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ADMINISTRATIVE MEASURES FOR THE INITIAL PUBLIC OFFERING AND LISTING OF STOCKS

Order of China Securities Regulatory Commission

No. 32

The Administrative Measures for the Initial Public Offering and Listing of Stocks adopted at the 180th president's meeting of China Securities Regulatory Commission (hereinafter referred to as the CSRC) on May 17, 2006, are hereby promulgated and shall enter into effect as of the day of May 18, 2006. President of the China Securities Regulatory Commission, Shang Fulin

May 17, 2006

Administrative Measures for the Initial Public Offering and Listing of Stocks Chapter I General Provisions

Article 1

In order to regulate the initial public offering (hereinafter referred to as the IPO) and listing of stocks and protect the legitimate rights and interest of investors as well as the social and public interests, the present Measures are formulated in accordance with the Securities Law and the Company Law.

Article 2

A stock IPO and listing within the territory of the People's Republic of China shall be governed by the present Measures.

If a domestic company purchases or trades stocks in foreign currency, it shall not be under the control of the present Measures.

Article 3

A stock IPO and listing shall meet the requirements for issuance as prescribed by the Securities Law, the Company Law as well as the present Measures.

Article 4

The information as disclosed by an issuer in accordance with law shall be authentic, accurate and integrate, and shall not carry any false record, misleading statement or major omission.

Article 5

In accordance with the principles of due diligence and accountability as well as honesty and good faith, a recommender as well as the representative of recommendation thereof shall earnestly perform its obligation of scrutinized examination and tutorship, and shall be responsible for the authenticity, accuracy and integrity of the Recommendation Letters of Issuance it has provided.

Article 6

In accordance with the widely-accepted business standards as well as the moral criterion within the sector, the securities trading service institutions and personnel that produce the relevant documents for securities issuance shall strictly perform their statutory functions and duties and shall be responsible for the authenticity, accuracy and integrity of the documents they have provided.

Article 7

The CSRC shall implement verification on the stock IPO as made by an issuer and shall not make any material judgment or guaranty on the value of stock investment or on the proceeds as generated by investors. After a stock is issued in accordance with law, an investment risk as incurred from any change of the issuer's business or proceeds shall be borne by the relevant investors themselves.

Chapter II Requirements for Issuance

Section I Qualification for Issuers

Article 8

An issuer shall be a joint stock limited company, which has been established according to the law and lawfully exists.

When a limited company is altered into a joint stock limited company in accordance with law, upon the approval of the State Council, stock issuance may be adopted for the establishment by way of public offering.

Article 9

Since a joint stock limited company is established, its business operations shall last for 3 years or more, unless it is so approved by the State Council.

If a limited company is altered into a joint stock limited company by converting the entirety of its original net book value of assets, the term for its business operations may be calculated as of the day when the limited company is established.

Article 10

If an issuer's registered capital has been fully paid in and the formalities for transferring the property right of the assets that the issuer or its shareholders apply as contributions have been concluded, the issuer's major assets does not have the heavy dispute on title.

Article 11

The business operation of an issuer shall conform to the relevant provisions of the laws, administrative regulations as well as company constitution, and meet the relevant industrial policies of the state.

Article 12

Within the latest 3 years, there is no major change regarding an issuer's main business, directors and senior managers, and there is no alteration of the actual controller thereof.

Article 13

Where an issuer's equity is well-defined, it does not have the heavy dispute on title of the issuer's shares as held by its controlling shareholders, or by the shareholders under the control of its controlling shareholders or the actual controller.

Section II Independency

Article 14

An issuer shall have a complete set of operation system and can independently manage market-based business operations directly.

Article 15

An issuer's assets shall be integrated. A production enterprise shall be equipped with the relevant production system, auxiliary production system as well as supporting facilities corresponding to its business operations, have the right to own or use the land, workshop and machines and facilities relating to its business operations as well as the ownership or use right to its trademarks, patent technologies and know-how, and have an independent purchase system of raw materials and sales system of products. A non-production enterprise shall be equipped with a set of operation system as well as the relevant assets relating to its business operations.

Article 16

An issuer shall have personnel independence. Senior managers such as the general manager, deputy-manager, financial principal and secretary of the board of directors shall not hold any post other than director or supervisor in, or take any salary from the enterprise of its controlling shareholders, actual controllers or any other enterprise under its control. The financial staff of an issuer shall not hold any part-time post in the enterprise of its controlling shareholder, actual controller or any other enterprise under its control.

