China’s New Regulation on Market Entity Registration: What Does the Implementing Rule Say?

The new regulation and implementing rule streamlines and brings in uniformity to the registration and administration procedures for all types of market entities in China. For more questions, please contact Olivia Wang, Senior Associate, Business Advisory Service, Shenzhen Office at ya.wang@dezshira.com.

On July 27, 2021, the State Council published the Administrative Regulation of the People’s Republic of China on the Registration of Market Entities (hereinafter referred as the “Regulation”), which took effect on March 1, 2022. The Regulation is the first legal document to uniformly regulate the registration and administration of all types of market entities.

To clarify issues in the implementation of the Regulation, the State Administration for Market Regulation (SAMR), the state organ that supervises all market entities, formulated and published the Implementing Rule for the Administrative Regulation of the People’s Republic of China on the Registration of Market Entities (hereinafter referred as the “Implementing Rule”) on March 1, 2022, which took effect the same day.

Clarifications and details contained in the “Implementing Rule”

The Implementing Rule has a total of 12 chapters and 82 articles, which set out unified rules regarding the registration items, specifications, and procedures, business suspension, registration revocation, supervision and administration, and legal liabilities for improper behaviors, etc. Below we summarize the main points in the Implementing Rule that businesses need to know.

Clarity on matters required to be registered

The Regulation has clarified the general matters that must be registered – applicable to all market entities – and the special matters required to be registered according to the type of market entities. In addition, Article 6 of the Implementing Rule has further unified the matters required to be registered for different types of market entities. Examples of matters to be registered based on some types of market entities are listed in the table below.

Clarity on matters required to be filed for record

Article 7 of the Implementing Rule has further specified the matters required to be filed for record for different market entities. Some typical types of the market entities are listed in the table below.

Thus, the Implementing Rule enables market entities to get a clear understanding of the necessary information to collect and prepare while completing their registration and meeting filing compliances. This will improve the overall efficiency of the registration and filing processes for market entities.

Description of business scope standardized

According to Article 12 of the Implementing Rule, a market entity shall select general business items and licensed business items based on its business characteristics in accordance with the catalogue of business scope specifications issued by the SAMR and apply for business scope registration.

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In previous practice, a market entity could describe its business scope by itself, and the business scope description could be revised multiple times if the local Administration for Market Regulation (hereinafter referred as “AMR”) found the description to be unclear or containing any pre-licensed items.

Under the Regulation and Implementing Rule, a market entity’s business scope will be described with standard wordings in accordance with the catalogue of business scope specifications. This is more convenient and time-saving to market entities as there would be no back-and-forth revisions. Further, a market entity can pre-check its business description through the Business Scope Specification Expression Query System and clarify if its business scope includes any matters that are subject to pre-license or post-license management. This will help a market entity to make preparatory work in advance.

Electronic signature/seal introduced

According to Article 15 of the Implementing Rule, when doing market entity registration, the applicant can use electronic signature tools and channels, such as the National Unified Electronic Business License System, to affix the electronic signatures or electronic seals on the application documents. The lawful electronic signatures and electronic seals shall have the same legal effect as physical signatures or physical seals.

The acceptance of electronic signature or seal will create flexibilities for market entities as under some circumstances, especially under the COVID-19 pandemic, it is difficult or even impossible to get a person’s physical signature in a limited timeframe. Meanwhile, the acceptance of electronic signature or seal will shorten the timeline for some procedures, for example, the market entity modification procedures.

Real-name authentication introduced

Article 16 of this Implementing Rule stipulates that when handling registration and record-filing matters, the real-name authentication should be carried out in the real-name authentication system for the following persons:

• Legal representative, executive partners (including authorized representatives), and persons in charge;
• Shareholders of limited liability companies, promoters of a joint stock companies, company directors, supervisors, and senior management personnel;
• Investors of sole proprietorship enterprises, partners of partnerships, members of specialized farmers’ cooperatives (unions), and operators of individually owned businesses;
• Registration liaison officers of market entities and the recipients of the service of legal documents for foreign-invested enterprises; and
• Designated representative or authorized agents.

Alternatively, if any of the above-mentioned persons is unable to verify his/her identification via the real-name authentication system, he/she may submit the duly notarized identity document  or conduct the registration on site with his/her original identity document.

The introduction of electronic signature, seal, and real name authentication will optimize the registration process and shorten the timeline to a certain extent.

Business suspension and resumption rules clarified

The business suspension rule was first introduced in the Regulation, which also stipulated the basic provisions for entities to apply for a business suspension. As mentioned in our previous article – China’s New Regulation on Market Entity Registration: What Do You Need to Know – business suspension is a temporary solution for market entities which are experiencing hardships due to some special situation, for example, the pandemic, flood situation, etc. However, there were several questions needing to be clarified after the Regulation was published.

The Implementing Rule gives answers to some specific questions. For example: How should the dormant company be resumed? What are the obligations for the dormant company during the business suspension period? What are the circumstances that will indicate the end of the business suspension? What rules should be applied for the registration and jurisdiction of the dormant company?

Business suspension

According to Article 41 of this Implementing Rule, a market entity shall finish the record-filing with local AMR prior to business suspension. The suspension period, the address for the service of legal documents, and other information as required will be published by the local AMR through the National Enterprise Credit Information Publicity System. A market entity can also extend the suspension period by processing the extension within 30 days before the suspension period expires. However, according to Article 42 therein, if the accumulative suspension period reaches or exceeds three years, the market entity will be automatically regarded as having resumed operations, otherwise, the market entity can deregister its business.

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Article 41 also mentions that if a market entity replaces the domicile (main business premises or business premises) with the address for service of legal documents, it shall submit the confirmation letter of the address for service of legal documents. This means that it is not a requirement for a market entity to keep renting a physical premises during the suspension period as it can use other address to receive the legal documents. In this way, the struggling market entity can save some rental cost.

Article 43 of this Implementing Rule further clarifies that during the business suspension, if the market entity replaces the domicile (main business premises or business premises) with the address for service of legal documents but does not do a registered address modification, the registration jurisdiction of the suspended market entity will not be changed.

Business resumption

If a suspended market entity decides to resume its business or has actually resumed its business activity, it shall publish an announcement on the National Enterprise Credit Information Publicity System within 30 days to announce the termination of its business suspension. Failing to make such an announcement may be punished with a fine up to RMB 30,000 (US$4,722) in the worst situation.

Meanwhile, if there are any changes to the market entity during the resumption, for example, the registered address, legal representative, etc., the market entity shall finish the modification procedure with local AMR in a timely manner.

Business suspension is a mechanism to allow a market entity to temporarily exit from the market. So, it will obviously not be able to process any business activities during the suspension period.

However, during the suspension, the suspended market entity still needs to fulfil certain obligations. For example, as stipulated in Article 63, the suspended entity needs to publish its annual report on time.

The corresponding tax responsibility during the suspension period still needs to be clarified by the competent tax authority.

What’s next?

The Implementing Rule has provided more details on the provisions stipulated in the Regulation to ensure its proper practice, such as the requirements on registration documents and specified registration and record-filing subject matter for different types of market entities.

However, there are still some more issues that will need to be clarified. For example, the real-name authentication for foreigners, the eligibility of business suspension, beneficial owner registration for foreign investors, etc.

Companies are suggested to keep a close eye on the future legislation on the matter.

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