Laws of the Guangdong Province

Regulations of Shenzhen Special Economic

Zone on the Cooperative Stock Companies

Originally adopted at the Twenty-second Meeting of Standing Committee of the First Shenzhen Municipal People' s Representative assembly on April 29, 1994, as revised in accordance with the Decision on Revision of Article 27 of the Regulations of Shenzhen Special Economic Zone on the Cooperative Stock Companies of the Seventeen Meeting of the Standing Committee of the Second Municipal People' s Representative assembly on September 4, 1997.

Chapter I General Provisions

Article 1 In order to affirm the legal status of cooperative stock companies of Shenzhen Special Economic Zone (hereinafter referred to as the "Special Zone"), standardize their organization and behaviors, protect the lawful rights and interests of the shareholders, the creditors and the social public, promote the development of the economy of collective ownership of the Special Zone and maintain the order of the socialist market economy, these regulations are hereby formulated.

Article 2 "Cooperative stock companies" in these regulations refer to enterprises with status of legal person established according to these regulations, whose registered capital is composed of shares of equal amount converted from the collective-owned property of a specific community, and probably raised partially from other sources as well, and whose shareholders shall enjoy rights and assume the obligations according to the provisions of the articles of association and which shall bear its own liabilities with all its assets. However, the collective-owned land shall not be used to offset the liabilities directly.

Article 3 These regulations shall be applicable to the cooperative stock companies formed by restructuring collective economic organizations of various communities.

The "collective economic organizations of various communities" referred to in preceding paragraph shall mean the cooperative economic organizations formed on basis of administrative village units or villagers' teams (natural villages, hereinafter inclusive).

Article 4 A cooperative stock company (hereinafter referred to as "the company" or "a company") shall be established upon approval and registration of municipal industrial and commercial administration organ of Shenzhen (hereinafter referred to as the "registration organ") according to law.

Article 5 The company shall clearly indicate the words "stock cooperative company" in its name.

Article 6 The domicile of a company is the place where its principal place of business is located.

Article 7 The company shall not become an unlimited liability shareholder of other companies or a partner of a partnership. Where the company becomes a limited liability shareholder of other company, except for necessary of controlling a majority of shares, the contributing fund shall not exceed 50% of the net assets of the company.

Where the company provides a guarantee for shareholders or others shall be in compliance with the articles of association of the company or approved by the shareholders' meetings.

In violation of the first or second paragraphs of this Article, the registration organ shall impose a fine not less than RMB 10,000 but not more than RMB 50,000 upon the legal representative and the person who is directly liable of the company; if any loss is caused to the company, the legal representative and the person held directly liable of the company shall bear the liability for compensation.

Article 8 The company shall enjoy the rights and bear the obligations stipulated by laws and regulations for enterprises of collective ownership, meanwhile, enjoy the preferential treatments stipulated by laws, rules and regulations for enterprises of collective ownership.

Article 9 The company shall abide by laws, rules and regulations.

The lawful rights and interests of the company shall be protected by law. Any unit or individual shall not infringe the ownership of collective property of the company.

Article 10 If the company or any concerned person refuses to comply with the concrete administrative act of the municipal registration organ or other competent administrative organs, or the concrete administrative act of staff members in enforcing these regulations, it or he may apply to the administrative reconsideration organ under the Municipal People's Government for reconsideration or may directly file a lawsuit in a people's court.

Article 11 Except otherwise specified in these regulations, the villagers' team and administrative village and their villagers referred herein shall include the original villagers' teams and administrative villages now urbanized and original villagers now transferred to be urban residents.

Chapter II Establishment

Article 12 A cooperative stock company may be established by means of converting other assets into stock shares or by means of converting assets and raising funds in combination.

Establishment by converting assets into stock shares shall mean the establishment of a cooperative stock company by means of converting the collective-owned assets into stock shares.

Establishment by means of converting assets and raising funds in combination shall mean the establishment of a cooperative stock company by means of converting collective-owned assets and raising shares in addition.

Article 13 Where a company is established on basis of the collective assets owned by a villagers' team, the villagers of the villagers' team shall be shareholders. Where a cooperative stock company is established on basis of the collective assets owned by an administrative village, the villagers' teams shall be shareholders. However, upon decision in form of special resolution by the villagers' meeting, an administrative village may also establish a company on basis of the collective assets owned by the administrative villages and the villagers' teams and with the villagers as shareholders.

