CHINA Law and Practice Contributed by: Wei Chen, Yue Zhang, Hao Peng and Yi Sun, JunHe LLP
Listing Required In a stock-for-stock deal, the stock issued to the seller by the buyer as all or part of the considera- tion for the deal should be publicly tradeable at a stock exchange and the buyer therefore has to either be a public listed company or apply to a stock exchange to list its shares in its home country. 10.3 Producing Financial Statements If, as a result of the acquisition, a bidder will hold 20% or more of the shares of the target listed company, or the bidder will hold less than 20% (but more than 5%) of the shares but become the largest shareholder or the actual controller of the target listed company, the bidder is required to produce and file inter alia its financial state- ments for the last three years and the audited financial and accounting report for the latest fis- cal year (unless the bidder is already listed on a Chinese stock exchange) in its disclosure docu- ments in a cash or stock-for-stock transaction. The financial statements and reports should be prepared in accordance with the Chinese GAAP or the international GAAP. 10.4 Disclosure of Transaction Documents Copies of the transaction documents of an acqui- sition deal of a listed company are required to be filed with the CSRC and/or the stock exchange where the target company is listed. 11. Duties of Directors 11.1 Principal Directors’ Duties Under Chinese company law, the principal duties owed by directors to the company are: • a duty of loyalty; • a duty of diligence; and
the potential buyer may be restricted from full access to the user information during the due diligence process. 10. Disclosure 10.1 Making a Bid Public When a Bid is Required to be Disclosed Since it is generally believed that a bid may have relatively significant impact on the share price of the company, the bid is required to be disclosed to the public at the earliest of: • resolutions of the board of directors or board of supervisors adopted in respect of the bid; • a letter of intent (or other document of the similar nature) or definitive agreement signed by the parties to the potential deal; or • the bid becomes known to a director, supervi- sor or senior management of the company. How a Disclosure is Required to be Made The disclosure of the bid is required to cover the cause and current status of the contemplated deal, as well as its potential effects on the com- pany. The full text of the disclosure should be pub- lished on the website of the exchange where it is listed and the website of the newspaper quali- fied by the CSRC. An additional summary of the disclosure should also be published in a physical copy of the newspaper. 10.2 Prospectus Requirements Prospectus Required Among other situations, a prospectus for the issuance of shares in a stock-for-stock takeo- ver or part of a business combination has to be prepared and filed if the issuing would result in the buyer having more than 200 shareholders.
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