Joint Ventures in the Peoples Republic of China
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Chapter 1 General Provisions Article 1. Article 2. Joint ventures using Chinese and foreign investment hereinafter referred to as joint ventures established within China's territory in accordance with the Law on Chinese-Foreign Joint Ventures are Chinese legal persons and are subject to the jurisdiction and protection of Chinese law.
Article 3. Joint ventures established within China's territory should be able to promote the development of China's economy and the raising of scientific and technological levels for the benefit of socialist modernization. The industries in which the establishment of joint venture is encouraged, permitted, restricted or prohibited shall follow the provisions of the state on guiding the direction of foreign investment and the guiding catalog of foreign-funded industries.
Foreign Investment Law of the People’s Republic of China
Article 4. Article 5. A joint venture has the right to do business independently within the scope of the provisions of Chinese laws, decrees, and the agreement, contract and articles of association of the joint venture. The departments concerned shall provide support and assistance. The joint venture established after being approved according to the preceding paragraph shall be reported to the Ministry of Foreign Trade and Economic Cooperation for record.
Article 7. The aforesaid documents shall be written in Chinese. Documents 2 , 3 and 4 may be written simultaneously in a foreign language agreed upon by the participants.
Both versions are equally authentic. Should anything inappropriate be found in any of the documents submitted, the examination and approval authority shall demand an amendment to it within a limited time. Article 8. Upon receipt of the documents stipulated in Article 7 of these Regulations, the examination and approval authority shall, within three months, decide whether to approve or disapprove them. Article 9.
The applicant shall, within one month after receipt of the certificate of approval, register with the administrative bureau for industry and commerce hereinafter referred to as registration and administration office in accordance with the relevant provisions of the state. The date on which its business license is issued shall be regarded as the date of the establishment of a joint venture. Article The "joint venture agreement" mentioned in these Regulations refers to a document agreed upon by the parties to the joint venture on some main points and principles governing the establishment of a joint venture.watch
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If the joint venture agreement conflicts with the contract, the contract shall prevail. If the parties to the joint venture agree to sign only a contract and articles of association, the agreement can be omitted. The annex to the contract of a joint venture shall be equally authentic with the contract itself. The formation of a joint venture contract, its validity, interpretation, execution and the settlement of disputes under it shall be governed by the Chinese law.
The agreement, contract and articles of association shall come into force after being approved by the examination and approval authority. The same applies in the event of amendments. The examination and approval authority and the registration and administration office are responsible for supervising and inspecting the execution of the joint venture contracts and articles of association.
A joint venture is a limited liability company. Each party to the joint venture is liable to the joint venture within the limit of the capital subscribed by it. The total amount of investment including loans of a joint venture refers to the sum of capital construction funds and the circulating funds needed for the joint venture's production scale as stipulated in the contract and the articles of association of the joint venture. The registered capital shall generally be presented in total amount of investment registered at the registration and administration office for the establishment of the joint venture.
It should be the total amount of investment subscribed by parties to the joint venture.
Foreign Investment Law of the People’s Republic of China
The registered capital shall generally be presented in Renminbi, or may be in a foreign currency agreed upon by the parties to the joint venture. A joint venture shall not reduce its registered capital during the term of the joint venture. If it is needed to reduce the registered capital because the total amount of investment and the production and business scale, etc, have changed, the approval from the examination and approval authority must be obtained.
If one party to the joint venture intends to assign all or part of his investment subscribed to a third party, consent shall be obtained from the other party to the joint venture, and the party shall submit the assignment to the examination and approval authority for approval, and shall go through the registration procedures for changes with the registration and administration office. When one party assigns all or part of his investment to a third party, the other party has pre-emptive right. When one party assigns his investment subscribed to a third party, the conditions given shall not be more favourable than those given to the other party to the joint venture.
