Licensing Integration Sequences for Value Added Telecommunications and Medical Devices
Connected medical device entry requires sequencing SAMR business scope, local cloud hosting, MLPS 2.0, NMPA product clearance, and MIIT VATS licensing.
Equity Joint Venture
Meaning
Investment vehicles established by a combination of foreign and domestic capital are governed by a specific set of rules regarding profit sharing and management control. The equity joint venture, or ejv, was originally created under specialized legislation that has now been unified under the PRC Foreign Investment Law. Profits and risks in this structure are distributed in strict proportion to the registered capital contributed by each partner.
Governance Structure
Decisions in an equity joint venture are traditionally made by a board of directors rather than a shareholders’ meeting, though this is changing under the new legal regime. The partners must agree on the appointment of the chairman and the general manager as part of the initial joint venture agreement. These internal governance rules must be aligned with the Company Law by the end of the transition period in 2024.
Profit Distribution
Dividends can only be paid out after the company has satisfied its tax obligations and allocated the mandatory percentage of after-tax profit to the reserve funds. The equity joint venture must maintain a statutory reserve and an employee bonus fund before distributing the remaining surplus to the investors. The law also mandates that the foreign partner can only remit its share of the profit after an annual audit has been completed and the tax bureau has confirmed the payment of withholding tax.
This ensures that the capital remains sufficient to cover the local liabilities of the venture.
Legislative Transition
Existing entities are currently undergoing a mandatory conversion of their corporate documents to match the unified standards for all limited liability companies. The equity joint venture must update its articles of association to reflect the new hierarchy of power between the shareholders and the board. Failure to complete this transition may prevent the entity from registering new projects or changing its business scope.
Registered Capital Commitments against the Five Year Injection Schedule
Foreign investors must inject subscribed capital within five years under PRC Company Law Article 47 or execute capital reductions to avoid statutory fines