Article 17

An issuer shall enjoy financial independence. An independent financial verification system shall be established, independent decisions shall be made on financial and a standardized financial accounting system shall be formulated as well as financial management on its branches and subsidiary companies. An issuer shall not share a bank account with its controlling shareholder, actual controller or any other enterprise under its control.

Article 18

An issuer shall enjoy organizational independence. An internal operating and management system shall be established and improved, its power of business operation and management shall be used independently, and shall not have any organization mixed up with its controlling shareholder, actual controller or any other enterprise under its control.

Article 19

An issuer shall enjoy business independence. Its business operations shall be implemented independently from its controlling shareholder, actual controller or any other enterprises under its control, and no intra-trade competition or obviously unfair associated transactions shall occur with its controlling shareholder, actual controller or any other enterprise under its control.

Article 20

An issuer shall not have any other severe defect in its independency.

Section III Standardized Operation

Article 21

The systems of shareholders' assembly, board of directors, board of supervisors, independent directors, and a secretary system for the board of directors shall be established and improved according to law. The relevant organizations and personnel shall be capable of performing their functions and duties in accordance with law.

Article 22

The directors, supervisors and senior managers of an issuer shall have good knowledge of the relevant laws and regulations on the stock IPO and listing as well as the statutory obligations and duties of a listed company and the directors, supervisors and senior managers thereof.

Article 23

The directors, supervisors and senior managers of an issuer shall meet the qualification requirements for holding their positions prescribed by laws, administrative regulations and rules, and shall not be under any of the circumstances as follows:

(1)

They have been banned from entering into the market by the CSRC and the ban is still valid;

(2)

They have been given an administrative punishment by the CSRC within the latest 36 months or have been given a public reprimand by a stock exchange within the latest 12 months; and

(3)

They are subject to a case investigation of the judicial organ for its involvement in a suspected crime or suspected violation of any law or regulation, and yet there is no clear conclusion;

Article 24

Internal control systems of the issuer shall be perfect and be implemented effectively, and shall ensure the reliability of its financial statements, legality of its business operations, and efficiency and efficacy of its business performances in reason.

Article 25

An issuer shall not be under any of the circumstances as follows:

(1)

Having publicly offered any securities unlawfully or in disguise without obtaining an approval from the statutory organ within the latest 36 months; or having any law-breaking act that started 36 months ago but lasts till now;

(2)

An administrative punishment has been given for its violation of any provision on industry and commerce, taxation, land, environmental protection or customs, or any other law or administrative regulation, with serious circumstances;

(3)

Within the latest 36 months, having submitted an application to the CSRC but the submitted application materials having false record, misleading statement or major omission; or failing to comply with the requirements for issuance and thus cheating for an approval by any fraudulent means; or disturbing the examination as conducted by the CSRC or the Issuance and Verification Committee thereof or fabricating or altering the seal or signature of an issuer or any director, supervisor or senior manager thereof;

(4)

Its application materials submitted for issuance this time having any false record, misleading statement or major omission;

(5)

It is investigated by the judicial organ for its involvement in a suspected crime without explicit conclusion; or

(6)

Other circumstances under which the legitimate rights and interests of investors or social and public interests are seriously injured.

Article 26

An issuer's constitution shall clarify the authority of examination and approval of its external guaranty as well as the relevant procedures for deliberation thereabout. There shall be no rule-breaking guaranty as provided for its controlling shareholder, actual controller or any other enterprise under its control.

Article 27

An issuer shall have strict rules for capital management and shall not be under any circumstance where its capital is embezzled by any controlling shareholder, actual controller or any other enterprise under its control by loaning, compensatory repayment, advance payment or any other way.

Sector IV Finance and Accounting

Article 28

An issuer shall have a sound asset quality, reasonable structure of assets and liabilities, comparatively strong profit-making capacity and normal cash flows.

Article 29

The internal control of the issuer shall be effective in all substantial aspects, for which an authentication report on internal control shall be produced by an accounting firm, carrying an unreserved conclusion thereon.

Article 30

The accounting rules of the issuer shall be standardized. The formulation of its financial statements shall satisfy the provisions on enterprise accounting standards as well as the relevant accounting rules, which shall reflect its financial status, business achievements and cash flows thereof at arm's length in all substantial aspects. An auditing report shall be provided by a certified public accountant giving an unreserved conclusion thereon.

