China Seeks Comments for Establishment of Foreign-Invested Securities Companies

Posted by Reading Time: 2 minutes

Aug. 28 – The China Securities Regulatory Commission (CSRC) released a circular  on August 24, 2012 seeking comments for amending two laws related to securities company establishment.  They are the “Rules on the Establishment of Foreign-Invested Securities Companies (CSRC Order No. 52, hereinafter referred to as the ‘Rules’)” and the “Trial Regulations for the Establishment of Subsidiaries by Securities Companies (Zheng Jian Ji Gou Zi [2007] No. 345, hereinafter referred to as the ‘Trial Regulations’)”. All relevant comments must be submitted by September 22, 2012.

The circular consists of revisions to three provisions in the Rules and one revision to the Trial Regulations. Details of the revisions can be found below.

Revisions to the Rules 

Raising the upper limit of the stake held by overseas shareholders

According to the Rules, a foreign-invested securities company refers to:

  1. A securities company jointly financed and established by foreign and domestic shareholders in accordance with the law; or
  2. A securities company converted from a domestic security company following the transfer and subscription to the equity of the domestic securities companies by foreign investors in accordance with the law.

For the first type of foreign-invested securities company, at least one of its domestic shareholders should be a domestic securities company.

Currently, the total shareholding proportion of the overseas shareholders or the proportion of equity interests held by the overseas shareholders in a foreign-invested securities company cannot exceed one-third. The Circular raises the upper limit of the stake held by overseas shareholders by providing that the total shareholding proportion of the overseas shareholders or the proportion of equity interests held by the overseas shareholders in a foreign-invested securities company shall not exceed 49 percent (including direct holdings and indirect control).

Accordingly, the second and third paragraphs of Article 10 have been revised into:

  • For domestic securities companies that constitute domestic shareholders, there shall be at least one of them that holds not less than 49 percent of the shares or equity interests in the foreign-invested securities company.
  • For a foreign-invested securities company transformed from a domestic securities company, there shall be at least one domestic shareholder with no less than a 49 percent share in the company.

Promoting the opening-up of securities companies to Hong Kong, Macau and Taiwan

To promote the opening up of securities companies to Hong Kong, Macau and Taiwan under the framework of CEPA and ECFA, the Circular provides that “these rules are applicable to equity participation in securities companies by investors from the Hong Kong Special Administrative Region, Macao Special Administrative Region and Taiwan Region, unless otherwise prescribed by the states.”

Revision to the Trial Regulations

Shortening the operation duration required for application of business scope expansion

The Circular shortens the operation duration required for the application of business scope expansion from five years to two years. The first paragraph of Article 7 has been revised into:

  • The subsidiaries have been operating the business for more than two years, with a good reputation and no record of major violation of laws and regulations during the recent two years.

Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia.

For further details or to contact the firm, please email china@dezshira.com, visit www.dezshira.com, or download the company brochure.

You can stay up to date with the latest business and investment trends across China by subscribing to The China Advantage, our complimentary update service featuring news, commentary, guides, and multimedia resources.