CHAPTER THREE ESTABLISHMENT AND ORGANIZATIONAL SETUP OF JOINT STOCK COMPANIES LIMITED

　　SECTION ONE ESTABLISHMENT

　　Article 73 The establishment of a joint stock company limited shall meet the following conditions:

　　1. The number of promoters shall meet the requirement of the law;

　　2. The share capital subscribed by the promoters and public offer meets the minimum amount of capital required by law;

　　3. Issue of stocks and the related preliminary matters conform to the provisions of the law;

　　4. Articles of association are formulated by the promoters and adopted at the establishment meeting;

　　5. The company has a name and has established the organizational setup that meets the requirements of a joint stock company;

　　6. The company has fixed production or operational sites and necessary conditions for production or operations.

　　Article 74 A joint stock company limited may be set up by means of promotion or public offer.

　　By promotion, it means the establishment of a company by the subscription by promoters for all the shares to be issued by the company.

　　By public offer, it means the establishment of the company by the subscription by the promoters of part of the shares to be issued and a public offer of the remaining shares.

　　Article 75 In setting up a joint stock company limited, there should at least be five promoters with over half of them living within the territory of China.

　　For a joint stock company limited reorganized from a State owned enterprise, the number of promoters may be less than five, but the method of public offering should be adopted.

　　Article 76 The promoters of a joint stock company limited shall subscribe to the shares due to them according to this law and be responsible for the preparations for the establishment of the company.

　　Article 77 The establishment of a joint stock company limited shall have the approval of the department authorized by the State Council or by the people's governments at the provincial level.

　　Article 78 The registered capital of a joint stock company limited shall be the total share capital which has been registered with the registration department and which has been actually received. The minimum amount of registered capital of a joint stock company limited shall be RMB10 million. Requirements for the minimum amount of the registered capital of a joint stock company limited to be higher than the above amount are provided for in separate laws or administrative decrees.

　　Article 79 The articles of association of a joint stock company limited shall define the following:

　　1. Name and address of the company;

　　2. Scope of business of the company;

　　3. Method of establishment;

　　4. Total shares, par value of each share and the amount of registered capital of the company;

　　5. Names of promoters and the shares they have subscribed to;

　　6. Rights and obligations of shareholders;

　　7. Composition, powers, term of office and rules of procedure of the board of directors;

　　8. Legal representative of the company;

　　9. Composition, powers, term of office and rules of procedure of the supervisory committee;

　　10.Method of distribution of profits of the company;

　　11.Reasons for dissolution of the company and liquidation methods;

　　12.Methods for issuing public notices or announcement; and

　　13.Other matters deemed necessary by the meeting of shareholders.

　　Article 80 Shareholders may pay in their investment in cash, in kind, in industrial property rights, non-patented technology or land use rights. The investment in kind, industrial property rights, non- patented technology or land use rights must be assessed in value and be converted into shares according to their assessed value without over or under valuation. The value assessment of land use rights shall be handled according to law or administrative decrees. The industrial property rights or/and non-patented technology in value terms shall not exceed 20 percent of the registered capital of the company.

　　Article 81 When reorganise a State-owned enterprise into a joint stock company limited, it is strictly prohibited to under-value State- owned assets for conversion into shares, sell them at prices below their value, or distribute them without compensation to individuals.

　　Article 82 When establishing a joint stock company limited through promotion, the promoters shall subscribe in written form the amount of shares provided for in the articles of association in full payment. In cases of paying investment in kind, industrial property rights, non-patented technology or land use rights, procedures for the transfer of the property rights shall be completed according to law.

　　After the promoters all pay in their capital, they should elect the board of directors and the supervisory committee. The board of directors shall apply for registration of establishment of the company with the registration department with the document of approval for establishment, the articles of association, capital verification and other documents.

　　Article 83 When establishing a joint stock company limited through public offer of shares, the amount of shares subscribed to by promoters shall not less than 35 percent of the total. The rest shall be offered to the public for subscription.

　　Article 84 In public offer, an application for the offer must be submitted to the securities administration of the State Council, together with the following documents:

　　1. Document of approval for establishing the company;

　　2. Articles of association;

　　3. Operating budget;

　　4. Names of promoters and the number of shares by the promoters, the method of capital contribution, and capital verification certificate;

　　5. Prospectus;

　　6. Names and addresses of the receiving bankers; and

　　7. Names of underwriters and the relevant agreement.Promoters shall not make a public offer without the approval of the securities administration of the State Council.

　　Article 85 With the approval of the securities administration of the State Council, a joint stock company limited may make a rally abroad. The specific method for the rally shall be formulated by the State Council.

　　Article 86 Securities administration of the State Council shall approve the application on public offer which meets the conditions prescribed in this law. If the application does not comply with the conditions prescribed in this law, no approval is granted. If, after approval is given, the application is found not to meet the conditions prescribed by this law, the approval shall be revoked. If shares have not been offered, the offer will not be carried out. If shares have already been offered, the subscribers may demand the promoters to refund their payments for shares with interests at the bank's deposit rate of the same term.

