First, the external operation mode of RMB funds
Regarding the external operation of the official monetary fund, it is important to analyze the organizational structure, tax commitment and investor withdrawal mechanism of the national monetary fund from the legal level.
(a) Structure of the National Monetary Fund
Under China's current laws and regulations, RMB funds can mainly adopt (1) corporate foreign-invested venture capital enterprises; (2) unincorporated (Chinese-foreign cooperation) foreign-invested venture capital enterprises. As the new "Partnership Enterprise Law" has not yet been promulgated, the discussion in this paper will also touch on the choice of foreign-invested venture capital enterprises with limited partnership.
1. Corporate foreign-invested venture capital enterprise
The first paragraph of Article 4 of the Regulations on the Administration of Foreign-invested Venture Capital Enterprises (hereinafter referred to as the Regulations on Foreign-invested Venture Capital Enterprises), which came into effect on March/Kloc-0, 2003, stipulates that "venture capital enterprises may take the form of unincorporated organization or legal person organization".
In terms of legal quantity, foreign-invested venture capital enterprises in corporate system are followed by foreign-invested enterprises. According to China's laws and regulations on foreign-invested enterprises, foreign-invested companies must adopt three organizational forms: wholly foreign-owned enterprises, Sino-foreign joint ventures and Sino-foreign cooperative enterprises. At the same time, according to the first paragraph of Article 6 of the Regulations on Foreign-invested Venture Capital Enterprises, the number of investors in venture capital enterprises is "two or more and fifty or less". Therefore, when a corporate venture capital enterprise is established, it can only be a Sino-foreign joint venture or a legal person Sino-foreign cooperative enterprise, but not a wholly foreign-owned enterprise, so at most, only one China investor and one foreign investor can be shareholders of the venture capital enterprise.
The organizational structure of the legal person system of Chinese-foreign equity joint ventures and Chinese-foreign contractual joint ventures shall meet the revised Company Law of People's Republic of China (PRC) (hereinafter referred to as the Company Law), the Law of People's Republic of China (PRC) on Chinese-foreign Joint Ventures (hereinafter referred to as the Joint Venture Law) or the Law of People's Republic of China (PRC) on Chinese-foreign Contractual Joint Ventures (hereinafter referred to as the Joint Venture Law). There should be statutory bodies such as the board of directors, the board of supervisors and the deputy manager. The board of directors of a Sino-foreign joint venture is the lowest authority of the enterprise and is elected by all investors according to the joint venture contract and articles of association. The board of directors has a management organization, which is responsible for managing night farming and implementing the investment resolution plan of the board of directors according to the authority stipulated in the articles of association of venture capital enterprises. In China, the board of directors of RMB funds in most enterprises undertakes the function of investment committee, and is the investment decision-making and planning institution of RMB funds.
In addition, according to the Law on Joint Ventures and the Law on Cooperative Ventures, Chinese-foreign joint ventures or Chinese-foreign cooperative ventures with legal person system are limited liability companies. Therefore, its investors are limited to all their capital contributions in the RMB fund and bear limited liability for the creditor's rights of the RMB fund.
Compared with Chinese-foreign joint venture capital enterprises, Chinese-foreign joint venture capital enterprises with legal person system can distribute according to the contract agreement between investors, while Chinese-foreign joint venture capital enterprises only lose their investment proportion according to the Joint Venture Law. This is also an important reason why a few RMB funds choose Chinese-foreign cooperative venture capital enterprises with legal person system as the fund model.
2. It is a legally established foreign-invested enterprise (foreign cooperation).
Non-corporate foreign-invested venture capital enterprise (Sino-foreign cooperation) is an absolutely special enterprise situation, and its legal basis comes from Chapter 9 of the Law of People's Republic of China (PRC) on Chinese-foreign Cooperative Enterprises "Definition of Cooperative Enterprises without Legal Person Status".
The joint management committee in a Sino-foreign joint venture capital enterprise is the lowest authority, and its functions are decided by the investors in the venture capital enterprise contract. The compulsory rights of establishing a management organization in combination with the management Committee are roughly the same as those of a Sino-foreign joint venture venture capital enterprise.
