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Merger and takeover in China

Time:2014-03-13 Hit:921

Merger and takeover in China

          China company law defines the practice of merger into two categories: a merger by absorption or a merger by the new establishment, mergers by absorption shall mean that one company admitting company survives and the admitted company or companies are dissolved. Mergers by new establishment shall mean that two or more companies merge to establish a new company, whereby each party to the merger is dissolved.

          When parties to a merger enter into a merger agreement, it must prepare the company balance sheets and asset lists. The creditors of the company shall be notified within ten days from the date of the resolution of merger and publish an announcement to the public, usually on the newspaper, within 30 days, the creditors of the company are entitled to demand payment or the corresponding guarantee from the company within 30 days upon the receipt of such notice.

          In a merger by absorption, the surviving company or the newly established company of a merger assumes the claims and debts of its own and the other party of parties being merged.

          When a company is divided into two or more companies, the surviving company shall bear the joint liability for the debts a company prior to its division, unless the company and its creditors have entered into an agreement on the settlement of the debt.

          The Ministry and Commerce (MOFCOM), State Assets Supervision and Administration Committee, State Administration of Tax, State Administration of Foreign Exchange (SAFE), the State Administration of Industry and Commerce (SAIC), China Securities Regulatory Commission (CSRC), jointly issued the revised Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, which became effective on September 2006. It governs the purchase of domestic-funded enterprise by foreign investors that converts such a domestic company into a foreign investment enterprise, or the establishment of a foreign investment enterprise by foreign investors used for the purchase of assets of domestic enterprises through negotiations where the use of such assets is for the business operations of the foreign investment enterprise.

          Catalogue of Industry Guidelines for Foreign Investment shall be followed in order to avoid the break of such laws as a result of the marge and acquisition, for example, where foreign investment is prohibited in an industry, there shall be no foreign-funded mergers and acquisitions of domestic enterprises in that industry, and the transfer of State-owned property rights of enterprise or State-owned equity in listed companies that shall comply with the relevant provisions on the administration of State-owned assets. Where the domestic company is a listed company, the relevant formalities shall be completed with the securities regulatory authorities of the State Council.

          If the capital contribution to the registered by the foreign investors does not exceed 25% of the registered capital, the examination and approval authorities shall issue an approval certificate with the added mark: foreign capital ratio below 25%.

          The transaction price of the mergers and acquisition shall be determined on the basis of a valuation of either the equity proposed to be transferred or the assets proposed to be disposed of, by an assets valuation organization.

          The investors shall pay the shareholder who transferred the equity of the domestic enterprise that disposed of the assets in full consideration, within three months from the date of issue of the foreign investment enterprise business license. If the payment is extended subject to approval by authorities, at least 60% of the consideration shall be paid within six months from the date of the issuance of the foreign investment enterprise business license, and the remaining balance shall be paid within one year.  

          China laws govern the agreements on the acquisition of equity or assets.

In the event of a merger or division, the changes of registration formalities shall be completed with the company registration authorities.

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