| The establishment of a Foreign Invested Company | | | | subject to a 3 year lock-up (they cannotbe |
| Limited by | | | | transferred within 3 years of the date of |
| Shares (also known as a "joint stock company") was | | | | establishment ofthe company). Share buy-backs are |
| designed toaccommodate investors seeking to issue | | | | not permitted except underlimited circumstances. The |
| shares to the public orto list on the Shanghai, | | | | promoters' share capital must be atleast 35% of total |
| Shenzhen or foreign stock exchanges | | | | share capital if shares are offered to thepublic. |
| (under Chinese foreign investment law nomenclature, | | | | Shares |
| the Hong Kong Stock Exchange qualifies as a | | | | All shares may be paid for in cash or property, in |
| "foreign" stock exchange). | | | | lump sum orinstallment payments. The initial |
| Consequently, the establishment of FICLS is subject | | | | installment payment must beat least 20% of the |
| to stricterconditions than the establishment of Equity | | | | total share capital, and promoters must payin full |
| Joint Ventures, | | | | within 2 years after the date that the Business |
| Cooperative Joint Ventures, and Wholly Foreign | | | | Licenseis issued. Stricter requirements may be set |
| Owned | | | | out in the Articlesof Association if so desired. |
| Enterprises - so far, applications for the establishment | | | | Corporate Governance |
| of | | | | Management must be in proportion to shareholding. |
| FICLS have been denied more often than not. | | | | An FICLS mustappoint at least 3 members to a |
| Although an FICLSmay be set up directly, a Joint | | | | supervisory board, which isresponsible for supervising |
| Venture is eligible to convertto an FICLS after three | | | | the performance and regulatorycompliance of |
| profitable years if it meets theconditions set forth | | | | directors and senior executives, and monitoringthe |
| below. | | | | company's financial affairs. This requirement is |
| The Registered Capital of an FICLS must be no less | | | | morestrictly enforced than is the case with Joint |
| than 5million RMB (about US$ 625,000). There be at | | | | Ventures and |
| least 5shareholders, and 25% foreign shareholding is | | | | Wholly Foreign Owned Enterprises. |
| required. Likethe Equity Joint Venture, profits and | | | | An FICLS must appoint between 5 and 19 directors. |
| liquidated net assetsmust be distributed in proportion | | | | Boardmeetings are required biannually with at least 10 |
| to shareholding. | | | | days notice. |
| Promoters | | | | 50% of the directors constitutes a quorum. A special |
| At least two promoters are required to form an | | | | meetingmay be forced by one-third of the directors |
| FICLS, and morethan half of them must reside in | | | | or supervisors, orshareholders holding 10% or more |
| China. Further, a promoter'sshares in an FICLS are | | | | of the share capital. |