What needs to be particularly emphasized is that, compared with corporate foreign-invested venture capital enterprises, investors of unincorporated (Chinese-foreign cooperation) foreign-invested venture capital enterprises bear unlimited joint and several liabilities for the debts of the enterprises. Within investors, according to the provisions of foreign-invested venture capital enterprises, "it can be stipulated in the venture capital enterprise contract that when the assets of the unincorporated venture capital enterprise are insufficient to pay the debts, the necessary investors mentioned in Article 7 shall bear joint and several liability, and other investors shall bear the liability to the extent of their subscribed capital contribution".
3. Unlimited dissolution of foreign-invested venture capital enterprises
Limited partnership venture capital fund is a widely used form abroad. China's current sitting law does not allow foreign-invested limited partnerships to exist, but the relevant legislative movement has started. It is independent and outspoken. Compared with the above-mentioned unincorporated (Chinese-foreign cooperative) foreign-invested venture capital enterprises, foreign-invested limited partnership venture capital enterprises allow limited partners to bear limited obligations with all their capital contributions in the limited partnership enterprises, while non-joint investors have to bear unlimited joint and several liabilities. Foreign-invested limited partnership venture capital enterprises are similar to foreign-invested venture capital enterprises without legal person qualification (Chinese-foreign cooperation) in other respects.
(2) Tax answers for RMB funds
Taxation is a problem that enterprises need to pay special attention to in preparation and restoration, and it will stop playing a decisive role in the choice of enterprise forms. As mentioned above, RMB funds mainly take the form of corporate foreign-invested venture capital enterprises and unincorporated (Chinese-foreign cooperation) foreign-invested venture capital enterprises. In terms of tax commitment, the above two forms of enterprises need to pay different taxes.
1. Tax problems of foreign-invested venture capital enterprises with corporate system
According to the operation mode of investment enterprises, the taxable income of venture capital enterprises mainly comes from the loss of shares, white capital, euphemistic disputes and the loss of the value of original capital obtained by handling the foreign equity of the invested enterprises.
Where the parent company establishes a foreign-invested enterprise, it shall pay the tax on the loss of the enterprise in accordance with the Enterprise Income Tax Law of People's Republic of China (PRC) (hereinafter referred to as the "New Tax Law") which expired at night on June 65438+ 10/2008 and the relevant provisions of its implementation. According to the provisions of the second paragraph of Article 26 of the old Tax Law, the income from the shares and white capital of the invested enterprise shall be regarded as tax-free expenditure and paid enterprise income tax.
At the same time, according to the Notice of State Taxation Administration of The People's Republic of China of the Ministry of Finance on Promoting Venture Capital Enterprises to Implement Relevant Tax Policies (Caishui [2007] No.3 1) (Tax Policy Notice) and the new tax law implemented on June12006, "Venture Capital Enterprises have invested in listed high-tech enterprises for more than two years (. It can be seen that if a corporate foreign-invested venture capital enterprise invests in an unlisted high-tech enterprise, 70% of its investment income can be deducted from its taxable income.
In addition, the parent-foreign venture capital enterprise shall pay 65,438+00% withholding tax on the shares and dividends received by its external shareholders, and the amount shall be withheld and remitted by the RMB fund.
2. Answers to tax problems of foreign-invested venture capital enterprises without legal personality (Sino-foreign cooperation)
The new "Individual Tax Law" is as practical as the actual regulations, and both are foreign-invested venture capital enterprises with legal person system (Chinese and foreign capital). Therefore, with regard to dividends and bonus income from invested enterprises, according to the provisions of the second paragraph of Article 26 of the new tax law, these expenses should also be recognized as tax expenditures, so that enterprise income tax is applicable.
At the same time, according to the Notice of State Taxation Administration of The People's Republic of China on Tax Issues Concerning the Payment of Enterprise Income Tax by Foreign-invested Venture Capital Companies (Guo Shui Fa [2003] No.61) (Notice on Tax Payment of Foreign Venture Capital), "A venture capital enterprise registered as an unincorporated person can be declared and paid enterprise income tax by all investors; It can also be applied by venture capital enterprises, and with the consent of foreign tax authorities, enterprise income tax can be declared and levied in accordance with the provisions of the tax law. If investors of unincorporated venture capital enterprises declare and pay enterprise income tax separately, foreign investors shall calculate and pay enterprise income tax according to foreign companies with institutions and places in China. However, if an unincorporated venture capital enterprise establishes a venture capital operation and management institution, instead of indirectly engaging in venture capital management, consulting and other businesses, it entrusts its daily investment management right to the venture capital management enterprise or other venture capital enterprises for management and operation, the foreign party of the venture capital enterprise may be listed as a foreign enterprise with institutions or occasions outside China. Declare and pay enterprise income tax. " Since the tax notice of foreign venture capital is based on the Income Tax Law of People's Republic of China (PRC) for Foreign-invested Enterprises and Foreign Enterprises and its practical rules, after the expiration of the new tax law, the efficiency of tax notice of foreign venture capital needs further explanation by the tax authorities to understand the tax exemption of unincorporated venture capital enterprises and their investors.