No assignment shall be made effective should there be any violation of the above stipulations. Any increase, reduction of the registered capital of a joint venture shall be approved by a meeting of the board of directors and submitted to the examination and approval authority for approval. Registration procedures for changes shall be dealt with at the registration and administration office. Chapter 4 Ways of Contributing Investment Article Each participant to a joint venture may contribute cash or buildings, premises, equipment or other materials, industrial property, know-how, right to the use of a site as investment, the value of which shall be ascertained.
If the investment is in the form of buildings, premises, equipment or other materials, industrial property or known-how, the prices shall be ascertained through consultation by the parties to the joint venture on the basis of fairness and reasonableness, or evaluated by the third party agreed upon by parties to the joint venture. The foreign currency contributed by the foreign participant shall be converted into Renminbi according to the base exchange rate announced by the People's Bank of China on the day of its submission or be cross exchanged into a predetermined foreign currency.
Should the cash Renminbi contributed by the Chinese participant be converted into foreign currency, it shall be converted according to the base exchange rate announced by the People's Bank of China on the day of the submission of the funds.
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The machinery equipment and other materials contributed as investment by the foreign participant shall be indispensable to the production of the joint venture. The price fixed for the machinery and other materials referred to in the preceding paragraph shall not be higher than the current international market price for the similar equipment or materials.
Foreign participants who contribute industrial property or know-how as investment shall present relevant documentation on the industrial property or know-how, including photocopies of the patent certificates or trademark registration certificates, statements of validity, their technical characteristics, practical value, the basis for calculating the price and the price agreement signed with the Chinese participants.
All these shall serve as an annex to the contract. The machinery, equipment or other materials, industrial property or know-how contributed by foreign participants as investment shall be submitted to the examination and approval authority for approval. The parties to the joint venture shall pay in all the investment subscribed according to the time limit stipulated in the contract. Delay in payment or partial delay in payment will be subject to a payment of interest on arrears or a compensation for the loss as defined in the contract.
After the investment is paid by the parties to the joint venture, a Chinese registered accountant shall verify it and provide a certificate of verification, in accordance with which the joint venture shall issue an investment certificate, which includes the following items: name of the joint venture; date, month and year of the establishment of the joint venture; names of the participants and the investment contributed; date, month and year of the contribution of the investment; and date, month and year of issuance of the investment certificate.
The highest authority of the joint venture shall be its board of directors. It shall decide all major issues concerning the joint venture. The board of directors shall consist of no less than three members. The distribution of the number of directors shall be ascertained through consultation by the parties to the joint venture with reference to the proportion of investment contributed. The term of office for the directors is four years. Their term of office may be renewed with the consent of the parties to the joint venture.
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The board of directors shall convene at least one meeting every year. The meeting shall be called and presided over by the chairman of the board.
Should the chairman be unable to call the meeting, he shall authorize the vice-chairman or other director to call and preside over the meeting. The chairman may convene an interim meeting based on a proposal made by more than one-third of the directors. A board meeting requires a quorum of over two-thirds of the directors. Should the director be unable to attend, he shall present a proxy authorizing someone else to represent him and vote for him. A board meeting shall generally be held at the location of the joint venture's legal address. Decision on other items shall be made according to the rules of procedure stipulated in the articles of association of the joint venture.
The chairman of the board is the legal representative of the joint venture. Should the chairman be unable to exercise his responsibilities, he shall authorize the vice-chairman of the board or other director to represent the joint venture. A joint venture shall establish a management office which shall be responsible for daily management. The management office shall have a general manager and several deputy general managers who shall assist the general manager in his work.
The general manager shall carry out the decisions of the board meeting and organize and conduct the daily management of the joint venture. The general manager shall, within the scope empowered him by the board, represent the joint venture in outside dealings, have the right to appoint and dismiss his subordinates, and exercise other responsibilities and rights as authorized by the board within the joint venture. The general manager and deputy general managers shall be engaged by the board of directors of the joint venture. These positions may be held either by Chinese citizens or foreign citizens.