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Termination of Foreign Invested Enterprises
(Applicable to Wholly Foreign Owned Enterprise, Sino-Foreign
Equity Joint Venture and Cooperative Joint Venture and other
types of foreign invested enterprises)
Conditions for Termination
In line with Chinese law, a foreign-funded enterprise shall
be terminated where any of the following conditions occurs:
1. That the term of operation expires;
2. That the investors have decided to dissolve the enterprise
because of poor operation and serious losses;
3. That the enterprise can not continue to operate because
one of the partners has failed to fulfil its obligations defined
by the contract and charter of incorporation;
4. That the enterprise can not continue to operate because
of serious losses resulting from factors of force majeure
such as natural disasters and war;
5. That the enterprise has become insolvent;
6. That the enterprise has been dissolved for violation of
law or harming public interests;
7. That there have occurred other reasons to dissolve the
enterprise as defined by the contract and charter of incorporation.
Procedures for Termination
Where there has occurred any of the conditions to dissolve
a foreign-funded enterprise, the board of directors of the
enterprise shall file an application and submit it to the
reviewing and approving authorities. The date of approving
the application shall be date of terminating the enterprise.
Within a period of 15 days counted from the date of termination,
the enterprise shall make a public announcement and notify
all of its creditors that the enterprise has entered the period
of liquidating its assets.
Within a period of 15 days counted from the date of making
the public announcement, the enterprise shall produce a procedure
and principles for the liquidation of assets and nominate
candidates for the liquidation panel before submitting them
to the reviewing and approving authorities for approval. Only
when they are approved by the reviewing and approving authorities
can the process of liquidation start. The liquidation panel
shall comprise representatives of the board of directors,
creditors and competent authorities in charge of the enterprise.
The liquidation panel shall be in charge of the whole liquidation
work and report to the board of directors. The liquidation
panel is under the obligations to check the assets, creditor's
rights and debts of the enterprise on an overall basis, work
out a statement of assets and liabilities and catalogue of
properties, propose the bases for assets evaluation and computation,
and work out the scheme for liquidation, which shall be implemented
after adoption by the conference of the board of directors.
Foreign-funded enterprises shall be liable for their debts
with all their assets. The remaining assets after the payment
for debts shall be shared among the original investors in
line with relevant provisions of the contract and charter
of incorporation. The value added of the net assets and residual
properties of the enterprise in excess of its registered capital
shall be viewed as profits and shall be subject to the levy
of income tax payable in line with law.
After the end of the liquidation of assets, the liquidation
panel shall present a liquidation report. After adoption by
the conference of the board of directors, the liquidation
report shall be submitted to the reviewing and approving authorities
for approval. Then, the parties concerned shall contact competent
administrative authorities for industry and commerce to go
through the formalities for canceling the registration and
return the business license of the enterprise for revocation.
It is necessary to state here that under most circumstances,
the structure of ownership of a foreign-funded enterprise,
after its termination, can be changed through the transfer
of shareholding rights, with the Chinese partner or other
Chinese enterprises buying the shares held by the foreign
partner. An enterprise whose structure of ownership has been
changed may continue to operate in a new form after re-registration
by competent administrative authorities for industry and commerce.
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