Since March 1, 2022, a new regulation regarding the registration and administration procedures for all types of market entities in China has come to effect, simplifying the different administrative processes. The Regulation is the first legal document to uniformly control and streamline the registration of such entities.
The State Administration for Market Regulation (SAMR), which supervises all market entities, published a year ago the “Administrative Regulation of the People’s Republic of China on the Registration of Market Entities”, together with the “Implementing Rule for the Administrative Regulation of the People’s Republic of China on the Registration of Market Entities”. Both documents took effect on March 1, 2022.
The Regulation combines six previous rules governing market entities which had been published since the 1970s. The current document aims to protect the rights and interests of those entities and optimizes their business environment, setting out guidelines for business suspension, supervision, and legal liabilities.
According to Chinese law, the legal entities that can register as market entities are natural persons, legal persons, and unincorporated organizations carrying out business activities in the country. Most business forms, such as companies, branches, and sole proprietorships, must be registered.
The Implementing Rule has a total of 12 chapters and 82 articles, which set out unified rules regarding the registration items, specifications, and procedures, business suspension, registration revocation, supervision and administration, and legal liabilities for improper behaviors, among other things.
In addition, the Regulation clarifies the general matters that must be registered – applicable to all market entities – and the special matters required to be registered according to the type of market entities.
Article 6 of the Implementing Rule unifies the matters required to be registered for different types of market entities, while article 7 specifies what needs to be filed for record for different market entities. Thanks to this, entities will know which information to collect and prepare while completing their registration and meeting filing compliances.
Prior to this changes, companies had to define and write their own business scope. The registration was then sent to the respective office, where it was evaluated many times, as there were no defined standards.
The standardized wording in the new regulation makes this process more efficient, and less complex and time consuming. A newly introduced computer system for pre-checking the business description of the market entities provides a better platform and less room for errors.
During the COVID-19 pandemic, it was very difficult if not impossible to get a person’s physical signature in a limited timeframe. However, article 15 of the Implementing Rule, states that when doing market entity registration, the applicant can use electronic signature tools, such as the National Unified Electronic Business License System, to attach the electronic signatures or electronic seals on the application.
As per article 16, when handling registration and record-filing matters, the real-name authentication should be carried out in the system for the responsible persons, such as legal representative, executive partners, shareholders of limited liability companies, company directors, supervisors, and senior management, partners in a partnership, and authorized agents, among others.
The acceptance of electronic signature, seal, and real name authentication will significantly improve the registration process and cut to some extent the duration of procedure.
Market entities which are facing difficulties due to unforeseen circumstances, such as the pandemic, can opt for business suspension status. The Regulation stipulates the basic provisions for entities to apply for a business suspension and clarifies how a dormant company can be resumed, what are the obligations for the dormant company during this period and the circumstances that will indicate the end of the suspension.
In this case, a market entity must finish the record-filing with local AMR prior to business suspension. The suspension period, the address for the service of legal documents, and other information will be published through the National Enterprise Credit Information Publicity System. An extension of the suspension period can be requested within 30 days before the expiration date.
Companies which choose to file for a suspension period are not required to keep renting their physical location during this time and can use a different address to receive all legal documents. This is a great opportunity to save rent money. When changing their address, entities must submit a confirmation letter for service of legal documents.
When it is time to reactivate the business or after business activity has been resumed, the suspended entity must publish an announcement on the National Enterprise Credit Information Publicity System within 30 days to announce the end of its suspension. Failing to do so, may carry a fine up to RMB 30,000 (US$ 4,722).
Any changes that occurred during suspension, such as registered address or legal representative, must be submitted, while the modification procedure with local AMR should be finished in a timely manner.
There are a few obligations that an entity must fulfil during suspension. For example, it must publish its annual report on time. In addition, the corresponding tax responsibility during the suspension period still needs to be clarified by the competent tax authority.
Though these new regulations simplify the whole process greatly and explain certain details to ensure proper practice, several issues remain unclear, such as the real-name authentication for foreigners, the eligibility of business suspension, and beneficial owner registration for foreign investors.
Given that the Implementing Rules provide little to no detail on how foreigners will be affected, companies should monitor any updates and keep a close eye on future legislation. To learn more about our services in China, contact our Head of Business Advisory - Ms. Kristina Koehler-Coluccia at kristina@woodburnglobal.com.
DISCLAIMER: All information in this article is verified to the best of our ability and is assumed to be correct at time of release; however, Woodburn Accountants & Advisors does not accept responsibility for any losses arising from reliance on the information provided within. The information provided is for general guidance and does not replace specialized advice.