CHINA Law and Practice Contributed by: Wei Chen, Yue Zhang, Hao Peng and Yi Sun, JunHe LLP
Acceleration of State-Owned Capital M&A Given the central government’s stimulation, state-owned capital-related enterprises have been more active in the capital market. Influ- enced by mainstream directions and successful practices, central and state-owned enterprises engaged in M&A activities in their traditional sec- tors and strategic emerging industries more to optimise the layout of state-owned capital. 2. Establishing a New Company, Early-Stage Financing and Venture Capital Financing of a New Technology Company 2.1 Establishing a New Company New start-up companies are typically advised to incorporate in China. Entrepreneurs aiming for future overseas listings may be advised to incorporate or restructure into an offshore hold- ing company, primarily in the Cayman Islands. In recent years, it has become increasingly easy to establish new companies in China. The time required for company incorporation may vary depending on whether the tech company’s activities include production activities. • For the establishment of a R&D-focused tech company, registration can be completed in just a few days, provided that the company has a registered office, directors, supervisors, and management team in place. • For the establishment of a tech company with production activities, it may take several months or even longer to complete the site selection and company registration process. There is typically no requirement for initial paid- in capital for company incorporation unless the
company will be engaged in specific business activities. 2.2 Type of Entity It is often recommended that new start-up com- panies establish themselves as limited liability companies in China while a partnership is often recommended for setting up an investment fund or a holding vehicle. 2.3 Early-Stage Financing Start-up companies commonly receive early- stage financing from entrepreneurs and numer- ous venture capital firms. Where venture capital firms provide the funds, simplified investment agreements are typically utilised to outline the standard preferred rights granted to these firms. 2.4 Venture Capital Common sources of venture capital in China encompass funds of funds, affluent entrepre- neurs, government-sponsored funds, and major corporations. For geopolitical and other reasons, local venture capital firms have been more active than foreign venture capital firms in China. 2.5 Venture Capital Documentation There are well-developed standards for venture capital documentation in China. These stand- ards initially primarily focused on safeguarding the interests of investors. However, there is a growing trend among start-up companies to seek enhanced protection within venture capital documentation. 2.6 Change of Corporate Form or Migration Chinese regulations stipulate that only joint stock companies are permitted to publicly list in domestic markets. Start-up companies therefore seeking listings in Mainland China through an A-share listing or Hong Kong through a H-share
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