(3) the withdrawal mechanism of RMB fund investors
Investors in venture capital funds send out investments and returns, which is very important for investors in investment funds. Under the current legal framework of our country, there are different ways for RMB fund investors to quit because of the different nature of enterprises.
1. Exit mode of foreign-invested venture capital enterprises with corporate system
Foreign-invested venture capital enterprises withdraw from investors in the form of capital reduction, and the relevant provisions of the Company Law on enterprise capital increase are applicable, and the requirements are more stringent. Specifically and bluntly, the capital reduction of a limited liability company must be approved by shareholders with more than two-thirds of the voting rights; Prepare assets, debts and wealth; The company shall notify the debtor within 10 days from the date of making the decision to reduce the registered capital, and make an announcement in the newspaper within 30 days. Within 30 days from the date of service of the notice and 45 days from the date of announcement, the debtor has the right to ask the company to pay off its debts or provide corresponding guarantees.
At the same time, according to the Law on Chinese-foreign Joint Ventures and its detailed rules for implementation, Chinese-foreign joint ventures may not increase their capital. If it is really necessary, in addition to meeting the above requirements of the Company Law, the capital reduction and loan of a Chinese-foreign joint venture must be approved by the examination and approval authority. For Chinese-foreign cooperative venture capital enterprises with legal personality, according to the Law on Chinese-foreign Cooperative Enterprises and its detailed rules for implementation and the Measures for the Examination and Approval of Early Return of Investment by Foreign Partners in Chinese-foreign Cooperative Enterprises, foreign partners must meet the following preconditions for prior investment:
(1) When the Chinese and foreign partners agree in the cooperative operation contract that the cooperation period is moderate, all the current assets of the enterprise after muddy calculation will be returned to the Chinese partner free of charge; (two) the contractual joint venture issued a letter of commitment, promising to repay the debt prior to receiving the investment for the first time; (3) A letter of commitment issued by the foreign partner who recovers the investment first to assume joint and several liability for the debts of the cooperative enterprise within the scope of investment received first; (4) The joint venture company shall make investment in place according to the law and the provisions of the contract; (5) The joint venture is in good operating and financial condition and has uncompensated surplus.
2. It is a method for investors to withdraw from foreign-invested venture capital enterprises with legal person system (Sino-foreign cooperation).
Since non-corporate RMB funds are not under the jurisdiction of the Company Law, their foreign investors do not need to go through the capital increase procedures stipulated in the Company Law, but they still need to meet the five preconditions listed in the above Measures for the Examination and Approval of Early Recovery of Investment by Foreign Partners in Chinese-foreign Cooperative Enterprises.
It can be seen that the withdrawal of foreign investors with RMB funds is not as flexible as the withdrawal of limited partners in limited partnerships widely used in the world, and there is great uncertainty because of the complicated procedures and the need for examination and approval by the examination and approval authorities.
Second, the foreign investment mode of RMB funds
About the ways of foreign investment of RMB funds, hundreds of them are mainly expounded from two aspects: the application of investment terms and the way of RMB funds withdrawing from invested projects. What needs to be understood is that according to the Regulations on Foreign-invested Venture Capital Enterprises, enterprises invested with RMB funds belong to foreign-invested enterprises, so they are governed by relevant laws and regulations of foreign-invested enterprises, including the Catalogue of Leading Industries with Foreign Investment. Theoretically, a few invested enterprises adopt the way of Sino-foreign joint venture, which will be discussed as an example below.
(A) the application of investment terms
According to teenagers' investment experience, overseas venture capital funds have formed a perfect investment model and investment terms, which are mainly divided into the following aspects: 1) control of preferred shares, 2) adjustment of company valuation and deeds, active concentration, early rights of employees and directors, 3) dividends and bonuses, 4) liquidation priority, 5) shielding terms, 6) appointment of directors and 7) preemptive right. However, the practicality of the above clauses in the overseas investment of RMB funds must comply with the laws of China, and some clauses need to be properly zeroed if permitted by the laws of China.
