By Jennifer Jiang, Chief Attorney of Bilingual Lawyers (www.bilawyers.com)

The Provisional Regulations on Disclosure of Enterprise Information (the “Regulations”) were promulgated on August 7 and shall take effect on Oct. 1, 2014. The Regulations have been approved by the State Council, China's cabinet, and endorsed by Premier Li Keqiang.

1. Disclosure Obligations

To ensure transparency, the Regulations stipulate disclosure obligations of both enterprises and government departments.

1) Disclosure by Enterprises

The Regulations establish an enterprise's annual report disclosure and instant disclosure system, clarifying the time period of submitting the annual reports, disclosure carriers, and disclosure contents.

Annual Report Disclosure—an enterprise shall submit its annual reports to the Administrations for Industry and Commerce (the “AIC”s) and disclose such reports to the public between January 1 and June 30 each year. The annual reports shall contain the following information:
i. enterprise address, zip code, phone number, E-mail, etc.;
ii. enterprise exist status: open, close, liquidation, etc.;
iii. investment on business establishment and equity purchase;
iv. information of the shareholders or enterprise promoters of the limited liability company and joint stock company: subscribed capital, paid capital, subscription time and method of payment, etc. ;
v. information of shareholder change of limited liability company: share transfer, etc.;
vi. enterprise website, information of any online shop: name and address, etc.;
vii. enterprise staff number, total capital, total debts, external guarantees, shareholders’ equity, gross revenue, revenue of main businesses, total profits, net profits, total taxes. (The enterprise has right to decide whether to disclose the information of item vii to the public).

Instant Report Disclosure—An enterprise shall disclose to the public the following information within 20 working days from the information generation date:
i. information of the shareholders or enterprise promoters of the limited liability company and joint stock company: subscribed capital, paid capital, subscription time and method of payment, etc. ;
ii. information of shareholder change of limited liability company: share transfer, etc.;
iii. obtaining, change and extension of administrative approval;
iv. intellectual property pledge registration;
v. administrative penalty;
vi. others in accordance with the law.

2) Disclosure by Government Departments

The Administrations for Industry and Commerce—The AICs shall disclose to the public the following information generated during their performance of duties within 20 working days from the information generation date:
i. business registration and record filing;
ii. chattel mortgage registration;
iii. equity pledge registration;
iv. administrative penalty;
v. others in accordance with the law.

Other Government Departments—Other government departments shall disclose to the public the following information generated during their performance of duties (Remark: no time limit is stipulated):
i. grant, change and extension of administrative approval;
ii. administrative penalty;
iii. others in accordance with the law.

Enterprises and the AICs shall disclose information through Enterprise Credit Information Disclosure System, while other government departments can use the aforesaid system or other systems.

2. Violation Punishment:

1) Under any of the following circumstances, an enterprise shall be listed in an abnormal operation recording system (the “Abnormal System”) by the AICs at or above the county level and disclosed to the public through Enterprise Credit Information Disclosure System as a reminder; where the circumstances are severe, an enterprise shall be subject to administrative penalties by pertinent government departments; where the circumstances cause losses to others, an enterprise shall take liability for compensation; if the circumstances constitute a crime, an enterprise shall be subject to criminal liability.

i) Failure to disclose annual reports within the time period stipulated by the Regulations or failure to disclose pertinent enterprise information within the time period ordered by the AICs;
ii) Concealing facts or falsifying information.

If an enterprise fails to fulfill its disclosure obligations for three years, the AIC of the State Council or the AICs of provinces, autonomous regions, and municipalities directly under control of the Central Government shall list such enterprise in a severe violation recording system (the “Violation System”), and disclose such violation to the public through the Enterprise Credit Information Disclosure System. Legal representatives, persons in charge of the enterprise listed in the Violation System shall not act as legal representatives or persons in charge of other enterprises.

2) The People’s Government at or above the county level and pertinent government departments shall establish a credit restraint mechanism, and shall deem enterprise information as a key indicator in government procurements, constructions tenders, grant of state-owned land, and honor conferring, etc.. Enterprises listed in the Abnormal System or the Violation System shall be restricted or prohibited from the aforementioned.

3. Comments

1) Progress:
i. The transparency policy is a great step to build social credit system in China. Enterprise credit check will be a lot easier than before. The trial disclosure system shows that the equity structure can be easily tracked;
ii. The extent of disclosure is broad, including but not limited to basic registration information, guarantee information and administrative penalties. And the disclosure by enterprises and the AICs is required to be timely—within 20 working days from the information generation date.
iii. The involvement of government departments is broad. The leaders of disclosure are the People’s Governments of provinces, autonomous regions and municipalities directly under the central government.

2) Weakness:
i. Some terms of the disclosed information need further clarification. For example, the coverage of business registration and record filing is unclear. The trial disclosure system shows that some significant documents such as articles of association are not disclosed. When conducting due diligence, lawyers might still need to take practicing licenses to the AICs and make copies in person so as to ensure comprehensiveness.
ii. Time limits of disclosure by other government departments are not stipulated and other government departments are allowed to use different systems. A consolidated credit restrain mechanism will still have a long way to go.
iii. The violation punishment is not very severe and a grace period will be given for instant report disclosure. As a new regulation, the emphasis is on encouragement instead of punishment.

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