The establishment of foreign investment enterprises (FIE) consists of three phases: (1) approval of the project proposal, feasibility study report, Joint Venture Contract and Articles of Association; (2) registration with the AIC; and (3) post-establishment procedures.

REGISTRATION PHASE - REGISTRATION WITH THE AIC

The AIC is the registration authority of enterprises, companies and other economic organizations. The SAIC and the local AlCs are the registration and administration authorities of FIEs. The major laws and regulations in this regard are the Administrative Regulations of Enterprise Legal Persons and the Implementing Detailed Rules for the Administrative Regulations of Enterprise Legal Persons.

On December 29, 1993, China promulgated the Company Law, which became effective on July 1, 1994. A company registration system was later established by the promulgation of the Administrative Regulations on the Registration of Companies effective July 1, 1994. At present, the enterprise registration system and the company registration system exist concurrently. By definition, FIEs are enterprises. On the other hand, most FIEs are companies as well. Therefore, both the enterprise registration system and the company registration system will apply to FIEs.

The Company Law provides that the Company Law applies to limited liability foreign investment companies. In the event that the Chinese law relating to EJVs, CJVs and WFOEs have different provisions, these provisions should prevail over the Company Law. The Company Law is also applicable to the company registration system. Therefore, EJVs, CJVs and WFOEs are still subject to the enterprise registration system. The registration and administration of FICLBSs should be governed by the Company Law and the Administrative Regulations on the Registration of Companies.

The SAIC is the authority in charge of the registration and administration of FIEs. The SAIC has delegated its authority to local AlCs. The SAIC is responsible for the nationwide registration and administration of foreign investment enterprises. Based on the development of foreign investment enterprises in China, the SAIC authorizes the local AlCs which have the necessary ability and resources to register FIEs to handle the registration of FIEs located in their respective jurisdictions on behalf the SAIC within the authority delegated by the SAIC.

Currently, the SAIC is responsible for the registration and administration of FIEs approved by the central government. An AIC at a city level authorized by the SAIC is responsible for the registration and administration of FIEs approved by the people's government of its own jurisdiction. The AlCs at the provincial level are responsible tor the registration and administration of all the other FIEs.

(1) The Reservation of the Names of FIEs

Before the Chinese and foreign investors enter into any Joint Venture Contract or Articles of Association, they should apply for a reservation of the name of the FIE with the AIC. The AIC will review the name of the FIE and decide whether or not to register the name of the FIE. The time limit for the AIC to make such a decision is within ten days after all the documents are submitted.

After registration, the AIC will issue a Notice of Enterprise Name Reservation. The validity period for company name reservation is six months. During the validity period, the reserved names should not be used for operational activities. The reserved names may not be assigned. If the validity period has expired but the FIE has not been registered with the AIC, the name reservation will lose effect. The relevant parties should return the name reservation document issued by the AIC within ten days after the expiration of the validity period.

If the reserved name is used by the parties to an FIE to engage in operational activities, or the relevant parties fail to return the name reservation document issued by the AIC within ten days after the expiration of the validity period, the AIC may give a warning or impose a penalty between USD60 and USD600. However, Chinese law fails to specify whether the penalty should be imposed on the foreign investors or Chinese investors.

The name of an FIE should consist of four parts: trade name, industry, organization form and location. The trade name, industry and organization form must be listed in that sequence. Subject to approval by the SAIC, the name of an FIE may contain no reference to its location.

An FIE should indicate in its name the industry it is mainly engaged in pursuant to the classification of industries enacted by the Chinese government or the major characteristics of its operations.

The corporate form of an FIE should be indicated at the end of the name of the FIE under PRC law. The corporate form of an enterprise comprises limited liability companies, companies limited by shares and other forms. The location of an FIE may be placed at the beginning of the company name according to Chinese practice, or between the trade name and the corporate form according to foreign practice. Unless otherwise approved by the SAIC, the name of an FIE should not contain wording such as "China", "Sino" or "International". However, Chinese law expressly allows a WOFE to use the wording "China" in the middle of its name.

If the name of an FIE uses the wording "group", the FIE should be the parent of several foreign investment enterprises established by the same foreign investor.

Under Chinese law, an enterprise group must comply with the following conditions:

(i) The parent company of the enterprise group must have a registered capital of over USD6,000,000 and have at least five subsidiaries;

(ii) The total amount of the registered capital of the parent company and the subsidiary companies exceeds USD12,000,000; and

(iii) Every member of the enterprise group is a legal person.