　　Article 87 The prospectus should have the articles of association attached and define the followings:

　　1. Number of shares subscribed to by promoters;

　　2. Par value and issue price of each share;

　　3. Total number of non-registered shares issued;

　　4. Rights and obligations of subscribers;

　　5. The time limit for the public offer and the notification that subscribers may revoke their subscription to share if the offer is under-subscribed at the close of the offer.

　　Article 88 The promoters shall publish prospectus and prepare application forms during public offers. In the application forms, the items listed in the preceding article should be set out and the subscribers shall fill in the number of shares subscribed to total amount of payment, address and sign or seal the forms. Subscribers shall make payment for the shares they have subscribed.

　　Article 89 Public offers of shares shall be underwritten by securities institution established according to law and an underwriting agreement shall be entered.

　　Article 90 In a public offer of shares the promoters shall enter into an agreement with the receiving banker.

　　The receiving banker shall receive and hold as agent the payments for shares according to the provisions of the agreement, produce receipts to subscribers who have made the payments and shall be obliged to produce evidence of receipt of payments to relevant departments.

　　Article 91 After full payments have been made to the share issued, an authorized investment verification organization mustverify the investments and issue investment verification certificate. The promoters shall convene a meeting for founding the company within 30 days. The meeting shall be attended by all share subscribers.

　　If the shares issued are not fully subscribed after the closing date as prescribed in the prospectus or the promoters fail to call the meeting for founding the company within 30 days, subscribers of shares may demand return of the payments for the shares, plus interests at the bank's rate for deposits of the same term.

　　Article 92 Promoters shall notify all the subscribers or make an announcement of the date of the establishment meeting 15 days before the meeting should be held. The meeting shall be held only if subscribers representing over half of the total shares are present. The establishment meeting shall exercise the following powers:

　　1. To examine the report on the preparation for the establishment of the company submitted by the promoters;

　　2. To adopt the articles of association;

　　3. To elect directors of the baord;

　　4. To elect the supervisory committee;

　　5. To examine the expenses on the establishment of the company;

　　6. To examine and verify the valuation of property which is used by the promoters as their payments for shares; and

　　7. To make a resolution of not setting up the company in the case of the occurrence of force majeure or substantial changes to operating conditions that will affect the establishment of the company.

　　A resolution on matters listed in the preceding paragraph requires the approval of the subscribers with half or more of the voting rights present at the meeting.

　　Article 93 Promoters and subscribers may not withdraw their share capital after making payments for shares they subscribed, or making their contribution of capital as payment for shares, except where the shares have not been fully subscribed within the offer period, the promoters fail to convene the establishment meeting within the period specified, or the establishment meeting has decided not to set up the company.

　　Article 94 The board of directors should apply for registration on the establishment of the company within 30 days of the conclusion of the establishment meeting together with the following documents:

　　1. Document of approval issued by the department in charge;

　　2. Mintues of the establishment meeting;

　　3. Articles of association of the company;

　　4. Auditor's report on the financial affairs concerning the preparations for the establishment of the company;

　　5. Investment verification certificate;

　　6. Names and addresses of the members of the board of directors and of the supervisory committee;

　　7. Name and address of the legal representative.

　　Article 95 Company registration department shall decide on whether to give approval to the registration within 30 days after the application is received. If all the conditions prescribed in this law are met, approval shall be granted and business license shall be issued; if the conditions prescribed in this law are not met, approval shall not be granted.

　　The date of the issue of the business license shall be the date of establishment of the company. After the company has been established, it should make a public announcement.

　　After the establishment of the company through public offer of shares, a report on the offer should be submitted to the securities administration of the State Council for the record.

　　Article 96 When a branch or branches to be set up at the same time of the establishment of the joint stock company limited, application shall be made for the registration of the branch or branches and business license(s) should be obtained.

　　If the branch(es) is set up after the establishment of the joint stock company limited, the legal representative of the company shall apply for the registration of the branch(es) and obtain business license(s).

　　Article 97 Promoters of a company shall have the following liabilities:

　　1. To be jointly liable for the debts and expenses arising from actions to establish the company if the company fails to be established;

　　2. To be jointly liable to refund payments of subscribers for the shares, plus interests at the bank's rate for deposits of the same term; and

　　3. To be liable to compensate the company for damage the company caused by negligence of promoters in the process of establishing the company.

　　Article 98 A limited liability company to be reorganized into a joint stock company limited should conform to the conditions as prescribed in this law and go through the procedures prescribed by this law.

　　Article 99 When a limited liability company has been approved to be reorganized into a joint stock company limited, the total shares converted should be equal to the value of the net assets of the former company. If a limited liability company needs to increase its capital through a public offer after it has been approved for converting into a joint stock company limited, provisions of their law converning public offers must be abided by.

　　Article 100 After being converted into a joint stock company limited according to law, the creditor's rights and indebtedness of the original limited liability company shall be assumed by the joint stock company limited converted into.

　　Article 101 A joint stock company limited shall safekeep in the company a copy of the articles of association, the list of shareholders, minutes of meetings of shareholders and financial and accounting statements.