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Law of the P.R.C on Chinese-Foreign Equity Joint Ventures (1)

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Core Tip:Law of the P.R.C on Chinese-Foreign Equity Joint Ventures

Adopted at the Second Session of the Fifth National People's Congress on July 1, 1979, and revised in accordance with the Decision of the National People's Congress Regarding the Revision of the Law of the People's Republic of China on Chinese-Foreign Equity Joint Ventures adopted at the Third Session of the Seventh National People's Congress on April 4, 1990

Article 1 With a view to expanding international economic cooperation and technological exchange, the People's Republic of China shall permit foreign companies, enterprises, other economic organizations or individuals hereinafter referred to as “foreign joint venturers” to establish equity joint ventures together with Chinese companies, enterprises or other economic organizations hereinafter referred to as “Chinese joint venturers” within the territory of the People's Republic of China, on the principle of equality and mutual benefit, and subject to approval by the Chinese Government.

Article 2 The Chinese Government shall protect, according to the law, the investment of foreign joint ventures, the profits due them and their other lawful rights and interests in an quity joint venture, pursuant to the agreement, contract and articles of association approved by the Chinese Government.

All activities of an equity joint venture shall comply with the provisions of the laws, decrees and pertinent regulations of the People's Republic of China.

The state shall not nationalize or requisition any equity joint venture. Under special circumstances, when public interest requires, equity joint ventures may be requisitioned by following legal procedures and appropriate compensation shall be made.

Article 3 The equity joint venture agreement, contract and articles of association signed by the parties to the venture shall be submitted to the state's competent department in charge of foreign economic relations and trade hereinafter referred to as the examination and approval authorities for examination and approval. The examination and approval authorities shall decide to approve or disapprove the venture within three months. When approved, the

equity joint venture shall register with the state's competent department in charge of industry and commerce administration, acquire a business license and start operations.

Article 4 An equity joint venture shall take the form of a limited liability company. The proportion of the foreign joint venturer's investment in an equity joint venture shall be, in general, not less than 25 percent of its registered capital. The parties to the venture shall share the profits, risks and losses in proportion to their contributions to the registered capital.

If any of the joint venturers wishes to assign its registered capital, it must obtain the consent of the other parties to the venture.

Article 5 The parties to an equity joint venture may make their investment in cash, in kind or in industrial property rights, etc.

The technology and equipment contributed by a foreign joint venturer as its investment must be really advanced technology and equipment that suit China's needs. In case of losses caused by a foreign joint venturer in its practising deception through the intentional provision of outdated technology and equipment, it shall compensate for the losses. A Chinese joint venturer's investment may include the right to the use of a site provided for the equity joint venture during the period of its operation.

If the right to the use of the site is not taken as a part of the Chinese joint venturer's investment, the equity joint venture shall pay the Chinese Government for its use. The above-mentioned investments shall be specified in the contract and articles of association of the equity joint venture, and their value excluding that of the site shall be assessed by all parties to the venture.

Article 6 An equity joint venture shall have a board of directors the number of the directors thereof from each party and the composition of the board shall be stipulated in the contract and articles of association after consultation among the parties to the venture such directors shall be appointed and replaced by the relevant parties. The chairman and the vice- chairman vice-chairmen shall be determined through consultation by the parties to the venture or elected by the board of directors. If the Chinese side or the foreign side assumes the office of the chairman, the other side shall assume the offices of the vice-chairman

vice-chairmen)。 The board of directors shall decide on important issues concerning the joint venture on the principle of equality and mutual benefit.

The functions and powers of the board of directors are, as stipulated in the articles of association of the equity joint venture, to discuss and decide all major issues concerning the venture, namely, the venture's development plans, proposals for production and business operations, the budget for revenues and expenditures, the distribution of profits, the plans concerning manpower and wages, the termination of business, and the appointment or employment of the general manager, the vice-general managers, the chief engineer, the treasurer and the auditors, as well as the determination of their functions, powers and terms of employment, etc.

The offices of general manager and vice-general managers or factory manager and deputy managers shall be assumed by the respective parties to the venture. The employment and discharge of the workers and staff members of an equity joint venture shall be stipulated in accordance with the law in the agreement and contract concluded by the parties to the venture.


 

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