1. New regulations on digital seal
Under the New Enterprise Law, there are two types of company seal, including a physical seal made by the seal-making establishment and a digital seal made in the form of a digital signature in accordance with laws on electronic transactions. An enterprise can freely decide on the seal's type, quantity, form and content that they will use. The management and use of the seal will be provided for in the enterprise's charter or other internal policies.
2. Further guidance on time limits for capital contributions in kind
The New Enterprise Law retains the requirement that charter capital must be contributed within 90 days from the date of establishment of the enterprise. However, in case of capital contributions in kind, the time for transportation, import (i.e., customs clearance) and other administrative procedures for the transfer of ownership of assets will not be included in the 90-day limit.
3. New regulations on online enterprise registration
Under the New Enterprise Law, the application related to enterprise registration can be submitted by one of the three ways below:
- physically conducted at the provincial business registration authorities;
- by postal service; or
- online application through the National Portal of Business Registration (NPBR).
The New Enterprise Law provides that an online application made through NBPR shall have the same validity as an application submitted physically to the provincial business registration authorities. However, it is unclear whether the authorities will still combine the requirements for both online and physical submissions in practice.
4. Voting thresholds and quorum requirements in the joint stock company (“JSC”)
The New Enterprise Law has amended the quorum required for the General Meeting of Shareholder (“GMS”) to be conducted and the voting ratio required for the resolution of the GMS to be passed in the JSC, specifically as follows:
Current Enterprise Law
New Enterprise Law
Quorum for GMS to be conducted
From 51% or more of all voting shares
More than 50% of all voting shares
Voting ratio for resolution of GMS to be passed
From 51% or more (simple minority) of all voting shares of the attending shareholders; or
from 65% or more (super majority)
More than 50% (simple majority) of all voting shares of the attending shareholders; or
from 65% or more (super majority)
5. Changes to regulations on the corporate governance of a JSC
The New Enterprise Law amends and supplements the following regulations on the corporate governance of a JSC:
- Any shareholder or group of shareholders (together) holding 10% or more of total common shares (the charter can provide for a smaller percentage) will have the right to nominate candidates for election to be members of the board of management and/or the supervisory board. This means that shareholders will not be required to hold shares for at least six months before being given this right (in contrast to the current Enterprise Law, which requires the period of six months of holding of shares).
- Any shareholder or group of shareholders (together) holding 5% or more of total common shares (the charter can provide for a smaller percentage) will have additional rights, including: (i) access to more corporate documents of the company; (ii) the right to request a GMS in certain circumstances; and (iii) the right to request that the supervisory board examine a specific matter. Currently, these rights only belong to a shareholder or group of shareholders (together) holding 10% or more of total common shares for at least six months.
- Shareholders must keep information and documents acquired from the company confidential and must not distribute the same to other entities.
- The head of the supervisory board will only be required to possess a university degree in economy, finance, business administration, accounting, audit, law or other relevant professions (in contrast to the current Enterprise Law, which requires that the head to be a professional auditor or accountant).
6. Private placement of bonds by a non-public JSC
Under the New Enterprise Law, the private bond placement by a non-public JSC means corporate bonds that were not issued through mass media to less than 100 investors (excluding professional securities investors). The private bond placement must meet conditions on the bond holders, as follows:
- Strategic investors are allowed to buy private convertible bonds and warrant-linked bonds.
- Professional securities investors are allowed to buy private convertible bonds, warrant-linked bonds and other types of private bonds.
Under the New Enterprise Law, the private placement of bonds by a non-public JSC must meet the following conditions:
- The company has paid all principal and interest of the previously issued and due bonds or has fully paid all debts due for a period of three consecutive years prior to the private bond placement (if any), unless the private bond placement is made to creditors being the selected financial institutions.
- The financial statements of the year preceding the year of the bond issuance have been audited by a qualified auditor.
- Financial stability and other prudential ratio for business operations have been ensured.
- Other requirements by law
7. Re-defining of state-owned enterprises
Under the current Enterprise Law, a state-owned enterprise ("SOE") is defined as an enterprise in which 100% of the charter capital is held by the State. However, under the New Enterprise Law, an SOE is defined as an enterprise having more than 50% of its charter capital or voting shares held by the State.
In terms of corporate governance regime, SOEs wholly owned by the state will follow separate regulations (set out in Chapter IV of the New Enterprise Law), which are generally stricter than those applicable to a single member limited liability company with no state capital. Meanwhile, SOEs having state capital proportion of more than 50% up to less than 100% will follow the regulations applicable to multi-member LLC or JSC stipulated in the New Enterprise Law.
1 This Client Alert is prepared based on our review of the final draft of the New Enterprise Law which, to the extent of our knowledge, was ratified at the meeting on 17 June 2020 of the National Assembly.
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