Laws of the People's Republic of China

CONTENTS

CHAPTER I GENERAL PRINCIPLES

CHAPTER II TYPES OF PRIVATE ENTERPRISES

CHAPTER III ESTABLISHMENT AND DISSOLUTION OF A PRIVATE ENTERPRISE

CHAPTER IV RIGHTS AND OBLIGATIONS OF A PRIVATE ENTERPRISE

CHAPTER V PRIVATE ENTERPRISE LABOUR MANAGEMENT

CHAPTER VI PRIVATE ENTERPRISE FINANCE AND TAXATION MATTERS

CHAPTER VII SUPERVISION AND PENALTY PROVISIONS

CHAPTER VIII SUPPLEMENTARY PRINCIPLES

CHAPTER I GENERAL PRINCIPLES

   Article 1. These Regulations are formulated to encourage and guide the healthy development of private enterprises, to safeguard their legal rights and interests, to tighten supervision and control and to enhance the prosperity of socialism's planned commodity economy.

   Article 2. For the purpose of these Regulations, the term "private enterprise" shall refer to a privately funded economic entity which employs at least eight persons.

   Article 3. The private economy shall be seen as a complement to the socialist publicly owned economy. The State shall protect the legal rights and interests of private enterprises.

A private enterprise shall operate within the scope stipulated by State laws, statutory regulations and policies.

   Article 4. The employees of a private enterprise may organise a trade union in accordance with the law. The legal rights and interests of employees shall receive the protection of State laws.

   Article 5. Private enterprises may establish a private enterprise association.

CHAPTER II TYPES OF PRIVATE ENTERPRISES

   Article 6. A private enterprise may be:

(1) a sole investment enterprise;

(2) a partnership enterprise; or

(3) a limited liability company.

   Article 7. A sole investment enterprise refers to an enterprise which is funded and managed by one person.

The owner of a sole investment enterprise shall assume unlimited liability for the obligations of the enterprise.

   Article 8. A partnership enterprise refers to an enterprise which is jointly funded and managed by two or more persons who assume joint responsibility for its profit and losses.

A partnership enterprise shall be based on a written agreement.

The partners shall bear several and unlimited liability for the obligations of the enterprise.

   Article 9. A limited liability company refers to an enterprise in which an investor is liable for company obligations only to the amount of its investment contribution and the company is liable for company obligations only to the amount of its total assets.

A limited liability company shall meet the following requirements;

(1) The name of the company shall include the words "limited liability company" or "limited company".

(2) Its articles of association shall comply with the provisions of these Regulations.

(3) There shall be at least two, but no more than 30 investors.

(4) It shall obtain a document of verification certifying the amount of its registered capital.

(5) An investor wishing to transfer his equity contribution shall obtain the consent of the other investors. The consent of at least half the investors is required if there are more than three investors.

(6) The amount of registered capital may not be reduced.

(7) Shares in the company may not be sold to the public.

A limited liability company with more than 30 investors shall only be permitted to complete registration formalities after the approval of its special application by the administration for industry and commerce.

   Article 10. A limited liability company shall obtain the status of a legal person in accordance with the law.

CHAPTER III ESTABLISHMENT AND DISSOLUTION OF A PRIVATE ENTERPRISE

   Article 11. The following persons may apply to establish a private enterprise:

(1) villagers;

(2) persons awaiting employment in cities and towns;

(3) operators of individual industrial and commercial undertakings;

(4) persons who have resigned or were dismissed from their posts;

(5) retired cadres, retired workers and other persons authorised under State laws, statutory regulations and policies.

   Article 12. A private enterprise may engage in production and business operations, within the scope prescribed by State laws,, statutory regulations and policies, in such fields as industry, construction, transportation, commerce, catering, the service industry, the repair trade and scientific and technological consultancy.

A private enterprise shall not be permitted to engage in production and business operations related to the war industry or finance and shall not be permitted to produce or deal in products prohibited by the State.

   Article 13. A unit applying to establish a private enterprise shall fulfil the following conditions;

(1) have funds and personnel of an amount and number which are in proportion with the scale of its production operations and services;

(2) have a fixed place of business and the necessary facilities;

(3) have a scope of business which complies with the provisions of State laws, statutory regulations and policies.

   Article 14. The articles of association of a limited liability company shall include the following items;

(1) name and domicile of the company;

(2) purpose of the company and scope of business;

(3) amount of registered capital and the equity contributions of the various investors;

(4) name, address, rights and obligations of the various investors;

(5) organisational structure of the company;

(6) conditions for dissolution of the company;

(7) conditions for the transfer of the equity share of an investor;

(8) profit distribution and loss sharing methods;

(9) procedures for the amendment of the articles of association;

(10) other items which require provisions.

