China Lawyers' Case Files: Stock Issuance and Listing (Second Edition)

Author: Wang Lihua, Editor-in-Chief
Publisher:
Publish Date: 2006-11-01
Features: This book combines practical cases, starting from the preliminary involvement and due diligence, to comprehensively and meticulously elaborate on the procedures, methods, steps of the first domestic A-share issuance and listing of listed companies, as well as the legal matters the lawyer should undertake. China Lawyers' Full Process Record of Stock Issuance and Listing was published in April 2004. On October 27, 2005, the 18th session of the Standing Committee of the 10th National People's Congress reviewed and passed the newly revised Company Law of the People's Republic of China (hereinafter referred to as "the Company Law") and the Securities Law of the People's Republic of China (hereinafter referred to as "the Securities Law"). The two laws took effect on January 1, 2006. The new laws further standardized the establishment of joint-stock companies and the systems of securities issuance and listing. Specifically, they are reflected in:
1. Revisions related to the Company Law:
(1) The establishment approval process for joint-stock companies has been abolished. The new Company Law deletes the provision in the original Company Law Article 77 regarding "the establishment of joint-stock companies must be approved by departments authorized by the State Council or provincial people's governments."
(2) The new Company Law has transferred the provisions on the conditions for share issuance and listing to the new Securities Law, and lowered the conditions for share issuance and listing. The Securities Law Article 13 stipulates the conditions for a company to publicly issue new shares:
① Possessing a sound and well-functioning organizational structure;
② Having sustainable profitability and sound financial condition;
③ The most recent three years' financial accounting documents contain no false records, and there are no other major illegal acts;
④ Other conditions stipulated by the State Council's securities regulatory authority as approved by the State Council.
Meanwhile, the Securities Law Article 50 stipulates the conditions for stock listing:
① The stock has been publicly issued and approved by the State Council's securities regulatory authority.
② The total share capital of the company is not less than 30 million RMB.
③ The publicly issued shares account for more than 25% of the total shares of the company; if the total share capital exceeds billion4 RMB, the proportion of publicly issued shares shall be more than 10%.
④ The company has no major illegal acts in the most recent three years, and its financial accounting reports contain no false records.
It can be seen that the conditions for company issuance and listing stipulated by the new Securities Law are far lower than those stipulated by the original Company Law.
(3) The revised Company Law has clearly defined the provisions on private placements. The new Company Law Article 78 stipulates that joint-stock companies may be established by raising funds from specific investors. At the same time, the new Company Law Article 127 modifies the principle of share issuance from the original "public, fair, and just" to "fair and just," removing the principle of publicity. It can be seen that the new Company Law allows non-public (private) share issuance.
2. Revisions related to the Securities Law:
(1) The concept of "public issuance" has been clearly defined. The Securities Law Article 10 explicitly stipulates three scenarios that constitute public issuance:
① Issuing securities to an indefinite number of investors;
② Issuing securities to specific investors cumulatively exceeding 200;
③ Other issuance behaviors stipulated by laws and administrative regulations.
(2) The Securities Law has established a sponsor system and management for the issuance of stocks and convertible bonds into stocks, requiring sponsors to uphold integrity, diligence, and responsibility.
(3) The Securities Law has improved the requirements and thresholds, as well as the statutory procedures, for companies to publicly issue new shares or bonds.
(4) The Securities Law has introduced a pre-disclosure system for public issuance prospectuses before the issuance of securities.
(5) The Securities Law has established an error-correction mechanism for securities that have not been issued or have been issued but not yet listed due to failing to meet legal conditions or procedures, and stipulated the legal liabilities of sponsors and issuers.
(6) The Securities Law has stipulated the limited conditions for the failure of securities issuance and the compensation liability of the issuer. The Securities Law Article 35 stipulates that stock issuance shall adopt a distribution method. If, by the end of the distribution period, the number of stocks sold to investors does not reach 70% of the planned publicly issued stock volume, the issuance is deemed a failure. The issuer shall refund the purchase price of the stocks to the subscribers, plus interest at the same rate as bank deposits.
To facilitate the implementation of the two laws, the China Securities Regulatory Commission (CSRC) has successively issued a series of related administrative regulations, such as the Measures for the First Public Issuance of Stocks and Listing and the Measures for Securities Issuance of Listed Companies, providing detailed supplementary provisions on the conditions and procedures for the first public issuance of stocks and the refinancing of listed companies.
Based on the revisions of the two laws and the series of new regulations recently issued by the CSRC, the editors have revised and republished this book.