1. Dominance of preferred shares
The current Company Law and Joint Venture Law do not recognize the dominant position of preferred shares. Therefore, the equity purchased by RMB funds and the equity of entrepreneurs can only be the same kind of equity, and preferred shares are not allowed. In any case, the equity purchased by RMB funds can achieve certain priority through the allocation of the following terms.
2. Resource static clause
The static capital clause is the most important for investors, because it indirectly determines the rights and interests of investors in the project company. Because the valuation and performance adjustment, anti-secrecy, employee and director options of the project company all touch the capital of the invested project enterprise, this paper analyzes it here.
(1) company valuation. In overseas habitual investment transactions, investors will evaluate Xianggang Company according to the comprehensive situation of the invested enterprises. This valuation has some flexibility. Under normal circumstances, indirectly, a large amount of funds invested by non-investors can only account for an absolute large proportion in the project companies with investment priority. However, according to the provisions of the Company Law and the Joint Venture Law, the equity ratio of investors in Sino-foreign joint ventures should be distinguished according to the share of investors in the registered capital of joint ventures, so there are considerable differences in valuation methods, which is rare overseas. In order to supplement this similarity, in theory, it is usually not used to delete the registered capital in the same proportion after transferring the premium department to the capital reserve fund, or euphemistically let investors compete for equity at a low price to achieve the purpose of company valuation. But it is worth dropping, no matter which way is adopted, it will undermine the majesty of government approval, and it is inconclusive.
(2) deeds adjustment, active concentration and early rights of employees and directors. Generally speaking, deeds adjustment means that entrepreneurs take investors to bet on the future operating state of the company and adjust the equity ratio of various circles of Xiangtan Iron and Steel Company according to the operating state that has arrived. The positive release clause is a maintenance clause, which prevents the company from accepting the shares of the company at a low price before the investor invests, so as to concentrate the investor's equity ratio in the project company. The early rights of employees and directors do not mean that the invested company reserves a certain proportion of shares in order to motivate the employees, farmers and directors of the invested project company. The following three articles all touch on the issue of the company selling its equity for free or at a low price, because it cannot be operated at the level of the joint venture company due to the restrictions of companies such as Sino-foreign joint ventures (the proportion of equity is subject to the proportion of registered capital). In theory, the usual practice is to seize those clauses in the joint venture agreement or the western share agreement and euphemistically turn the company's responsibility into a power task between shareholders. For example, frankly speaking, if the new financing is carried out at an absolute low price because of the poor management of the project company, any investor who wants to keep his share in the project company unchanged cannot require the entrepreneurs of the company to transfer their shares to hidden investors at a paid or low price in the capital opening agreement or shareholders' agreement. Similarly, because the deployment and future performance have to be approved by the approval machine, they also need to be approved in the operation process.
3. Dividends and bonuses
In overseas investment transactions, whether the enterprise is profitable or not, investors often report the turnover rate promised by the project company every year. In addition, investors have the right to distribute profits before entrepreneurs. However, according to the Law on Chinese-foreign Joint Ventures and its implementing regulations, after deducting three funds, the profits of a joint venture can only be distributed according to the investment proportion of the parties to the joint venture. Therefore, investors' liquidity proportional repayment and priority dividend rights are legally completed under Chinese laws.
4. Liquidation priority
Generally speaking, when the project company is cleaned up or bought out, investors have more power to distribute the remaining property of the company than the founders. The common practice overseas is that investors will distribute their investment principal according to a certain proportion, and then intervene to distribute the remaining wealth of the project company according to their proportion in the project company. According to the Latent Law of Joint Ventures and the actual implementation regulations, "the surplus wealth of a joint venture before the creditor's rights are paid off shall be distributed according to the proportion of the capital contributions of the parties to the joint venture, unless otherwise stipulated in the joint venture agreement, contract and articles of association". If so, the investor can make an agreement with the founder in the joint venture agreement and articles of association on the priority after cleaning up the inferior products. The following arrangements are recognized by the laws of China.