Article 31

The financial statements of the issuer shall be formulated based on the transactions and issues that have actually occurred and its accounting recognition, measurement or reporting shall be prudent, and a uniform accounting policy for a same or identical business operation shall be applied, which shall not be altered at random.

Article 32

An issuer shall fully disclose its relationship with associated parties and shall disclose their associated transactions in accordance with the principles of importance. The prices in associated transactions shall be at arm's length and there shall be no manipulation of profits through associated transactions.

Article 33

An issuer shall meet the requirements as follows:

(1)

Having a positive net profit of over 30 million Yuan accumulatively within the latest 3 accounting years, which are computed in the light of the comparatively low net profits upon deduction of non-regular profits/losses;

(2)

Having a net cash flow of over 50 million Yuan accumulatively, or having a business income of over 0.3 billion Yuan accumulatively within the latest 3 accounting years;

(3)

The total amount of stock capital is no less than 30 million Yuan before issuance;

(4)

The proportion of its intangible assets (upon deduction of its land use right, right to aquatic breeding and right to mining) in its net assets at the end of the latest period shall be not higher than 20 %; and

(5)

No uncovered deficit in the latest period.

Article 34

An issuer shall pay taxes in accordance with law, and all tax preferences shall comply with the provisions of the relevant laws and regulations. An issuer's business achievements shall not seriously depend on tax preferences.

Article 35

An issuer shall have no major debt-paying risk or shall not be involved with any major contingent issue such as guaranty, litigation and arbitration that may negatively affect its business operations.

Article 36

An issuer's documents on application shall not be under the circumstances as follows:

(1)

Omitting or making up, purposely, any transaction, item or any other important information;

(2)

Abusing any accounting policy or accounting estimate; or

(3)

Manipulating, fabricating or tampering the relevant accounting records or credence that form the basis of financial statements.

Article 37

An issuer shall not be under any of the circumstances as follows where its capability of making profits continuously is negatively affected:

(1)

Its operational mode or variety structure of products and services has been or will be greatly changed, thereby inflicting a major negative impact on its capability of making profits continuously;

(2)

Its industrial status or business environment has or will greatly change, thereby inflicting a major negative impact on its capability of making profits continuously;

(3)

Its business income or net profit largely depends on its associated party or on any client with great uncertainty within the latest accounting year;

(4)

Its net profit mainly comes from the proceeds as generated from investment beyond the range of consolidated financial statements within the latest accounting year;

(5)

It exists serious risks of negative change in obtaining or utilizing such important assets and technologies as trademark, patent, exclusive technologies and franchise; or

(6)

Other circumstance where its capability of making profits continuously is negatively affected.

Section IV Utilization of Raised Funds

Article 38

The raised funds shall be utilized for specified purposes and shall be used in its main business operations in principle.

Except for financial enterprises, no raised fund may be utilized in such financial investments as the holding of transactional financial assets or salable financial assets, loaning to others and entrusted financial management or be directly or indirectly invested in any company that mainly engages in the purchase and sale of securities.

Article 39

The amount of raised funds and investment projects shall be matched up to an issuer's present business scale, financial status, technical level and management capability.

Article 40

The investment projects of raised funds shall meet the relevant state industrial policies, investment management, environmental protection, land administration as well as the provisions of other relevant laws, regulations and rules.

Article 41

The board of directors of an issuer shall implement an earnest analysis on the feasibility of a project as invested by raised funds so as to ensure that the investment project may have a better market perspective and profit-making capability, to effectively prevent any investment risk and to elevate the benefits as generated from the use of the raised funds.

Article 42

Where an investment project of raised funds is implemented, it shall not incur any intra-trade competition or have any negative impact on the issuer's independency.

Article 43

A special reserve system for raised funds, which shall be deposited in a special account as decided by the board of directors, shall be established.

Chapter III Procedures for Issuance

Article 44

A resolution shall be made by the board of directors of an issuer on the specific plans of stock issuance, on the feasibility regarding the utilization of the raised funds as well as on any other item that shall be clarified, and shall submit them to the shareholders' assembly for approval.

Article 45

A resolution made by the shareholders' assembly of an issuer shall at least include the items as follows:

(1)

Kinds and quantity of the stocks as publicly offered;

(2)

Issuance targets;

(3)

The scope of price or method of pricing;

(4)

The purposes of utilization of raised funds;

(5)

A distribution plan of the accumulation profits before issuance;

(6)

The effective term of the resolution;

(7)

Authorization of specific matters in the issuance by the board of directors; and

(8)

Other matters that require clarification.

