| A joint stock limited company (JSC) is defined as a company jointly established by foreign companies, enterprises or other economic organizations or individuals and those within the PRC’s territory, on the principle of equality and mutual benefit. Each shareholder contributes the same amount of registered capital and is liable towards the company to the extent of its share of the registered capital. The company is liable to its debts to the extent of all of its assets.
The Chinese and foreign shareholders jointly own the stock of the company. The stock purchased and owned by the foreign investor must be not less than 25 per cent of the registered capital. A JSC is subject to the Chinese laws and regulations governing foreign investment enterprises.
The highest body of authority in a JSC consists of the shareholders in general meeting. While management decisions are vested with the board of directors, major decisions – such as amendments to the articles of association, increases or reductions of capital, merger, division or dissolution of the company or a change in its format – must be approved by the shareholders. The directors are elected and may be removed by the shareholders. A JSC is generally required to establish a supervisory board. After obtaining the requisite approvals, it may be permitted to list its securities on a Chinese or a foreign stock exchange.
The advantage of a JSC is that it closely resembles a foreign company, and is therefore a type of entity with which foreign investors are familiar. A JSC also offers the ability to raise funds directly on the open market and to obtain financing through offerings of convertible bonds and other debt instruments, which are methods not available to other types of Chinese entity. However, foreign participation in entities of this type has been limited, due to more complex procedures for their establishment and restrictions on transfer of the founders’ shares. |