- Will unify varying municipal regulations
- Not applicable to equities in a joint stock limited company registered with the securities depository and clearing institution
Under China’s property law, if a shareholder in a company uses equity interest to provide a pledge to a third party, that shareholder should register the equity pledge with a relevant authority. In order to implement the property law, many local municipal offices (“AICs”) of the State Administration of Industry and Commerce (“SAIC”), including those in Shanghai, Jiangsu, Zhejiang and Hubei, promulgated regulations regarding the registration of pledges for equity interest. However, these regulations vary from region to region. In order to unify these regulations and regulate registration of equity interest, on September 1, 2008, SAIC promulgated the Measures for Registration of Pledges for Equity Interest (the “Measures”) and released sample registration documents.
Under the Measures, the following points in particular are worthy of special note:
- The measures may be applicable to equities in a limited liability company or a joint stock limited company, but do not govern the equities in a joint stock limited company that have been registered with the securities depository and clearing institution (see Article 2);
- A local AIC with which a company pledging equity has registered should be responsible for registration of the equity interest (see Article 3);
- The target equities should be equities that can be lawfully transferred and pledged, and should not be frozen by a court (see Article 5);
- A foreign invested enterprise (“FIE”) pledging equity must first submit the matter for approval to the local Bureau of Commerce (“COFCOM”) that granted approval on the establishment of the FIE (see Article 5);
- Application documents include the pledge agreement; application forms for the creation, alteration and cancellation of pledged equities registration; the pledged equities registration examination form; and acknowledgment of the designated representative, among others (see Articles 7 through 13);
- The AIC should go through the registration formalities immediately after receipt of the application documents and issue the notice of registration on the spot (see Article 14);
- The AIC should completely and accurately record information regarding the equity pledge in the registration book and make it available for the general public to review and copy (see Article 14).