Article 46

An issuer shall formulate its documents of application, which shall be recommended and reported to the CSRC by its recommender in accordance with the relevant provisions of the CSRC.

An issuer of special industry shall provide the opinions of the relevant administrative department.

Article 47

The CSRC shall make a decision on whether to accept it within 5 workdays after receiving any application material.

Article 48

The relevant functionary department thereof shall implement a preliminary examination thereon and the Issuance and Verification Committee shall implement an examination thereon as well after the CSRC accepts any application document as reported by an issuer.

Article 49

During it carries out a preliminary examination, the CSRC shall inquire the opinions of the provincial people's government where the relevant issuer is registered about whether the government agrees to the stock issuance or not, and shall inquire the opinions of the National Development and Reform Commission about whether the investment project of raised funds meets the state industrial policies and the relevant provisions on investment management.

Article 50

In accordance with the statutory requirements, the CSRC shall decide whether to approve an issuer's application for issuance and produce the relevant documents as well.

The relevant issuer shall make the stock IPO within 6 months since the day when the CSRC approves an issuance. If it fails to do so within 6 months, the relevant approval document shall be deemed as invalid and therefore it shall reapply for the CSRC's approval before any IPO is conducted.

Article 51

After an application for issuance is approved and before the stock issuance is concluded, if the major event occurs to the relevant issuer, it shall suspend the stock issuance, report the situation to the CSRC in time and also perform its obligation of information disclosure. If the requirement for issuance is thus affected, the procedures for verification shall be gone through again.

Article 52

If it is not disapproved for stock issuance, an issuer may submit again an application for stock issuance within 6 months after the CSRC makes a decision on disapproval.

Chapter IV Information Disclosure

Article 53

An issuer shall formulate and disclose a prospectus in accordance with the relevant provisions of the CSRC.

Article 54

The Rules of the Contents and Format of Prospectuses shall be the minimum requirements for information disclosure. Whether there is any explicit provision in the aforesaid Rules, the information that may have the major impact on the investors' decisions on investment shall be disclosed.

Article 55

An issuer as well as all the directors, supervisors and senior managers thereof shall affix its seal and their signatures to its prospectus so as to ensure the authenticity, accuracy and integrity of the contents thereof. The relevant recommender as well as the representative of recommendation thereof shall implement an examination on the authenticity, accuracy and integrity of the prospectus and shall affix its seal and his signature to the opinions about examination.

Article 56

The financial statements as cited in a prospectus shall be effective within 6 months upon expiration of the latest accounting term. Under the special circumstance, an issuer may apply for proper extension, which shall not exceed 1 month at most. The day of expiration for financial statements shall be based on the end of a year, 6-month or a quarter.

Article 57

The effective term for a prospectus shall be 6 months, which shall be computed as of the last day of signature when the CSRS approves an application for issuance.

Article 58

After an application document is accepted and before the Issuance and Verification Committee implements an examination, an issuer shall disclose its prospectus (application version) on the CSRC's website (www.csrc.gov.cn) in advance. An issuer may publicize its prospectus (application version) on its enterprise website, on which the disclosed contents shall be identical to those as disclosed on the CSRC's website and the time of disclosure shall not be earlier than that on the CSRC's website.

Article 59

An issuer as well as all the directors, supervisors and senior managers thereof shall ensure its prospectus (application version) is authentic, accurate and full as disclosed in advance.

Article 60

A prospectus (application version) as disclosed by an issuer in advance is not an official document for stock issuance, which shall not include any information on price. The relevant issuer shall not take it as a basis for stock issuance.

An issuer shall announce in an eye-catching position of its prospectus (application version) as disclosed in advance: "The application for this issuance has not been granted by the CSRC. This Prospectus (application version) shall not be applied as a legal ground for stock issuance and is merely used for advance disclosure. The relevant investors shall make their investment decisions in the light of the full text of the Prospectus as officially announced."

Article 61

Before making any stock issuance, an issuer shall publicize an extract of its prospectus on at least one of the newspapers or periodicals as designated by the CSRC, at the same time, publicize the full text of its prospectus on the websites as designated by the CSRC, and posted the full text of its prospectus in its domicile, the stock exchange for its stock IPO, domiciles of its recommender, major underwriter as well as other underwriting institution for public reference.

