Key Points:

  • General principles for the operation of equity investment enterprises have been specified
  • Mandatory filings are required for large and midsize private equity funds

On 31 January 2011, the National Development and Reform Commission (NDRC) promulgated the “NDRC Notice on Further Regulating the Administration on Development and Filing of Equity Investment Enterprises in Pilot Areas,” which took effect on the same date. This Notice was issued to the local governments of Beijing, Tianjin, Shanghai, Jiangsu province, Zhejiang province and Hubei province – the municipalities and provinces appointed by the NDRC as pilot areas to implement filing management for equity investment enterprises.

Implementation Areas

According to the Notice, the filing management applies to equity investment enterprises established in the Beijing Zhongguancun Science and Technology Park, Tianjin Binhai New Area, Wuhan Donghu New Technological Industries Developing zone and Yangtze River Delta region (the pilot areas).

Regulating the Establishment, Capital Raising, Investment Fields and Risk Control of Equity Investment Enterprises

The Notice emphasizes that equity investment enterprises must be established in accordance with relevant provisions of the PRC Company Law or the PRC Partnership Enterprise Law. Equity investment enterprises may raise capital through private placement only from specific offerees possessing risk identification and tolerance, and are not allowed to directly or indirectly market to nonspecific offerees by issuing announcements in the media (including on company websites), putting up notices in the community, distributing leaflets to the general public, sending text messages to unspecified recipients, or holding seminars, lectures and other public or disguised public offerings.  

Capital payment may take the form of a commitment, which means that investors make capital commitments by signing subscription agreements during the fundraising period of equity investment enterprises and pay their commitments in installments according to the articles of association or partnership agreements of the enterprises.

The investment scope of equity is limited to the equity of non-publicly traded enterprises. Idle money during the investment may be deposited only with banks or be used to purchase fixed-income investment products such as treasury bonds.

Equity investment enterprises should not provide a guarantee to other enterprises except their portfolio companies. When the entrusted management institutions of equity investment enterprises are sino-foreign joint venture or foreign-invested enterprises, the assets of equity investment enterprises shall be entrusted to domestic custodian institutions.

Building Equity Investment Enterprises’ Information Disclosure Systems

The Notice prescribes that, in addition to the disclosure of information regarding the investment operation to investors according to the articles of association or partnership agreement of the enterprises, equity investment enterprises should submit an annual business report and annual financial statements audited by an accounting firm to the NDRC as well as the local assisting filing authorities within four months after the end of every fiscal year. The entrusted management and custodian institutions of the equity investment enterprise are also required to provide an annual asset management and asset custody report to the NDRC as well as the local assisting filing authorities within four months after the end of every fiscal year.

If the following events occur in the course of investment activities, equity investment enterprises must promptly report to the NDRC as well as the local assisting filing authorities within 10 business days of occurrence:

  • Amendments to the articles of association, partnership agreement and entrusted management agreement of the equity investment enterprises or entrusted management institutions;
  • Increase or decrease of the capital or external financing of the equity investment enterprises or entrusted management institutions; or
  • Divisions, mergers or other material events involving equity investment enterprises or their entrusted management institutions

Improving the Filing Procedures of Equity Investment Enterprises

The Notice specifies that all equity investment enterprises registered with the Administration for Industry & Commerce in pilot areas that mainly engage in equity investments in non-publicly traded enterprises and equity investment funds of funds are subject to the mandatory filing requirement, except when:

  • The equity investment enterprises have registered as venture capital enterprises pursuant to the Interim Management Measures on Venture Capital Enterprises;
  • The size of the equity investment enterprise falls below RMB 500 million or its foreign exchange equivalent; or
  • The enterprise is funded and established by one single entity or natural person, or by two or more investors that are wholly owned subsidiaries of the same entity.

Equity investment enterprises that fail to file according to the Notice will be publicly announced on the NDRC’s website as “equity investment enterprises and entrusted management institutions evading filing administration.” Equity investment enterprises that fail to comply with the Notice will be urged by the NDRC to achieve compliance within six months; otherwise, they will be publicly announced on the NDRC’s website as “non-compliant equity investment enterprises and entrusted management institutions.”