   Article 15. When establishing a private enterprise, business operations may commence only after the relevant documents are submitted to the local administration for industry and commerce for registration and the issue of a business licence, subject to verification and approval of the application documents.

   Article 16. Registration of an amendment or re-registration, due to the division, merger, transfer, change of business premises or change of scope of business of an enterprise, shall be conducted with the Administration for Industry and Commerce.

   Article 17. A private enterprise wishing to close down its operations shall apply to the Administration for Industry and Commerce 30 days before closure and shall complete procedures for the cancellation of registration, subject to verification and approval of the application.

When closing down, a private enterprise shall take stock of its property and repay its debts.

   Article 18. Detailed measures on liquidation and the repayment of debts in the case of a private enterprise which is bankrupt, shall be formulated separately.

   Article 19. A private enterprise which fulfils the requirements for registration as a legal person shall undertake procedures for the registration of the commencement of its business operations, registration of amendments and cancellation of registration, as appropriate, in accordance with the provisions of the Administrative Regulations of the People's Republic of China governing the Registration of Corporations.

CHAPTER IV RIGHTS AND OBLIGATIONS OF A PRIVATE ENTERPRISE

   Article 20. Investors in a private enterprise shall hold legal title to its property and such property may be inherited in accordance with the law.

   Article 21. Within the area of its production and business activities a private enterprise shall be entitled to the following rights;

(1) the proprietary right of use of its approved and registered name within the prescribed scope of use;

(2) the right of autonomy of operations within the approved and registered scope;

(3) the right to decide its organisational structure and the employment or dismissal of its personnel;

(4) the right to decide its wage system and method of profit distribution;

(5) the right to fix price and fee standards for its products in accordance with State provisions on price control;

(6) the right to conclude contracts;

(7) the right to apply for patent and trademark registration.

   Article 22. a private enterprise may, in accordance with the provisions of State laws and statutory regulations, establish a Sino-foreign joint equity enterprise or Sino-foreign co-operative enterprise with a foreign company, enterprise, other economic entity or individual, or engage in commission processing, sample processing, commission assembling or compensation trade.

   Article 23. Within the area of its production and business activities a private enterprise shall bear the following obligations;

(1) the obligation to abide by State laws, statutory regulations and policies;

(2) the obligation to pay tax in accordance with the law;

(3) the obligation to accept supervision and control by relevant State organs.

   Article 24. A private enterprise shall establish a bank account with a bank or other financial institution in accordance with relevant State regulations and may lodge a loan application if able to meet the prescribed requirements.

   Article 25. Except if State laws or statutory regulations stipulate otherwise, no unit shall be permitted to use any method to require a private enterprise to provide it with financial resources, material resources or manpower. In the event of an attempt to apportion the resources of a private enterprise, the private enterprise shall have the right of refusal and the Administration for Industry and Commerce shall have the right to halt any attempt at apportionment.

   Article 26. Except if confiscated or revoked by an administration for industry and commerce in accordance with legal procedure, the Corporate Business Licence or Business Licence of a private enterprise may not be confiscated or revoked.

CHAPTER V PRIVATE ENTERPRISE LABOUR MANAGEMENT

   Article 27. The recruitment of personnel by a private enterprise shall be based on a written labour contract which shall define the rights and obligations of both parties, in accordance with the principles of equality, voluntary participation and unanimity through consultation.

The labour contract of a private enterprise shall be filed with the local labour management organ.

   Article 28. A labour contract shall include the following items:

(1) quality and quantity requirements as regards the work of personnel;

(2) duration of the contract term;

(3) working conditions;

(4) labour remuneration, insurance and welfare benefits;

(5) labour discipline;

(6) liabilities in the event of a breach of the labour contract;

(7) other items agreed on by the relevant parties.

   Article 29 If a labour dispute arises within a private enterprise, the matter shall be handled with reference to the Provisional Regulations for the Handling of Labour Disputes in State-run Enterprises.

   Article 30. A private enterprise shall implement the relevant State provisions on labour protection, formulate necessary rules and regulations, provide labour safety and hygiene facilities and safeguard the safety and health of its personnel.

A private enterprise shall take out insurance with an insurance company on behalf of those of its personnel who engage in an industry or type of work which affects their health and safety.

A private enterprise shall, where possible, take out social insurance for its personnel.

   Article 31. A private enterprise shall implement the eight hour workday system.

   Article 32. A private enterprise may not employ child labour under the age of sixteen.

