Laws of the People's Republic of China

The Ministry of Foreign Trade and Economic Cooperation

Circular of the Ministry of Foreign Trade and Economic Cooperation on Issuing the Guiding Suggestions for the Issues Concerning Directors of Enterprises with Foreign Investment not Attending the Board of Directors' Meetings

WaiJingMaoFaFa [1998] No.302

April 20, 1998

Foreign Trade and Economic Cooperation Commissions (Departments, Bureaus) of Provinces, Autonomous Regions, Municipalities Directly under the Central Government and Cities under Contral Plannings:

Recently we have received reports from many local departments responsible for foreign economic relations and trade, complaining about the constant absence of directors of some Sino-foreign joint ventures, Sino-foreign cooperative enterprises and foreign-funded enterprises (hereinafter simplified as enterprises) from Boards of Directors' meetings (or allied management organs, same below) with the result that Boards of Directors have failed to bring out effective decisions accordingly. Therefore, in order to safeguard the legal rights and interests of the enterprises, their shareholders and creditors, and at the same time to reduce the problems arising from dealing with the internal disputes of the enterprises by the administrative departments responsible for examination and approval, the Ministry of Foreign Trade and Economic Cooperation has, in accordance with the relevant laws and regulations, hereby advanced several guiding suggestions (see Attachment) for the local administrative departments responsible for examining and approving the foreign-funded enterprises to consult for reference in dealing with the above mentioned issues. Attachment 1:Guiding Suggestions for Dealing with Issues concerning the Absence of Directors from the Boards of Director's Meetings

1.

Each enterprise shall, in accordance with the relevant laws and regulations, convene meetings of the Board of Directors at least once each year; and the procedures for convening a provisional meeting of the Board of Directors shall be in compliance with the provisions of its contract, articles of association or relevant agreements.

2.

Where a shareholder fails to fulfill or partially fulfill his obligation for contributing funds beyond the deadline stipulated in the contract for a joint venture of cooperative enterprise, other shareholders may raise the case directly to the original examining and approving organization and ask for a change of the shareholder or alteration of the shareholder's right according to the Several Provisions on Contributing Funds by Various Parties of a Sino-Foreign Joint Venture and the Several Provisions on Altering the Stock Right of Investors of a Foreign-Funded Enterprise.

3.

In the case where the shareholders of an enterprise fail to delegate directors to attend the meetings of the Board of Directors within the period stipulated in the contract and articles of association of a joint venture or cooperative enterprise, resulting in the inability of the meetings of the Board of Directors to make effective decisions, other shareholders may resort to arbitration or law-suit for the settlement of the case on the basis of the relevant methods and procedures stipulated in the contract of a joint venture or cooperative enterprise.

4.

In examining and approving the contract and articles of association of an enterprise, the foreign economic relations and trade departments of various localities shall guarantee that the investors have drawn up and specified the rules of procedure for the Board of Directors and the conditions and procedures for the dissolution of the enterprise, and they may also advise the enterprise to supplement relevant clauses of the contract and articles of association with the information contained in Attachment 2 or add other clauses regarded necessary by the examining and approving organization.

5.

In the case where an enterprise already approved of establishment fails to continue its operation and is destined to be dissolved for severe losses or other reasons, and the directors appointed by the shareholders of one party or several parties of the joint venture or cooperative enterprise fail to attend or convene the meetings of the Board of Directors for more than two years, thus resulting in the inability of the meetings to make effective decisions to dissolve the enterprise, other shareholders may, when receiving no response to their repeated interpellations and througn the testimony by Chinese notary organs or lawyers, apply to the original examining and approving organization for the dissolution of the enterprise with the following necessary documents submitted:

(1)

the concerted application and details submitted by other shareholders in regard to the termination of the contract and articles of association of the joint venture or cooperative enterprise;

(2)

the concerted resolution on the dissolution of the enterprise by the directors appointed by other shareholders;

(3)

the letter of interpellation sent by other shareholders to the directors who have failed to attend the meetings of the Board of Directors;

(4)

the written pledge made by other shareholders for the authenticity of the relevant details about the case, indicating the occurrence of any joint liabilities of them. In case of any relevant details reported by them to the examining and approving organization disagreeing with the fact, the shareholders shall assume all the responsibilities for that;

(5)

the authentic document issued by Chinese notary organs or the testimonials by lawyers,

(6)

the contract and articles of association of the joint venture or cooperative enterprise;

(7)

the approval certificate and a duplicate of the business licence of the enterprise;

(8)

other documents required by the examining and approving organization.

