If AAB uses the third option, it shall fulfill the legal proceedings below.
1. Establishment of a WFOE company
WFOE shall, prior to the filing of an application for the establishment, submit a report to the local people's government at or above the county level at the place where the proposed enterprise is to be established. The report shall include: the aim of the establishment of the proposed enterprise; the scope and scale of business operation; the products to be produced; the technology and equipment to be adopted and used; the area of land to be used and the related requirements; the conditions and quantities of water, electricity, coal, coal gas and other forms of energy resources required; and the requirement of public facilities. The local people's government at or above the county level shall, within 30 days after receiving the report submitted by the foreign investor, give a reply in writing to the said foreign investor.
2. An application shall be submitted to the approving organ through the local people's government at the place where the enterprise is to be established, together with the following documents.
1) An application for the establishment of the foreign-funded enterprise
2) A feasibility study report
3) The articles of association of the foreign-funded enterprise
4) The name-list of the legal representatives (or the candidates for members of the board of directors) of the foreign-capital enterprise
5) The legal certifying documents and the credit position certifying documents of the foreign investor
6) The written reply given by the people's government at or above the county level at the place, where the enterprise is to be established;
7) An inventory of goods and materials needed to be imported
3. Merger by absorption
Preliminary approval of an application for merger: the applicant shall submit the following documents to the examining and approving department
1) The letter of merger application and the merger agreement signed by the legal representatives of the various companies;
2) The resolutions on the merger by the organs of supreme power of the companies
3) The contracts and Article s of association of the companies;
4) Photocopies of the documents of approval and business licenses of the companies;
5) The asset verification reports prepared and issued by the statutory Chinese asset verification agencies to the companies involved the merger;
6) The balance sheet and the inventories of the properties of the companies party to the merger;
7) The audit reports of the previous year for the companies involved in the merger
8) A name list of the creditors of the companies party to the merger
9) The contract and Article s of association of the company emerging from the merger;
10) A name list of the members of the organ of supreme power of the company emerging from the merger
11) Other documents the examining and approving department may require
12) Business license (duplicate) of the company invested by BBC.
4. The first publish of Creditor
1) WFOE shall, within 10 days as of the date of receipt of the preliminary reply from the examining and approving department consenting the proposed merger or division, send out letters of notification to the creditors, and shall, within 30 days have the announcement carried three times in nationally circulated newspapers at or above the provincial level.
2) WFOE shall explain the inheritance plan for the existing debts of the companies in the letters of notification and announcement mentioned above.
3) The creditors of BBC shall, within 30 days as of the date of receipt of the letters of notification as prescribed in Article 25 of these Provisions or within 90 days as of the first publication of the announcement in the absence of the letters of notification, have the right to demand that the companies in question revise their inheritance plans for the existing debts or demand that they come current with the debt payments or they provide corresponding financial guarantees.
4) If creditors of BBC have failed to exercise the rights as prescribed in the preceding paragraph within the stipulated time limits, it shall therefore be construed that the creditors have agreed to the inheritance plans for the existing credit and debts of the companies to be merged or divided, and that the propositions of the creditors shall not in any way affect the merger processes of the companies.
5) The applicant of the companies to be merged shall, at the end of the 90-day period as of the date of the first publication of the announcements, submit the following documents to the examining and approving departments in the absence of objections from the creditors:
l Certificates of the three-time publication in newspapers of the announcements of corporate merger or division;
l Certificates of the notification of the companies to their creditors
l An explanation of the companies on the disposal of their credits and debts
5. WFOE shall have the approval certificate for enterprises with foreign investment altered at the original examining and approving department and have the alteration registered at the registration department; the BBＣ company shall have its approval certificate for enterprises with foreign investment withdrawn at the original examining and approving department and have the cancellation of the company registered at the registration department.
6. Applicants of WFOE, within 30 days as of the date of approval of the merger or division, go through the procedures relating to the cancellation, alteration or the attainment of the approval certificates for enterprises with foreign investment at the examining and approving departments for the companies that are dissolved, continue to exist or to be newly established as a result of the merger or division.
7. WFOE that is to be established after the merger or division shall, within 30 days as of the date of alteration or the acquisition of the business license, issue letters of notification on the change of creditors and debtors to the creditors or debtors of the companies that have been dissolved because of the merger, and have the announcement carried in nationally circulated newspapers at or above the provincial level.
8. Other registration and record
The WFOE to continue to exist after the merger or division shall, within 30 days as of the date of the acquisition of replacement business license or a new business license, go through the corresponding procedures at the departments such as taxation, Customs, land administration and foreign exchange control.
Among the aforementioned three options, the first one is suggested by us as it's the easiest way and requires less time and can also save tax. Although adopting the method of Equity Merger and Acquisition means that all the debt after merger shall be paid by BBC which might bring some potential debt risks, such risk can be avoided through written agreement. The second option ---Asset Acquisition requires more complicated procedures and Due Diligence on each assets and then need to transfer the ownership and approval to each assets. In addition, it shall set up an additional shell company thus more taxes might be levied. The third option also has complicated procedure and more investment. A WFOE has to be set up and then complete the M&A. From the marketing point of view, it would be much better to use AAB brand than to create the new WFOE brand.