   Article 33. A private enterprise trade union shall have the right to sign a collective contract with the enterprise in its role as employee representative. It shall protect the legal rights and interests of employees in accordance with the law and shall support the production and business activities of the enterprise.

CHAPTER VI PRIVATE ENTERPRISE FINANCE AND TAXATION MATTERS

   Article 34. A private enterprise shall register with its local tax organ within 30 days of being issued with a Corporate Business Licence or Business Licence.

   Article 35. A private enterprise shall, in accordance with State finance and accounting legislation and tax organ provisions, establish a complete financial and accounting system, employ finance and accounting personnel, establish books of account, prepare and submit financial statements, conscientiously fulfil tax obligations and accept supervision and inspection by tax organs.

   Article 36. The salary of the head (general manager or chairman of the board of directors) of a private enterprise may be set at an amount not exceeding ten times the average wage of the personnel of the enterprise.

   Article 37. Private enterprise income tax shall be levied in accordance with the Provisional Regulations of the People's Republic of China on Private Enterprise Income Tax and other relevant regulations.

   Article 38. A private enterprise shall allocate no less than 50% of its after-tax profit as a production development fund. If, due to special circumstances, the proposed amount for allocation is less than 50%, the approval of the tax organ is required.

The production development fund of a private enterprise may be used in the expanded reproduction of the enterprise itself, or as investment in another enterprise or to repay a loan or cover enterprise losses. The approval of the tax organ is required if the fund is used for any other purpose.

   Article 39. The income received by a private enterprise investor from wages and the distribution of after-tax profit shall be subject to individual income adjustment tax in accordance with the law.

CHAPTER VII SUPERVISION AND PENALTY PROVISIONS

   Article 40. The administration for industry and commerce shall strengthen its administration and supervision of private enterprises, protect legal business operations and investigate and deal with illegal business activities.

The various departments in charge of related trades and industries shall guide, assist and administer the production and business activities of private enterprises.

   Article 41. The administration for industry and commerce shall, depending on the circumstances, issue a warning, impose a fine, confiscate illegal income, order the suspension of operations until the matter is rectified or cancel the Business Licence of a private enterprise if it is involved in any of the following acts:

(1) withholding the truth or practising fraud as regards a registration application or unlawfully commencing business operations without completing examination, approval and registration procedures;

(2) engaging in business activities beyond the approved and registered scope of business of failing to undertake procedures for registering an amendment, re-registering or cancelling registration in accordance with regulations;

(3) forging, altering, leasing, transferring, selling or reproducing, without authorisation, a Business Licence;

(4) engaging in other illegal activities.

If a private enterprise with legal person status violates provisions on registration administration, the matter shall be handled in accordance with the provisions of the Administrative Regulations of the People's Republic of China governing the Registration of Corporations.

   Article 42. A labour management organ shall, depending on the circumstances, issue a private enterprise with a warning or impose a fine if the enterprise is involved in any of the following acts:

(1) engaging in production or business activities which do not comply with State provisions on labour protection;

(2) using child labour;

(3) violating the legal rights and interests of its personnel.

   Article 43. If a private enterprise violates the provisions of Article 38 of these Regulations, the tax organ shall issue a warning or impose a fine, depending on the circumstances.

   Article 44. A private enterprise which disagrees with the penalty decision of an administrative organ issued in accordance with the provisions of Article 41 or Article 42 of these Regulations may apply to the penalty issuing organ at a higher level within 15 days of receiving notice of the decision for a review of the case. The higher level organ shall make its decision within 30 days of receiving the review application. An applicant who disagrees with the review decision may lodge an appeal with the people's court within 30 days of receiving notice of the review decision.

The penalty decision shall come into force if the enterprise fails to apply for a review of fails to lodge an appeal within the prescribed time limit.

   Article 45. If a private enterprise violates a State law or statutory regulation involving an area such as taxation, resources, industrial and commercial administration, prices, finance, measurements, quality, hygiene or environment protection, the relevant organ shall deal with the matter in accordance with the law.

   Article 46. If personnel of an administrative organ violate the provisions of these Regulations through abuse of their powers of office, involvement in favouritism or malpractice, acceptance of bribes or infringement of the legal rights and interests of a private enterprise, the relevant organ in charge shall impose an administrative penalty or a monetary fine, depending on the circumstances. Criminal liability shall be pursued if there has been a violation of criminal law.

CHAPTER VIII SUPPLEMENTARY PRINCIPLES

   Article 47. The State Administration or Industry and Commerce shall be responsible for the interpretation of these Regulations and shall formulate implementing measures in conjunction with the relevant departments.

   Article 48. These Regulations shall take effect from 1 July 1988.