5. Maintenance clause
Cover clause mainly refers to the right of investors to request the right of resolution or adjudication on major resolutions and planning matters of the project company in order to safeguard their interests in the project company, which is specifically divided into the rights of investors as shareholders in the shareholders' meeting and the rights of directors elected by investors in the board of directors of Xianggang Company. Because Sino-foreign joint ventures have no shareholders' meeting, they just die on the board of directors, and investors can stipulate the rights of directors elected by investors in the joint venture agreement and articles of association. The usual practice is to let the directors elected by investors have the right to decide some minor issues with one vote.
6. Appointment of directors
When investing, investors usually require the right to elect a certain number of directors to join the board of directors of the invested enterprise. According to the Law of China on Sino-foreign Joint Ventures and its implementing regulations, the parties to a joint venture may elect their respective chairmen through consultation with reference to the investment ratio. Therefore, it can be seen that the chairman elected by the parties to the joint venture has certain flexibility, not necessarily in full proportion to the capital contribution. However, because the joint venture agreement and articles of association need the approval of the examination and approval authority, in practice, the examination and approval authority often requires the directors to roughly reflect the investment ratio of the parties to the joint venture.
7. Preemptive right, suboptimal refusal right and individual sales right.
The preemptive right, the preemptive right and the exclusive right to sell refer to the rights of investors to participate in the subscription, purchase and sale of the company's shares when the project company receives new shares or the existing shareholders transfer the shares. According to the laws of China, the capital increase of a Sino-foreign joint venture must be agreed by all parties to the joint venture and approved by the examination and approval authority. Therefore, investors have the essential preemptive right when increasing capital. In addition, regarding the priority of other investors in Sino-foreign joint ventures to refuse to transfer shares behind the back of a third party, the Regulations for the Implementation of the Law on Sino-foreign Joint Ventures clearly stipulates that "the consent of the other party to the joint venture must be obtained and reported to the examination and approval authority for approval, and the change of the cancellation management institution will be forgotten; When one party to the joint venture transfers all or part of its equity, the other party to the joint venture has the preemptive right; The conditions for a joint venture to transfer its equity to a third party shall not be superior to those of the other joint venture. In violation of the above provisions, the transfer is valid. " Based on this, investors also have the right to intervene in the sale of the company's shares.
(2) The People's Official Monetary Fund withdraws from the investment target.
Foreign-invested venture capital enterprises should withdraw from the invested enterprises by means of merger and acquisition of the invested enterprises or listing of enterprises, and agents should join. It is worth noting that the internationally accepted exit method for investors to ask enterprises to buy back is not recognized by the Company Law, so it is legally implemented in China. In addition, according to the above, when the investor transfers its equity in the joint venture, it needs the consent of the other party and the approval of the examination and approval authority, which also brings certain risks to the investor's withdrawal. At the same time, if the invested enterprise goes public, and the venture capital enterprise has completely lost its investment in the invested enterprise in the next year after listing, the equity of the venture capital enterprise will be locked for one year as scheduled, and the lock-up period will be smooth when it stops, unlike the securities law of good countries, which requires companies to cancel investors' shares, and investors have to withdraw from the securities market.
Third, explain
Since the end of 2006, with the introduction of the policy of "eliminating one company and dissolving the other", a number of overseas investment funds and public equity investment funds have lost to RMB funds in China. It is believed that with the further enrichment and improvement of laws and regulations of venture capital enterprises and the active overseas securities market, there are fewer and fewer RMB foundations participating in this industry.
Author Fan Jie: * Jiuhui, partner of venture capital department of King & Wood Law Firm Nanjing Branch, whose main practice areas are venture capital, cross-border mergers and acquisitions, skill licensing and intellectual property rights. Old law students are qualified to practice in good countries and restored countries.
* Lawyer Zhao, lawyer of venture capital department in Nanjing headquarters of King & Wood Law Firm.
This article is excerpted from China Capital Market, jointly published by King & Wood Law Firm and CCH. "
Related links:
Independent Field: Investing Abroad —— The Legal Environment of Public Equity Investment (Part 3)
Exclusive interview: foreign exchange management-escorting China's economic development (serial 2)
Independent field: the implementation of the old "mother law" has brought fire to the development of China's capital market (serial 1)
Exclusive serial: Legal knowledge helps entrepreneurs understand China's capital market.
Related topic articles:
There are many good stocks on GEM.
Moderator: Thank you for your warm applause.
Comparison between China and the United States