Article 14 Before establishment of a company, a preparatory team shall be formed at first.

Where a villagers' team establishes a company, members of the preparatory team shall be elected by the villagers' team; where an administrative village establishes a company, the members of the preparatory team shall be composed of the members of the villagers' committee.

Article 15 The preparatory team for a cooperative stock company shall handle following issues on establishment of the company:

(1) Drawing out the overall program for establishing the cooperative stock company;

(2) Liquidating the creditors' right and liabilities of the villagers' team or the administrative village, entrusting an agency with assets valuation qualification to conduct valuation of the assets collectively owned by the villagers' team or the administrative village and determine the net value of collective assets;

(3) Working out the programs for stock share classification, the distribution and management of stock rights and ownership;

(4) Drafting out the articles of association and preparing documents necessary for establishment of the cooperative stock company;

(5) Convening villagers' meetings and submitting the articles of association for the cooperative stock company for deliberation; and

(6) Other issues concerning establishment of the cooperative stock company.

Article 16 The registered capital of a company shall be the total amount of the capital stock registered with the registration organ.

The registered capital of a company shall not be less than RMB 2,000,000.

The threshold after a company's reducing registered capital shall not be less than the minimum amounting for registered capital stipulated in the preceding paragraph.

The registered capital shall bear a clear indication of the shares converted from the collective-owned land, however, the collective land owned by a company shall not be used to offset the liabilities of the company directly.

Article 17 To establish a company, the articles of association shall be formulated. The articles of association shall be discussed and passed in the villagers' meeting.

The articles of association of the company shall state the following items clearly:

(1) The company name and domicile / address;

(2) The tenet and business scope of the company;

(3) The mode of establishment of the company;

(4) The registered capital, types of stock shares, distribution and management of stock shares, the total amount of all types of stock shares and the amount of per share;

(5) The concrete conditions for acquiring the qualification of the shareholder of the company;

(6) The limitation on the turnover of stock shares, the transfer scope of transferable stock shares, transfer measures and the measures of the company purchasing shares;

(7) The rights and obligations of the shareholders;

(8) The election, rights and obligations of the representatives of the shareholders;

(9) The responsibility and authority and the rules of procedure of the shareholders' representative assembly;

(10) The composition, responsibility and authority, the rules of procedure and term of office of the directors of the board of directors;

(11) The legal representative and his responsibility and authority;

(12) The composition, responsibility and authority, the rules of procedure and term of office of the supervisors of the board of supervisors;

(13) The measures of distribution of profit;

(14) The financial and accounting system;

(15) The revision of the articles of association;

(16) Disbandment and liquidation;

(17) The mode of notification and public notice; and

(18) The date of formulating the articles of association.

Article 18 Where the company is established by means of converting the collective-owned assets into stock shares and raising shares in combination, the objects for raising the shares shall only be confined to the villagers of its own village and staff members of the company.

The staff members of the company shall include, in addition to the villagers in its own village, the directors, managers, staff members of the company, the former personnel of the subsidiaries and shareholding companies of the said company.

Where shares are raised in violation of the provisions of the preceding paragraph, the authorized organ of the district people's government in the seat of the company (hereinafter referred to as the "authorized organ of the district government" shall order the preparatory team of the company to refund the amount for the raised shares and the banking interests thereon to the share subscribers and impose a fine not less than RMB 50,000 but not more than RMB 100,000 to the persons held directly liable.

Article 19 Where the company is established by means of converting the collective-owned assets into stock shares and raising shares in combination, the preparatory team of the company shall file an application to the authorized organ of the district government for approval of raising shares.

The authorized organ of the district government shall make decision on whether to approve the raising of stock shares within 30 days upon receiving the application. Where the application is approved, the applicant shall be issued with the approval document; where the application is rejected, the applicant shall be replied in writing.

Upon approval of raising stock shares, the company shall raise the stock shares in terms of the approved number of shares and the term of raising stock shares.

Article 20 Where a company is established by converting the collective-owned assets into shares, the preparatory team of the company shall convene a villagers' meeting within 30 days upon fulfilling the preparatory issues; where a company is established by converting the collective-owned assets into shares and raising shares in combination, the preparatory team of the company shall convene a villagers' meeting within 30 days upon all the amount of the raised shares have been paid up.