It should be noted that an enterprise group consists of the parent company, wholly owned subsidiaries and other subsidiaries. An enterprise group is an association of a number of enterprises under the Articles of Association of the enterprise group. An enterprise group does not have legal person status. The registration of an enterprise group should follow the Tentative Provisions on the Registration of enterprise Groups. The FIE whose name contains the wording "group" is the parent company. The name of the enterprise group may be used in advertising and promotion. However, an enterprise group should not engage in operational activities and enter into economic contracts.

An FIE does not have to apply for a name in a foreign language. However, if it does so, its foreign language name should be consistent with the Chinese name.

The foreign language name is only a translation of the Chinese name. Chinese law does not regulate foreign language names of FIEs, nor will an AIC register the foreign language name of an FIE. The Chinese name of an FIE may contain the trade name of a foreign investor. However, no foreign language is permitted to be used in the Chinese name. In addition, Pinyin and numbers (except for Chinese character numbers) should not be used in the Chinese names of FIEs.

(2) Registration of FIEs

Within thirty days after the approval authority approves the establishment of an FIE, the investors should apply for the registration of the FIE with the AIC. The AIC should make a decision on whether or not to approve the registration within thirty days after the AIC accepts the application. The company registration system contain* similar provisions. In practice, most AlCs are still following the enterprise registration system in registration of FIEs.

(3) Business License of the PRC and Enterprise Legal Person Business License of the PRC

After the AIC decides to register an FIE, it will issue a business license to the FIE. In China, the business licenses issued to FIEs have "the People's Republic of China" before the words "business license". The business license granted to domestic entities does not have "the People's Republic of China" in its title. If the FIE has legal person status, the AIC will issue a Legal Person Business License of the People's Republic of China. If the FIE does not have legal person status, the AIC will issue a Business License of the People's Republic of China. Business licenses have two versions: original and duplicate.

The major content of the business license of an FIE consists of the following items:

(i) Operation Term

Operation term refers to the term as set forth in the approved Joint Venture Contract and Articles and Association commencing from the registration date of the FIE.

(ii) Validity Period

For an original business license, the validity period of the business license should correspond to the time limit for capital contribution. After the capital contribution is completed, the validity period of the business license should match the operation term of the FIE.

For a duplicate business license, the columns of "Operation Period" and "Validity Period" should be the same as those of the original business license. The validity period of the duplicate business license should be one year commencing from the date on which the business license is issued or amended. However, the validity period of a duplicate business license should not exceed that of the original business license.

(iii) Registration Number

The registration number of the business license of an FIE contains tour parts. The first part is the category of the foreign investment enterprise, including EJVs, CJVs, WFOEs and FICLBSs. The second part is the abbreviation of the location of the FIE. The third part denominates the legal status of the registered entity, including an FIE, a branch or a Rep Office. The fourth part is the serial number of the registered entity. The formula for the registration number is Qi He (Zuo, Du or Gu) + abbreviation of the location+Zong (Fen or Ban) + Serial Number. The word "Qi" stands for enterprise. "He" stands for an EJV. "Zuo" stands for a CJV. "DU" stands for a WFOE. "Gu" stands tor a FICLBS. "Zong" stands for an enterprise. "Fen" stands for a branch. "Ban" stands for a Rep Office.

(4) Enterprise Types

FIEs established by foreign, Taiwan, Hong Kong or Macao investors should be classified as follows:

(i) If the FIE is established by a foreign investor, the FIE should be a Sino-foreign equity joint venture, Sino-foreign cooperative joint venture or a wholly foreign owned enterprise;

(ii) If the FIE is established by Taiwan, Hong Kong or Macao investors, the FIE should be an equity joint venture, cooperative joint venture or wholly owned enterprise followed by a parenthesis indicating Taiwan investment, Hong Kong investment or Macao investment. If the Taiwan, Hong Kong or Macao investors are involved at the same time, the parenthesis should indicate Taiwan, Hong Kong and Macao together;

(iii) If an FIE is established by both foreign investors and Taiwan, Hong Kong or Macao investors, the FIE should a Sino-foreign equity joint venture, Sino-foreign cooperative joint venture and wholly foreign owned, enterprise; and

(iv) A FICLBS should always be referred to as a foreign investment company limited by shares no matter whether or not Taiwan, Hong Kong or Macao investors are involved.