After carefully examining the relevant documents and affirming no mistake in them, the examining and approving organization may approve the dissolution of the said enterprise as it sees fit. In dealing with such an application, the departments of various localities responsible for foreign economic relations and trade shall take prudent measures based on different circumstances and proceed in all cases from the interests of the enterprise, their shareholders and creditors and from the viewpoint of the social stability.

6.

As at present there are different provisions stipulated by departments of various localities responsible for foreign economic relations and trade Concerning the examination and approval of the establishment of enterprises and issuing the certificates, the dissolution of an enterprise shall be subject to the consent of the competent authorities at the provincial level responsible for foreign economic relations and trade in the case where the original examining and approving organ is below the provincial level.

Attachment 2:Reference Form of Clauses of Procedure Rules of the Board of Directors in an Enterprise Contract(Articles of Association)

Article _

The business licence of the company (enterprise) is issued on the same date as that of the establishment of the Board of Directors of the company.

Article _

The Board of Directors is composed of __ directors, of which party A appoints __ directors, and party B appoints __ directors бн One chairman which is designated by party __, and __ vice chairmen which are designated by party __.

Article _

A director has __ -year tenure of office, and once reappointed by the appointing party, can renew his term of office.

Article _

The Board of Directors in the company's highest power organ, capable of making every important decision.

The following matters shall be decided upon through concerted agreement by the directors participating in the meetings of the Board of Driectors.

(1)

amending the company's articles of association;

(2)

dissolving the company;

(3)

adjusting the registered capital of the company;

(4)

transferring stock rights of the company by one party or several parties;

(5)

pledging one party's or several parties's stock rights of the company to the creditors;

(6)

merging or separating the company;

(7)

pledging the company's capital.

Article _

The chairman of the Board is the legal representative of the company. When failing to fulfill his obligations, the chairman of the Boare shall authorize another person to fulfill the obligations for him, or in the case where the chairman authorizes no definite person, the vice-chairman shall act on behalf of the chairman to perform the obligations.

Article _

Meetings of the Board of Directors shall be held at least once each year (the annual meeting), in the residence of the company or in other places appointed by the Board, with the chairman conevning and presiding over the meeting. With the motion of more than __ directors (one third of the entire directors), the chairman shall convene an interim meeting of the directors.

The notice for convening the meeting of the Board of Directors shall include the time, place and agenda of the meeting, and copies of the notice in written form shall be distributed to all the directors 10 days before the meeting.

The minutes of the meeting shall be kept on file.

Article _

The annual meeting and the interim meeting of the Board of Directors can only be held with the presence of more than __ directors (two thirds of the directors).

Each director has one vote.

Article _

Each party has the duty to guarantee the presence of the directors delegated by it in the annual meeting and the interim meeting of the Board of Directors.

A director, who fails to attend the meeting of the Board of Directors for some reason or other, shall present a certificate of entrustment entrusting another person to attend the meeting on his behalf.

Article _

In the case where the directors delegated by one party or several parties fail to attend the meeting of the Board of Directors, and moreover, fail to entrust other persons to attend the meeting on their behalf, thus making the Board of Directors unable to decide on the company's major issues or matters mentioned in the relevant laws and regulations and the said contract (articles of association) within __ days, other parties (the informants) may send out again copies of the notice in written form to the directors absent from the meeting of the Board of Directors and to the party or parties delegating them (the informed), according to the legal addresses (residences) of the said parties, so as to urge them to attend the meetings of the Board of Directors at the stipulated date.

Article _

The notice of request mentioned in the previous article shall be sent out by double-registered letter 60 days before the date of the meeting of the Board of Directors, indicating the necessity of response in written form by the informed within at least 45 days after the sending of the notice. In the case where no response has been received from the informed within the stipulated time, it is regarded that the informed has given up his right to vote, and after the informants have received the note acknowledging receipt of the double-registered letter, the directors delegated by them may convene a special meeting of the Board of Directors. Even if the number of directors attending the special meeting does not reach the legal minimum, effective decisions can also be made on major issues or matters of the company through the concerted approval by all the directors attending the special meeting.

Article _

Directors who do not work in the management organs of the company shall receive no pay from the company.

Any expenses related to the holding of the meetings of the Board of Directors shall be borne by the company.