The villagers' meeting shall exercise the following functions and powers:

(1) Deliberating the report of the preparatory team of the company on preparatory status of the company;

(2) Revising the articles of association of the company;

(3) Electing the members of the board of directors;

(4) Electing the members of the board of directors; and

(5) Checking and determining the remuneration of the members of the preparatory team and the expenditure of the establishment of the company.

Article 21 The board of directors shall apply to the registration organ for registration of establishment and submit the following documents within 30 days upon concluding the villagers' meeting:

(1) The application for establishing the company;

(2) The report of the preparatory team passed in the villagers' meeting;

(3) The articles of association of the company;

(4) The financial audit report on establishing the company;

(5) The capital inspection certificate;

(6) The report on assets valuation;

(7) The names, addresses and the certificates of identification and qualification of the members of the board of directors and the board of supervisors; and

(8) The name and address of the legal representatives.

Where the company is established by converting the collective-owned assets into shares and raising shares in combination, the board of directors shall also submit the document of the authorized organ of the district government approving the raising of shares.

Article 22 The registration organ shall make the decision on whether to grant registration or not within 30 days upon receiving the application for establishing the company. If the registration is granted, the company shall be issued the business license for enterprise with status of legal person; where the registration is rejected, a reply in writing shall be made to the company.

The date of issuing the business license for corporation shall be the date of establishment of the company.

The establishment of company shall be proclaimed.

Article 23 Any one who operates in the name of a company without approval shall be ordered to terminate the operation and confiscated of the illegal business gains by the registration organ; meanwhile the actors shall be imposed upon a fine of not less than RMB 10,000 but not more than RMB 50,000 respectively; if any loss is caused to others, the actors shall bear the liability for compensation.

Any applicant who, in violation of these regulations, stoops to deception in applying for establishment of a company shall be ordered to make corrections by the registration organ; any one who has received the business license for enterprise with status of legal person by employing trickery while refuses to make corrections shall be revoked of the business license for enterprise with status of legal person; meanwhile the persons held directly liable shall be imposed upon a fine of not less than RMB 10,000 but not more than RMB 50,000 respectively.

Article 24 The collective enterprises without the qualification of the enterprise with status of legal person established by the administrative village or the villagers' team before establishment of the company shall be deemed as the branches of the company after establishment of the company. If the branches need to go through the modification formalities according to law, the company shall apply to the registration organ for going through the modification formalities.

Article 25 The enterprises established by an administrative village or a villagers' team, which holds not less than 50% of the stock shares or not up to 50% of the stock shares of the said enterprises, shall be deemed as the subsidiaries or shareholding companies of the company after its establishment. If the subsidiaries or shareholding companies of the company need to go through modification registration formalities according to law, they shall apply to the registration organ for going through the modification formalities.

Chapter III Shares

Article 26 The capital of the company shall be divided into shares with equal amount in the form of stock right certificate.

Article 27 The company shall set up collective shares and cooperative shares and may set up raised shares as well.

The collective shares shall mean the shares left to the cooperative shareholders, of which the dividends are enjoyed by the shareholders of the cooperative shares on a collective basis upon conversion of collective-owned property into shares. The proportion of the collective shares among the total number of shares from conversion of collective-owned assets shall be determined by the Municipal People's Government. The management measures of the collective shares shall be formulated in the articles of association of the company.

The cooperative shares shall mean the shares allocated to shareholders individually upon conversion of collective-owned property into shares when the company is established.

The raised shares shall mean the shares subscribed by the cooperative shareholders and the staff members of the company by means of raising shares. The raised shares shall not exceed 30% of the amount of the total shares. (Notes: according to the Decision on Revising Article 27 of the Regulations on the Cooperative Stock Companies of Shenzhen Special Economic Zone adopted at the 17th Session of the 2nd Meeting of the Standing Committee of the People's Representative assembly of Shenzhen Municipality dated 4th September 1997, the second paragraph of this Article shall be revised as follows: " The collective shares shall mean the shares left to the cooperative shareholders, of which the dividends are enjoyed by the shareholders of the cooperative shares on a collective basis upon conversion of collective-owned property into shares.. The shareholders of the collective shares, i.e. the representatives of the capital, shall be the village collective-owned assets management committee. The proportion of the collective shares among the total number of shares from conversion of collective-owned assets shall be determined by the Municipal People's Government. The management measures of the collective shares shall be stipulated in the articles of association of the company. The establishment of the village collective-owned assets management committee shall be approved by the collective-owned assets management organ of the district government.)

