An enduring problem for lawyers and the business community in China has been the absence of a national on-line company registry, but as of 1 October 2014, this will change.
The Chinese government has recently established a company information disclosure system. The new system has implications for all companies in China, including subsidiaries of foreign companies and for those who want to perform due diligence on a Chinese company.
Basis for New System
The new system is detailed in the State Council’s 2014 Disclosure of Enterprise Information Regulations legislation that became effective on 1 October 2014 and three companion regulations:
- Interim Provisions on the Disclosure of Information on Administrative Punishments concerning Industrial and Commercial Administration (2014);
- Interim Measures on the Random Inspection of the Information Disclosed by Enterprises (2014); and
- Interim Measures on the Administration of a List of Enterprises with Abnormal Business Operations (2014).
Previously, company searches generally had to be conducted either through an on-site review at the local Administration of Industry and Commerce (“AIC”) or by a visit to the due diligence target.
Overview of New System
Under the new system, each local AIC must establish its own enterprise legal person information database. The State Administration of Industry and Commerce (“SAIC”) has created a National Enterprise Search Platform (http://gsxt.saic.gov.cn/) for accessing those local databases. The Central government policy is pushing government departments other than the AIC to input regulatory information, such as licences and penalty decisions, into the SAIC platform, so it will serve as a "one-stop shop for company information." This system will provide an easily searchable online database that discloses permits, registrations, and licences from other regulatory departments. This means that companies registered in China will be more transparent than before.
Companies must input data into the enterprise legal person information database on establishment, when ongoing disclosure obligations arise and after inspections or penalties.
Government Information Sharing
The State Council has also required the SAIC (and its local counterparts) and other government departments to overcome the interdepartmental silos that have led to multiple routine inspections of businesses and many complaints from the business community (2014 State Council Notice on Registered Capital Reform). Specifically, the State Council is demanding that government departments improve interdepartmental sharing of information and better co-ordinate enforcement actions. Since the implementation of the company law reforms, the SAIC and other regulatory authorities have been issuing guidance to local authorities about what their responsibilities towards supervision and administration of companies are.
Additionally, the following two regulations on administrative monitoring and penalties, are effective from 1 October 2014:
- 2014 Disclosure of Information on AIC Administrative Punishments: These set out a general requirement that administrative penalty decisions and summaries of those decisions be disclosed on the company information disclosure system and the procedures and rules by which it is done. The relevant AIC must delete personal information and trade secrets and may not release, when doing so, state secrets or information that undermine national security or affect social stability.
- 2014 Random Inspection of Enterprise Information Measures: These establish guidelines for AICs to select companies for random inspection, carry out those inspections and set out a company's obligations during inspection.
What are the Take-Aways?
Foreign companies with subsidiaries in China must:
- Designate staff to handle company secretarial functions for each Chinese subsidiary and require them to:
- check with the local branch of the AIC on the specific disclosure requirements in their locality; and
- check the technical process for uploading company information and the company's annual report onto the database.
- Designate the same staff to monitor notices from the local branch of the AIC on any changes to those local requirements.
- Highlight to company secretarial staff that they must implement or update reminder systems to ensure compliance with the new corporate disclosure regulations and avoid penalties.
- Remind company secretarial staff to work with other company functions to upload accurate company information to the company information disclosure system on a timely basis.
- Instruct purchasing and sales staff to check the company information disclosure system as a first step when taking on a new supplier, contractor or other business partner.
* Practical Law China (“PLC”) is a new online know-how service providing insight and know-how to lawyers navigating the complexities of doing business in China. For more in-depth analysis of the significance of the 2013 Company Law reforms that the Chinese government is undertaking, please see PLC’s Practice Note: Understanding the 2013 Company Law Reforms: China.