Issuing Body: Fujian Provincial Commission for Development and Reform and Fujian Provincial Administration for Industry and Commerce
Issuing Date: October 17, 2011
Effective Date: October 17, 2011
As we have noted in prior issues of China Law Update, several major Chinese cities have passed local rules designed to foster development of the private equity industry and spur economic growth. With passage of the Temporary Measures for the Administration of Equity Investment Enterprises in Fujian Province (Fujian PE Measures) by the Fujian Commission for Development and Reform (Fujian DRC) and the Fujian Administration for Industry and Commerce (Fujian AIC) in October 2011, Fujian Province joined the cities of Tianjin, Shanghai, and Beijing in competing for PE business. All four locales have acted to fill a vacuum in the absence of national regulation of the private equity industry. One goal of the Fujian PE Measures, as with other local PE rules, is to curb illegal fundraising activities under the guise of PE investment.
China Law Update summarized the Measures for the Administration of Equity Investment Enterprises and Equity Investment Management Entities in Tianjin in October 2011. Last month we summarized Tianjin's Interim Measures on Carrying Out the Pilot Program for Foreign-Invested Equity Investment Enterprises and Management Enterprises and the Implementing Rules for the Interim Measures on Carrying Out the Pilot Program for Foreign-Invested Equity Investment Enterprises and Management Enterprises.
Two Types of Regulated Enterprises
As with the other local PE regulations, the Fujian PE Measures recognize and regulate two types of PE enterprises. As defined in the measures, an Equity Investment Enterprise is a business that makes equity investments in non-public companies and provides corresponding consulting services. An Equity Investment Enterprise may manage its investment activities either internally, with its own management team, or externally by engaging an Equity Investment Management Enterprise. As defined in the measures, an Equity Investment Management Enterprise is one that manages other PE firms' equity investments.
Article Five of the Fujian PE Measures specifically excludes application to venture capital investment enterprises (both domestic and foreign-invested), since venture capital investment enterprises are separately regulated by the Tentative Measures for the Administration of Venture Investment Enterprises and the Provisions for the Administration of Foreign-Invested Venture Investment Enterprises. As defined in Chinese law, venture capital investment enterprises are one type of PE investment company particularly focused on emerging high-tech enterprises that are not publicly listed.
Legal Forms and Investment
Both Equity Investment Enterprises and Equity Investment Management Enterprises may be established as limited liability companies or partnerships.
The Fujian PE Measures set the minimum registered capital (or committed capital for a partnership) at RMB30 million for an Equity Investment Enterprise, with the first installment of capital being no less than RMB10 million. The capital threshold for an Equity Investment Management Enterprise is RMB10 million, with the first installment being no less than RMB5 million.
Both domestic and overseas individuals and entities may become investors in Equity Investment Enterprises. The Fujian PE Measures stipulate that investments may be contributed only in cash.
Senior Management Personnel
The Fujian PE Measures stipulate that every Equity Investment Management Enterprise must have at least three senior management personnel with at least two years' experience in equity investment or related areas, and one of these three senior management personnel shall have at least five years' related experience.
All Equity Investment Enterprises established under the Fujian PE Measures must file with the local DRC within three months of obtaining their business licenses. If an Equity Investment Enterprise engages an Equity Investment Management Enterprise to carry out its PE investments, the corresponding Equity Investment Management Enterprise must be filed at the same time as well.
The filing will consist of two steps: First, the filing application package will be submitted to the city-level DRC, and the city-level DRC will decide whether to approve the filing or not. Second, enterprises meeting approval by the city-level DRC will be examined and verified by the Fujian DRC. Final filing will occur only if the enterprise is accepted by the Fujian DRC.
Equity Investment Enterprises and Equity Investment Management Enterprises that do not apply for filing in a timely fashion will be notified to carry out the filing within 20 working days. If they fail to remedy this noncompliance, their names will be circulated on the website of the Fujian DRC, and the Fujian DRC will forward details of the noncompliance to the Fujian AIC.
In many respects, the Fujian PE Measures are similar to other recently passed local regulations on the PE industry, and contain few if any breakthroughs.
There are some issues that will need to be addressed. For example, both foreign-invested and domestic equity investment enterprises are regulated under the new rules, but the Fujian PE Measures do not specifically mention whether foreign-invested PE enterprises will be subject to any additional approvals or supervision that other types of foreign-invested enterprises usually encounter in China. We expect the Fujian DRC to promulgate implementing regulations to provide more guidance.