Article 28 The cooperative shares shall be distributed among the villagers or the villagers' teams on basis of the relationship of household registration. The distribution of cooperative shares shall be based on the following principles:

(1) Equality between the sexes;

(2) Protecting the lawful rights and interests of the old, children and the disabled without labor capability;

(3) Protecting the lawful rights and interests of the armymen in active service;

(4) Protecting the lawful rights and interests of students studying in schools; and

(5) Promoting the shareholders to fulfill their due obligations.

The concrete measures of distribution of cooperative shares shall be stipulated in the articles of association of the company.

Article 29 The cooperative shares may be transferred within the scope stipulated in the articles of association of the company. However, the shareholders of cooperative shares shall not withdraw the amount of shares by means of returning the shares.

Article 30 The company may raise new shares upon establishment.

The raising of new shares shall be proposed by the board of directors while the resolution on raising new shares shall be made by the shareholders' representative assembly.

The newly raised shares and originally raised shares shall not exceed 30% of the total shares of the company. The raising of new shares by the company shall be governed by Article 18 and Article 19 herein.

Article 31 The company that needs to enhance the registered capital for sake of raising new shares shall apply to the registration organ for going through modification registration and proclaim it to the registration organ.

Article 32 The raised shares may be transferred and mortgaged.

The measures on transfer of the raised shares shall be stipulated in the articles of association of the company.

Where the shares are transferred in violation of the provisions of the articles of association, the act of transfer shall be invalid.

The company shall go through the modification registration formalities and make proclamation publicly within 90 days upon purchasing the shares of its own company.

Article 33 The raised shares may be inherited according to law.

Article 34 The stock right certificate is the written credence issued by the company to the shareholders for enjoying rights and bearing obligations.

A stock right certificate shall state the following items:

(1) The name and address (domicile) of the company;

(2) The document number and date of the company's establishment registration and modification registration;

(3) The stock right certificate for raised shares shall give clear indication of the reference number of the approval document issued by the authorized organ of the district government;

(4) The total number of the stock shares, the types of stock shares, the amount of per share and the number of shares represented by a stock right certificate;

(5) The conditions and scope of transfer of the cooperative shares;

(6) The scope of subscription and transfer of the raised shares;

(7) The names of the shareholders or the titles and addresses of the shareholders;

(8) The reference number and issue date of the stock right certificate; and

(9) The stock right certificate for cooperative shares shall give clear indication of the characters as "cooperative shares"; while stock right certificate for raised shares shall give clear indication of the characters as "raised shares". The name filled in the stock right certificate by a shareholder shall be consistent to the name filled in his identification card; for those who have not received the identification card, the name filled in the stock right certificate shall be consistent to the name filled in his household register.

The stock right certificate shall be signed by the chairman of the board of directors and sealed by the company.

Article 35 When losing the stock right certificate for cooperative shares, the shareholder shall report to the company in writing. Upon announcing to all the shareholders, the company shall re-issue a stock right certificate to the holder, the original stock right certificate shall be abrogated simultaneously.

When losing the stock right certificate for raised shares, the shareholder may invalidate it via the procedure of summons in public for exhortation.

When the stock right certificate is invalidated in the procedure mentioned in the preceding paragraph, the holder may apply to the company for re-issuing the stock right certificate.

Article 36 The company shall prepare a roster of shareholders.

The roster of shareholders shall contain the following items:

(1) The name or the title and address of each shareholder;

(2) The type of shares and the number of shares held by each shareholder;

(3) The reference number of the stock right certificate; and

(4) The date for acquiring the shares.

Where the raised or cooperative shares are transferred according to law, or the stock right certificates for raised or cooperative shares are re-issued, the roster of the shareholders shall be modified.

Chapter IV Shareholders and Their Representative Assembly

Article 37 The beneficiaries of the stock shares of the company shall be the shareholders of the company.

Article 38 A shareholder shall enjoy the following rights:

(1) Attending or recommending representatives to attend the representative assembly of the shareholders and exercising voting rights according to the articles of association of the company;

(2) Consulting the roster of the shareholders of the company, records of the representative assembly of the shareholders and financial and accounting statements, putting forward proposals or inquiries;

(3) Acquiring dividends as per the number of shares;

(4) Transferring shares according to these regulations and the articles of association of the company;

(5) Acquiring the remaining assets of the company according to law after disbandment of the company; and

(6) Other rights stipulated in the articles of association of the company.

