Laws of the People's Republic of China

The State Administration for Industry and Commerce

Reply of the State Administration for Industry and Commerce Concerning the Relevant Questions on Stock Equity Transfer

GongShangQiZi [2000] No.262

November 10, 2000

Hainan Administration for Industry and Commerce:

We have studied your Request for Instructions on Related Issues on Stock Equity Transfer (QiongGongShangFaZi [2000] No.10) and now reply as follows.

In accordance with the Company Law, shareholders of registered companies with limited liability may transfer their stock equity with one another. They may transfer their stock equity to other parties other than shareholders of the company with the permission of the shareholders' meeting. In transfer of stock equity, the transferer and transferee should sign a transfer agreement, according to which the transferee should pay the transferer an equivalent of the capital the transferer has appropriated in exchange for the stock equity. Thus the transferee needs no further capitalization in the company and becomes a valid shareholder after the registration authority approves and makes due alterations on the initial registration. The founders of a company with limited liability have no right to transfer the stock equity they hold of the company within three years of the company's operation. Neither have the directors, supervisors and managers of the company the right to transfer the stock equity they hold of the company during their tenures. Shareholders should transfer their stock equity in stock exchange centers and need no further capitalization in the company.

The registration for alteration of companies with limited liability and companies limited by shares established in compliance with the Company Law as a result of stock equity transfer should apply and conclude the registration in accordance with the Regulations on Company Registration Administration. The stock equity transfer of shareholders of foreign-invested companies with limited liability should be approached in line with specified provisions.