Q1: What kinds of companies are applicable for the capital injection by shares?

A1: “Capital injection by shares” means the domestic or foreign investor (hereinafter referred as “the Capital Payer”) uses their equity to invest in the domestic company (hereinafter referred as “the Equity Company”).

Generally, there are three methods.

(1) By the method of establishment a new WOFE;

(2) By the method of capital increasing and make the non-WOFE become the WOFE;

(3) By the method of capital increasing and change the equity for the WOFE;

Q2: What kinds of equity cannot be used for capital injection?

A2: (1) the registered capital of the Equity Company is not fully paid up;

(2) The equity has been put the mortgage;

(3) The equity was frozen by the court;

(4) It is agreed in the AOA or Agreement that the equity cannot be transferred;

(5) The equity in the real estate Company, foreign investment company or foreign invested venture company;

Dongjin Comments:

1. It is approved in only Shanghai Pudong New Area that the native individual can set up the Joint Venture with the foreign partners. As a result, if the native individual holds the share of the domestic company, the invested company can be only registered in Pudong New Area.
2. If it is invested by the method of capital increasing and make the non-WOFE become the WOFE, it should be deemed as acquisition. As a result, it should be also applicable for Provisions on the Merger and Acquisition of Domestic Enterprises by Foreign Investors.
3. If the domestic investor uses its shares in the WOFE to invest in a domestic company, it should also applicable for Interim Provisions of the Ministry of Commerce on Equity Contribution of Foreign-invested Enterprises (Revised in 2015).