Article 39 A shareholder shall bear the following obligations:

(1) Abiding by the articles of association of the company;

(2) The shareholders of the cooperative shares shall bear the responsibility within the scope limited by the cooperative shares held; while the shareholders of the raised shares shall bear the responsibility within the scope limited by the amount of the shares subscribed; and

(3) Other obligations stipulated by the articles of association.

Article 40 The company shall adopt the shareholders' representative assembly system.

The authority institution of the company shall be the shareholders' representative assembly.

The shareholders' representative assembly shall be composed of the representatives of the shareholders of the cooperative shares and the shareholders of the raised shares.

The shareholders' representatives shall be elected and determined according to the provisions of the articles of association of the company.

After the shareholders' representatives have been elected according to the provisions of this Article, the board of directors shall issue the certificate for the representative of shareholders to the representatives of shareholders as the credence for exercising the rights of representative.

Article 41 Each representative of shareholders shall have a one-off voting right.

Article 42 The shareholders' representative assembly shall be classified into executive meeting and temporary meeting.

The executive meeting shall be held at least once a year. The interval between two executive meetings shall not exceed 15 months.

The temporal meeting may be convened according to the articles of association of the company.

Article 43 The shareholders' representative assembly shall exercise the following functions and powers:

(1) Deliberating and approving the reports of the board of directors, the board of supervisors or the supervisors;

(2) Deliberating and approving the annual budget programs and settlement programs of the company;

(3) Deliberating and approving the programs on the distribution of surplus or on the remedial of loss of the company;

(4) Deliberating and approving the adjustment programs for the stock right on the cooperative shares;

(5) Deciding the increase or decrease of the registered capital of the company;

(6) Making resolutions on the merger, separation, modification of organizational forms, disbandment and liquidation of the company;

(7) Electing or recalling the members of the board of directors, the board of supervisors or the supervisors and deciding the remuneration and measures of payment;

(8) Revising the articles of association of the company;

(9) Deliberating the joint motions filed by not less than 20% the representatives of shareholders; and

(10) Other functions and powers stipulated in the articles of association of the company.

The items for resolution set forth in Item (4) to Item (8) in the preceding paragraph shall be passed in the form of special resolution.

Article 44 The shareholders' representative assembly shall be convened by the board of directors and presided over by the chairman of the board of directors, except otherwise stipulated herein or in the articles of association of the company.

When holding a general meeting of shareholders' representatives, the board of directors shall notify the shareholders' representatives of the issues for deliberation prior to 10 days before convening the meeting. The temporal meetings of the shareholders' representatives shall not make resolutions on the issues not stated in the notice.

Article 45 The resolutions of the shareholders' representative assembly shall be classified as common resolution and special resolution.

To adopt a common resolution in the shareholders' representative assembly, there must at least half of the shareholders' representatives present in the meeting and at least half of the present shareholders' representatives passing the resolution.

To adopt a special resolution in the shareholders' representative assembly, there must at least half of the shareholders' representatives present in the meeting and at least two third of the present shareholders' representatives passing the resolution.

Article 46 Where a representative is unable to be present at the shareholders' representative assembly for some reasons, the shareholders that have elected the said representative shall elect a temporal representative of shareholders separately to be present at the meeting, or the representative of shareholders shall entrust a proxy to be present at the meeting and exercise the voting right. The proxy shall present the letter of authorization issued by the representative of shareholders, which indicates the scope of authorization clearly, to the board of directors.

Article 47 When the representatives of shareholders that attend a shareholders' representative assembly do not reach half of the total representatives of shareholders, the meeting shall be postponed for ten days and the absent representatives of shareholders shall be re-notified.

If the representatives of shareholders present at the postponed shareholders' representative assembly still cannot reach half of the total, it shall be deemed that the number of attendants has reached the prescribed number. When the ratio of votes calculated as per the actually present representatives of shareholders has reached that stipulated in Article 45 herein, the resolutions adopted at the representative assembly shall be deemed as valid.

Article 48 The shareholders' representative assembly shall put down the issues for deliberation into minutes. The minutes shall contain the deliberated issues and the conclusion and be signed by the directors present at the meeting. The minutes shall be preserved along with the signing register of the representatives of shareholders and letter of authorization presented by proxies of representatives.

