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Equity Acquisition (M&A of Domestic Enterprise by Foreign Investors)
Information provider:zanya consultants    Updated:2016/10/25    Website:www.companyformation86.com

Definitions of Equity Acquisition


An Equity Acquisition is defined as the acquisition by foreign investors of equity interest in a PRC domestic company, or the subscription by foreign investors of new equity in a PRC domestic company, resulting in the conversion of such PRC domestic company to a FIE.


Foreign Investors Merge Domestic Companies Using Equity to Pay

1.Conditions for Equity Merger

(A)  The expression of "merger of domestic company by a foreign investor using its equity to pay" shall refer to that the shareholder of a overseas company, using its equity in the overseas company or using its increased shares of the overseas company to pay, purchases the shareholders' equity in a domestic company or purchases the increased shares of a domestic company.

(B)   The overseas company shall be legally established and its registration place shall have a sound legal system on company administration, and the company and its management shall have not been punished by relevant regulatory authority in recent three (3) years. Except a special purpose vehicle (or SPV), the oversea company shall be a public listed company, and the listing place shall have a sound management system on securities exchange.

(C)  When a foreign investor merges a domestic company by equity merger, the equity of the domestic and overseas companies involved in the merger shall satisfy the following conditions:

1)  the equity is lawfully held by shareholders and may be assigned according to law;
2)  the equity is free from any dispute over ownership, any pledge or any other property encumbrance;
3)  the equity of the overseas company shall be listed on an overseas open and lawful securities exchange market (excluding any over-the-market counter exchange) for transaction;
4)  the transaction price of the overseas company's equity is stable in the latest one (1) year.
The preceding Item 3) and Item 4) are not applicable to the a special purpose vehicle (or SPV).


2. Merger Consultant


The PRC domestic company and its shareholders have to engage a PRC registered consultant (M&A Consultant), who will be required to conduct due diligence on the documents evidencing the fulfilment of the conditions listed in sub-clauses (B)nd (C)above, and to produce a report.

3.The Merger Consultant shall satisfy the following conditions:

(A)  to be with good credit standing and experiences in relevant industries;

(B)  to be without record of serious violation of law or regulation;

(C)  to be with the ability to investigate and analyze the legal system in the registration and listing place of the overseas company as well as the financial status of the overseas company.

4. Application Documents

When a foreign investor merges a domestic company by equity merger, it shall submit an application to the Ministry of Commerce (MOFCOM), and the domestic company shall also submit the following documents.


(A)  the statement on alteration in equity and material assets of the domestic company in the latest one year;

(B)  the merger consultant's report;

(C)  the certificate of incorporation or the identity certificate of the domestic company, overseas company involved in the merger and the shareholders of these companies;the credit certificate of the investor notarized and attested according to law

(D)  the statement on shareholding status of the shareholders of the overseas company and the name list of shareholders who hold more than 5% equityof the overseas company;

(E)  the articles of association of the overseas company and statement on external guarantee provided by the overseas company;

(F)  the audited financial statements of the overseas company in recent years and the statement on stock transaction in the latest half a year.

(G) the resolution of the shareholders of the merged domestic limited liability company on unanimous consent of the foreign investor's equity merger, or resolution of the shareholders' meeting of the merged domestic stock limited company on consent of the foreign investor's equity merger;

(H)  the application for the merged domestic company to be modified in accordance with the law into and be established as a foreign investment enterprise;

(I)  the contract and articles of association of the foreign investment enterprise established after the merger;

(J)  the agreement on the foreign investor's purchase of the shareholders' equity of the domestic company or on the subscription of the domestic company to increase capital;

(K)  the financial auditing report of the merged domestic company in the previous accounting year;

(L)  the statement on the enterprises invested by the merged domestic company;

(M)  the business licenses (duplicates) of the merged domestic company and of the enterprises it invests in;

(N)  the plan for re-settlement of the merged domestic company's employees;

5. Application Procedures

MOFCOM shall make an examination on the merger application within thirty days as of the receipt of all application documents as required, and if the application can satisfy the conditions, it shall issue a certificate therefore and indicate the following words on the certificate "a foreign investor merges a domestic company by equity merger, which is valid within six months as of the issuance of the business license". if all the registration formalities for the change of shareholding in the foreign company and the PRC domestic company are not completed within the six -month period from the date of issuance of the new business licence, then the above-mentioned Certificate of Approval approving the M&A transaction and the Certificate of Approval approving the Making of an Overseas Investment by a PRC Company will automatically lapse.


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