A welcome simplification, standardization and unification of regulations
The new Administrative Regulations on the Registration of Market Entities (hereafter referred as “Regulations”) have been recently promulgated by the State Council and will become effective nationwide as from March 1st, 2022. Market Entities refers to the natural person, legal persons and unincorporated organizations that engage in for profit commercial activities in mainland China, including companies, unincorporated enterprise legal persons and their branches, sole proprietorship enterprises, partnership enterprises and their branches, specialized farmers’ cooperatives and their branches, individual businesses; branches of foreign companies, etc.
The Regulations will replace and unify all previous rules and regulations regarding the registration of different types of entities. We are introducing a few highlights:
1/ Introducing sanctions for operating a business without license
Previous regulations did not provide a specific legal basis for imposing sanctions on parties operating a business in China without having registered a proper Market Entity. Such practice was (and still is) often used by some foreign companies who have their own “sourcing teams” operating in China but who have not registered an entity in China because the actual business is operated by the overseas company directly. Article 3.1 of the Regulations stipulates that “Market entities shall be registered in accordance with the Regulations. No market entity may engage in business activities in the name of a market entity without registration.” The registration of a market entity should be considered as an administrative confirmation of the existence of a business entity, while the issuance of a Business License constitutes the administrative licensing of the same. The date of issuance of the Business License serves as the establishment date of the Market Entities. According to Article 43, if a Market Entity engaged in business activities fails to undertake the establishment registration obligations, the registration authority has right to confiscate all illegal gains or impose a fine of CNY 100,000 to 500,000.
2/ Registration vs. Recordation (Filing)
The following information of Market Entities must be provided and duly registered by the registration authority: name, type of entity, business scope, domicile or main business place, capital or contribution amount, legal representative/executive partner/person in charge, etc. According to the different types of Market Entities some additional information may have to be provided and registered, for instance, shareholders of a limited liability company, founders of a company limited by shares, investors of an unincorporated enterprise legal person, investor of a sole proprietorship enterprise, partners of a partnership enterprise and operator of an individual business, etc.
The following information of the Market Entities only needs to be recorded (or filed) with the registration authority: articles of association or partnership agreement, duration of operation or partnership, amounts of contributed capital, deadline and payment method of capital, directors, supervisors, senior managers, members of a specialized farmers’ cooperative, family members of an individual business participating in the operation, beneficial owners, etc.
When any of the above information is altered, the Market Entity shall apply to the registration authority to change the registration/recordation within 30 days from the date of the resolution or decision adopting the change or the date of occurrence of the statutory change. In case the Market Entity fails to apply for the change of registration/recordation and refuses to remedy such failure in time, the Market Entity may face a fine ranging between CNY10,000 – 100,000 or even revocation of its Business License.
It should be noted that the duration of operation of the Market Entity is only a recordation item and not a registration item. Therefore, operating a Market Entity beyond its recorded duration, will not be considered as the operation of a business without license.
3/ E-Business License
The administration is promoting the use of electronic Business License and official e-chops. The legality of the official e- chop has already been confirmed by the “Electronic Signature Law”. The Regulations now also confirm that the original, duplicate and electronic versions of the Business License have the same validity.
A Market Entity shall post its Business License in a prominent location at its main business place. A Market Entity engaged in e-commerce shall always publicize its Business License information or related link or icon in a prominent position of its homepage. In case of violation of the above mentioned stipulations, the Market Entity may be fined no more than CNY 30,000.
4/ Real-name registration
The Market Entity is subject to the principle of real-name registration verification which has been widely required by authorities in recent years. The Regulations explicitly provide the legal right to the registration authority to verify the identity information submitted by the applicant. However, the verification methods of the different authorities involved are not standardized. The applicant may be required to provide originals of identity certificates or may have to go through online or onsite interviews.
If the application materials are complete and satisfy with the legal requirement according to the registration authority, the Market Entity can be registered on the spot or at most within 3-6 working days. In case the application materials are incomplete or do not satisfy with the legal requirements, the registration authority shall notify the applicant about the materials that need to be supplemented or corrected.
5/ Cross districts address change
Changing the registration address of a Market Entity across different districts of the same City or Municipality is always a cumbersome process. Often the registration authority in the original district is reluctant to provide its collaboration and sometimes they will even impose several obstacles before allowing the entity to register in the new district.
That practice should progressively end now that the Regulations explicitly stipulate that the Market Entities shall apply for the change of address with the registration authority of the location of its new domicile and that the former registration authority shall not refuse to hand over the archives of the Market Entity without justifiable reasons.