Article 49 Upon conclusion of the shareholders' representative assembly, the representatives of shareholders shall report the contents of meetings to other shareholders represented by them timely.

Chapter V Business Management Institution

Article 50 The company shall have a board of directors. The board of directors shall be executive organization for decision-making and execution of the operation of the company; it shall be responsible for the shareholders' representative assembly.

The composition of the board of directors shall be stipulated in the articles of association of the company.

Article 51 The directors shall be elected by the shareholders' representative assembly.

The responsibility and powers and the term of office of the directors shall be stipulated in the articles of association of the company.

Article 52 The board of directors shall exercise the following functions and powers:

(1) Deciding the holding of the shareholders' representative assembly and reporting the work at the shareholders' representative assembly;

(2) Implementing the resolutions of the shareholders' representative assembly;

(3) Deciding the major issues in the operation of the company;

(4) Deciding the setup of the operation and management organizations;

(5) Appointing and removing the senior management personnel as manager, vice manager, financial supervisor etc. and deciding their remuneration and the measures of payment;

(6) Working out the revision programs of the articles of association of the company;

(7) Filing the application for approval of bankruptcy of the company; and

(8) Other functions and powers stipulated in the articles of association of the company.

Article 53 The board of directors shall have one chairman and may have one or two vice-chairmen. The chairman and vice-chairmen of the board of directors shall be elected by the affirmative votes of more than half of all the directors.

The chairman of the board shall be the legal representative of the cooperative stock company.

The functions and powers of the chairman of the board shall be stipulated in the articles of association of the company.

Article 54 The board of directors shall hold a meeting at least half a year. Upon motion by the chairman of the board or more than one third of directors, the board of directors shall hold a meeting.

Article 55 The resolutions of the board of directors shall only be adopted by affirmative votes of a half of the directors. When the votes of the disputing parties are equal, the chairman of the board shall have the right to make a decision.

Article 56 The board of directors shall preserve the articles of association of the company, the roster of the shareholders, the minutes of the meetings of the representative assembly and the board of directors for previous years, the balance sheets and the statements of profit and loss in the company. The shareholders and the creditors shall have right to consult and reproduce upon producing the relevant certification documents.

Article 57 Managers of the company shall be employed by the board of directors.

The company may have some managers. The vice managers shall be nominated by the managers and appointed upon approval by the board of directors.

Article 58 Managers of the company may exercise the following functions and powers:

(1) Being responsible for management of daily operation of the company according to the articles of association of the company and the authorization of the board of directors;

(2) Implementing the resolutions of the shareholders' general meetings and the meetings of the board of directors;

(3) Drafting out the development plans and annual production & operation plans of the company;

(4) Nominating the senior management personnel as the vice general managers and financial supervisor etc.; appointing and removing other management personnel of the company;

(5) Deciding the recruitment, dismissal, reward and punishment of the employees;

(6) Attending the meetings of the board of directors; and

(7) Other functions and powers entitled by the articles of association or the board of directors.

Article 59 The directors and managers shall not be an unlimited liability shareholder of any other economic organization or a partner of a partnership; shall not operate for themselves, or operate for others, the competitive business in the same category as the cooperative stock company they are serving, shall not engage, for themselves or on behalf of others, in purchase and sale, lending and borrowing and other activities which damage the interests of the cooperative stock company

The shareholders' representative assembly shall have right to confiscate the illegal gains acquired by any director or manager from activities set forth in the preceding paragraph as owned by the company. Any director or manager who violates the provision of the preceding paragraph and accordingly causes damage to the company shall bear the liability for compensation; if the offense constitutes a crime, he shall be prosecuted for his criminal liability.

Chapter VI Board of Supervisors

Article 60 The company shall have a board of supervisors. The board of supervisors shall be the supervisory organization of the operation and financial affairs of the company, its rules of procedure shall be stipulated in the articles of association of the company.

Article 61 The board of supervisors shall be composed of no less than three members, among which the representatives of the staff members shall not be less than one third of the total number and shall be elected and recalled by the staff members of the company; other representatives shall be elected from the shareholders and shall be elected and recalled at the shareholders' representative assembly.

Each term of office of the members of the board of supervisors shall be stipulated in the articles of association of the company.

Any senior management personnel as the director, manager and financial supervisor of the company shall not serve as a member of the board of supervisors concurrently.

