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---Take a foreign-invested enterprise merging a domestic enterprise as an illustration
Company AAB was registered in the United States. With the business development, AAB wants to enter the Chinese market. After exploration in China, AAB wants to merge Company BBC which was registered in Beijing. AAB has three merging plans at the moment: 1. Purchase BBC’s total Stock Equity directly. 2. Establish a foreign-invested enterprise (WFOE) and purchase BBC's total Stock Equity through the WFOE. 3. Establish a foreign-invested enterprise (WFOE) and then use the WFOE to merge BBC.
According to the related definitions of Regulations for Merger with and Acquisition of Domestic Enterprises by Foreign Investors, aforementioned three merging plans actually belong to Equity Merger and Acquisition, Asset Takeover, Enterprise Amalgamation. Those three forms are the main ways of foreign capital M&A.
If AAB chooses the first option, it shall comply with the following legal procedures:
1. Negotiation which includes assets value evaluation and discussion on each party's rights and obligations.
2. Application approving. AAB shall, pursuant to the total investments of the foreign-funded enterprise to be established after the takeover, the type of the enterprise and the industry it engages in, submit the following documents to the competent examination and approval organ:
1) A resolution of the shareholders of the BBC on the full consent to the equity-based takeover by AAB.
2) BBC's application for changing to the foreign-funded enterprise;
3) Contract and the articles of association of the foreign-funded enterprise to be established after takeover;
4) An agreement on the AAB's acquisition of equities of shareholders of BBC;
5) Financial audit report of BBC for last fiscal year;
6) Identification or Certificate of incorporation of the investor that has been notarized and certified according to law;
7) The descriptions about the enterprises invested by BBC;
8) The (duplicates) of the business licenses of BBC and its invested companies;
9) The proposal on the settlement of employees of BBC;
10) The report of an asset assessment institution assessing the properties of BBC, and AAB and BBC shall state whether there is a connected relationship between the parties to the takeover.
3. When BBC applies to the original registration administrative organ for changing to a foreign-funded enterprise, following documents shall be submitted:
1) An application for modifying registration;
2) An agreement on the purchase of equities of the domestic company by AAB;
3) The revised articles of association or revisions to the original articles of association, and the foreign-funded enterprise contract which shall be submitted in pursuance of law;
4) Certificate of Approval for the foreign-funded enterprise;
5) The certification for the qualifications of the foreign investor, or the identification for the foreign investor as a natural person;
6) The revised name list of the members of the board of directors, the documents which state the name and domicile of the newly added directors, and the documents on the appointment of the newly added directors.
4. Paying Equity-Merger-and-Acquisition Fund. AAB shall, within 3 months from the date of issuance of business license for the foreign-funded enterprise, pay all the considerations to the shareholders who transfer the equities. In the case of any particular circumstance under which it is necessary to extend the time limit, AAB shall, upon the approval of the examination and approval organ, pay 60% or more of the consideration within 6 months as of the date of issuance of the business license to the foreign-funded enterprise, and pay off the balance of consideration within one year. The distribution of the revenue shall be according to the proportion of investments it has actually contributed.
5. Finish the follow-up registration formalities. AAB shall, within 30 days after it receives a foreign-funded enterprise business license, go through the registration formalities in the tax, customs, land administration and foreign exchange administration departments.
6. Publish the takeover proclamation.
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