011

On 23 November 2011, China's National Development and Reform Commission (NDRC) issued a Notice on Promoting the Regulated Development of Equity Investment Enterprises (Formal Notice) to regulate administrative registrations, fund-raising activities and various operational aspects in relation to equity investment enterprises (EIEs).  

It is substantively similar to the Notice on Further Regulating the Development and Administration on Registrations of Equity Investment Enterprises in Pilot Regions (Trial Notice - see our Alert from 2 March 2011) issued on 31 January 2011 to the provincial governments in Beijing, Shanghai, Tianjin, Wuhan, Jiangsu Province, and Zhejiang Province, and expands the requirements under the Trial Notice to all China.

The major points of the Formal Notice are summarised below.

Establishment of EIEs

An EIE may be established in the form of a company in accordance with the Company Law or a partnership in accordance with the Partnership Enterprise Law.

An EIE established in the form of a company may have its own internal management team or may outsource its management to other EIEs or equity investment management companies. 

Capital raising

The capital of an EIE can only be raised privately from investors with the capability of risk identification and risk management. There should be no advertisements, public events or public displays of fund product materials in the fund-raising process.  There should be no guarantee to the investors on refund of capital or fixed returns. 

Scope of investment

An EIE can invest only in the equities that are not publicly traded. Any unused funds can only be deposited in a bank or used to purchase fixed-income investment products, such as government bonds.  The projects to be invested by EIEs must go through relevant regulatory procedures required for fixed-assets investment projects. Furthermore, foreign invested EIEs should apply for approval for its investment projects in accordance with relevant laws and regulations.

Requirement for filing

Within one month after registration with the relevant administration of industry & commerce, an EIE which has a total capital (including any committed capital) of no less than RMB500 million (or equivalent foreign currency) must submit an application for filing with NDRC, and an EIE which has a total capital of less than RMB500 million must submit an application for filing with the authority as designated by the provincial government, except under the following circumstances:

  • the EIE has already been registered as a venture capital enterprise in accordance with the Interim Measures for the Administration of Venture Capital Enterprise, or

  • the EIE is wholly owned by one entity or individual, or by entities within the same group.

Information disclosure

An EIE is required to submit its annual business reports and audited financial statements to the filing administration authority within four months after the end of the accounting year. 

An EIE must notify the filing administration authority within 10 working days when the following major events occur:

  • amendment of the articles of association, partnership agreement or entrusted management agreement of an EIE or its management company

  • capital increase or decrease or debt financing of an EIE or its management company

  • merger or split of an EIE or its management company

  • change of the management company or custodian, including a change in the senior management personnel and other significant changes

  • dissolution, liquidation or receivership of an EIE.

Author(s) He Zhang