Article 62 The board of supervisors shall exercise the following functions and powers:

(1) Attending the meetings of the board of directors;

(2) Examining the operation and the financial status of the company;

(3) Examining, approval and consulting the financial accounting statements and other financial accounting data of the company;

(4) Supervising the work of the directors and the managers;

(5) Proposing the convening of temporal shareholders' representative assembly; and

(6) Acting on behalf of the company to negotiate with the directors and managers or to file a lawsuit against the directors and managers when the acts of the directors and managers damage the interests of the company;

(7) Other functions and powers provided for in the articles of association of the company.

Article 63 When failing to perform the supervisory responsibility against the acts of damaging the company and the interests of the shareholders, the board of supervisors and the actor shall have a joint and several liabilities.

Chapter VII Financing and Accounting

Article 64 The company shall establish the financial and accounting systems of the company according to the laws, rules and the relevant rules and regulations on the accounting system of the special zone.

Article 65 The meetings of the board of directors shall prepare the annual financial and accounting documents at the domicile of the company for record of the shareholders and creditors prior to 20 days before the convening of the shareholders' representative assembly.

Article 66 The profit after tax of the company shall be distributed according to the following order of priority:

(1) Making up for the loss;

(2) Retaining public accumulation fund;

(3) Retaining public welfare fund;

(4) Paying dividends for raised shares and collective shares; and

(5) Paying dividends for cooperative shares.

Distribution made by the company in violation of the provisions in the preceding paragraph shall be invalid. If any damage is caused to a creditor, the creditor shall have right to claim compensation for the loss.

Article 67 The public accumulation funds of the company may be classified into statutory surplus accumulation fund and the voluntary surplus accumulation fund.

The amount of the statutory surplus accumulation fund shall be not less than 10% of the profit after annual tax.

The voluntary surplus accumulation fund shall be retained and used according to the provisions of the articles of association of the company or the shareholders' representative assembly.

Article 68 The statutory surplus accumulation fund shall be used for following purposes:

(1) Making up for the loss;

(2) Increasing the capital; and

(3) Other purposes stipulated by laws, rules, and regulations.

Article 69 The public welfare fund shall be retained according to the articles of association of the company:

The public welfare fund shall be used for welfare of the staff members of the company.

Article 70 Any company that does not follow the provisions of these regulations to retain and use the statutory public accumulation fund and public welfare fund shall be ordered to make corrections by the authorized organ of the district government and punished on basis of the seriousness of the circumstance.

Article 71 If there is no surplus in the very year, no stock dividend shall be distributed. However, if the statutory public accumulation fund has exceeded 50% of the amount of the registered capital, upon special resolution of the shareholders' representative assembly, the stock dividend may be distributed as per the proportion of the rate of interest of banking deposit for a term not exceeding a year.

Article 72 The dividends of the collective shares shall be covered into the welfare fund for shareholders of the cooperative shares.

When the scale of the welfare fund for shareholders of the cooperative shares has reached the minimum limitation (threshold) stipulated in the articles of association of the company, the dividends of the collective shares may be distributed directly among the shareholders of the collective shares according to the provisions of the articles of association of the company.

The measures on management of the welfare fund for shareholders of the cooperative shares shall be formulated by the shareholders of the cooperative shares of the company separately.

Chapter VIII Modification, Dissolution and Liquidation

Article 73 To revise the articles of association of the company, the board of directors shall work out the revision program of the articles of association of the company, which shall be adopted at the shareholders' representative assembly as a special resolution.

Upon revising the articles of association of the company, the board of directors shall submit it to the registration organ for going through modification registration formalities and proclaim it publicly.

Article 74 Where the articles of association needs to be revised due to reduction of the registered capital, the measures on reducing the registered capital shall be stipulated in the resolution on revising the articles of association.

Article 75 When intending to reduce the registered capital, the company shall notify the creditors within 10 days upon the shareholders' representative assembly adopting the resolution and proclaim it for at least three times within one month. The creditors receiving the notice and the creditors not receiving the notice may raise objection within 30 days from receipt of the notice and within 90 days from the first public proclamation respectively.

Article 76 The company may merge or separate according to the provisions of these regulations.

Article 77 For merger or separation of the company, the board of directors shall propose the program, prepare the balance sheets and inventory of the assets. The merger or separation of the company shall only be carried out after being passed as a special resolution of the shareholders' representative assembly.