Article 62

A Recommendation Letter of Issuance provided by a recommender and the relevant documents provided by a securities trading service institution shall be considered as reference to the relevant prospectus, which shall be disclosed on the websites as designated by the CSRC and be posted in the relevant issuer's domicile, the stock exchange for stock IPO, as well as the domiciles of the relevant recommender, major underwriter and any other underwriting institution for public reference.

Article 63

An issuer may publicize an abstract and the full text of its prospectus as well as the relevant documents of reference on any other newspaper or website, on which the disclosed contents shall be identical to those as disclosed on the CSRC's website and the time of disclosure shall not be earlier than that on the CSRC's website.

Chapter V Supervision and Punishments

Article 64

If the document of application sent by an issuer to the CSRC carries any false record, misleading statement or major omission, where an issuer fails to meet the relevant requirements and thus obtains an approval by any fraudulent means, where an issuer disturbs the examination as conducted by the CSRC or the Issuance and Verification Committee thereof by any unjustifiable means, or where any seal or signature as affixed by an issuer or any of its directors, supervisors or senior managers is fabricated or altered, the CSRC shall, in addition to giving a punishment according to the relevant provisions of the Securities Law, adopt the supervisory measures for terminating the relevant examination and refusing to accept the application of the said issuer for stock issuance within 36 months.

Article 65

If the Recommendation Letter of Issuance provided by a recommender carries any false record, misleading statement or major omission, where a recommender interfere with the examination as conducted by the CSRC or the Issuance and Verification Committee thereof by any unjustifiable means, where any seal or signature as affixed by an recommender or any person in charge of signing is fabricated or tampered or where a recommender fails to perform its other statutory functions and duties, it shall be handled according to the relevant provisions of the Securities Law and the recommendation system.

Article 66

If a securities trading service institution fails to fulfill its due diligence obligations or if any document it has provided carries any false record, misleading statement or major omission, the CSRC shall, in addition to giving a punishment according to the relevant provisions of the Securities Law as well as the related laws, administrative regulations and rules, adopt the supervisory measures of refusing to accept the special documents of securities issuance as produced by the relevant institutions within 12 months and refusing to accept the special documents of securities issuance as produced by the relevant signatory persons.

Article 67

If the documents as formulated or provided by an issuer, recommender or securities trading service institution fails to meet the relevant requirements, or where any issuer, recommender or securities trading service institution unlawfully alters any documents as submitted or refuses to reply to the relevant questions as raised by the CSRC in the process of examination, the CSRC shall, according to the circumstances, adopt such supervisory measures as a supervisory interview and an order of correction, record the case into the archives of creditworthiness and publicize it. In the case of any particularly serious circumstances, a warning shall be given.

Article 68

If an issuer discloses any profit estimation and if the realized profit fails to reach 80% of the estimation, except for the case of force majeure, the legal representative thereof as well as the certified accountant that has affixed his signature onto the report on verification of profit estimation shall give an explanation and make a public apology on the relevant journals as designated by the CSRC. The CSRC may give a warning to the legal representative thereof.

Where the realized profit fails to reach 80% of the estimation, except for the case of force majeure, the CSRC shall not accept any application of the relevant issuer for securities issuance within 36 months.

Chapter VI Supplementary Provisions

Article 69

The administration measures of stock IPO without listing shall be separately provided for by the CSRC within the territory of the People's Republic of China.

Article 70

The present Measures shall enter into force as of the day of May 18, 2006. The Circular on Several Provisions on Stock Issuance (Zheng Jian [1996] No. 12 ), Circular on Doing a Good Job in 1997 Stock Issuance (Zheng Jian [1997] No. 13 ), Supplementary Circular on Several Issues regarding Stock Issuance (Zheng Jian [1998] No. 8 ), Circular on the Investigation into the Stock Reform of Those Enterprises to Be Listed (Zheng Jian Fa Zi [1998] No. 259 ), Circular on the Investigation into the Stock Reform of the Enterprises that Plan to Make Stock IPO (Zheng Jian Fa [1999] No. 4 ), Circular on the Employment of Auditing Institutions by Those Enterprises that Plan to Make Stock IPO (Zheng Jian Fa Xing Zi [2000] No. 131 ) and Circular on Further Regulating the Stock IPO (Zheng Jian Fa Xing Zi [2003] No. 116 ) shall be simultaneously abolished.

  China Securities Regulatory Commission 2006-05-17  


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