When the company is merged with other ones, the merging parties shall enter into an agreement on merger; when the company is separated, the board of directors shall make a resolution on bearing the liabilities of the company.

The merger or separation of the company shall not damage the interests of the creditors.

Any company that, in violation of the first paragraph herein, withdraws the capital, hides up the assets and evades liabilities willfully and maliciously shall be ordered to recover the assets within a time limit by the registration organ; the persons directly liable in the offense shall be imposed upon a fine not less than RMB 50,000 but not more than RMB 100,000; if the offense constitutes a crime, the persons directly liable shall be prosecuted for criminal liability according to law.

Article 78 The company shall notify the creditors in writing within 10 days upon the shareholders' representative assembly making the resolution on merger or separation and proclaim publicly at least 3 times within one month.

Any company that fails to carry out notification or proclamation according to the preceding paragraph shall be ordered make corrections within a time limit by the registration organ; the legal representative of the company and the persons directly liable in the offense shall be imposed upon a fine not more than RMB 10,000 respectively as well.

The creditors of the company receiving the notice and the creditors of the company not receiving the notice may raise objection within 30 days from receipt of the notice and within 90 days from the first public proclamation respectively.

The company shall pay off the liabilities or provide commensurate guarantee according to law in favor of the creditors who has raised objection. Where a creditor does not raise any objection, in the case of merger of the companies by means of absorption, the liabilities of the absorbed party shall be borne by the absorbing party; while in the case of merger by means of new establishment, the liabilities of all parties shall be borne by the newly merged company.

Article 79 All parties to the merger or separation of companies or a company shall reach agreement on the handling of the creditors' rights and liabilities of the original companies or company before the merger or separation.

The agreement mentioned in the preceding paragraph shall be consented by the creditors and shall not prejudice the interests of the creditors.

Article 80 Where companies fail to be merged, the liabilities incurred in the course of merger for preparation shall be borne by all parties preparing for merger.

Article 81 When a company is merged or separated, the company shall go through the modification and cancellation registration formalities or establishment registration formalities with the registration organ according to these regulations and other laws and regulations.

Article 82 Where a company is revoked, announced bankrupt or disbanded for other reasons according to law, the company shall form a liquidation organization according to the relevant laws, rules and regulations to conduct liquidation to conduct liquidation.

Article 83 The liquidation organization shall exercise the following functions and powers during the period of liquidation:

(1) Conducting a through check of the assets of the company, preparing balance sheet, the inventory of assets and the list of creditors' rights and liabilities;

(2) Handling the unsettled business / operations of the company;

(3) Requiring the debtors of the company to perform the liabilities;

(4) Paying off the liabilities of the company according to the debt repayment procedure stipulated by law;

(5) Disposing of the remaining assets of the company; and

(6) Participating in the litigation or arbitration activities on behalf of the company.

Article 84 After deduction of the cost for liquidation of the company assets in priority, first payment shall be made in order of priority as follows:

(1) The salary and social insurance fee of staff members;

(2) The tax due; and

(3) The liabilities of the company.

After the company pays off the debts, the liquidation organization shall distribute the remaining assets to the shareholders according to the articles of association of the company.

Article 85 On completion of the liquidation, the liquidation organization shall submit a liquidation report and meanwhile prepare the statements of income and expense and all kinds of financial account books in respect of accounts during the period of liquidation to the shareholders' representative assembly for confirmation.

Article 86 When finding the assets of the company is not enough to pay off the liabilities after straightening out the assets of the company and preparing balance sheets and inventories of assets, the liquidation organization shall apply to a people's court for declaration of bankruptcy immediately.

If a company is declared bankrupt according to law, the liquidation shall be carried out according to the relevant laws, rules and regulations.

Chapter IX Supplementary Provisions

Article 87 Upon special resolution of the shareholders' representative assembly, the company may be restructured into a limited liability company or a joint-stock limited company according to the relevant laws, rules and regulations.

Article 88 The issues required for public proclamation as stipulated in these regulations shall be published in the eye-catching space on Shenzhen Special Economic Zone Daily, the Shenzhen Commercial Daily or other newspapers expressly designated by the Municipal People's Government.

Article 89 The Municipal People's Government may formulate the implementing rules according to these regulations.

Article 90 These regulations shall take effect as of July 1, 1994.