Laws of the Guangdong Province

Regulations of Shenzhen Special Economic Zone on Venture Capital

 (Adopted at the Twenty-second Meeting of Standing Committee of the Third Shenzhen Municipal People' s Congress on February 21, 2003.)

Chapter I General Provisions

Article 1 In order to encourage and standard activities of venture capital, safeguard legal rights and interests of parties to venture capital, taking into account of the specific conditions of Shenzhen Special Economic Zone (hereinafter referred to as "Special Zone" ), these regulations are hereby formulated in accordance with basic principles of relevant laws of the state.

Article 2 These regulations shall be applicable to the establishment and activities of venture capital institutions and venture capital management institutions, and the supervision over those venture capital activities in the Special Zone.

Venture capital namely risk investment, herein it means those investment activities that mainly in purchasing stock right of non-listed technological venture capital enterprises and projects, and at the same time providing management services for them, with the purpose of seeking profits of capital increment.

Venture capital institutions herein referred to those civil subjects which being registered according to these regulations and undertaking full time venture capital activities with their own assets.

Venture capital management institutions herein referred to those civil subjects which being registered according to these regulations and entrusted by those venture capital institutions to manage their investment business and to provide management services for the enterprises invested by them.

Article 3 Individuals and enterprises established under the rules other than these regulations may undertake venture capital activities according to law. Their legal rights and interests shall be protected by law.

Article 4 The words "venture capital" , "risk investment" or "VC" may be used in the names of venture capital institutions and venture capital management institutions, while they shall not be used in the names of other institutions.

Article 5 The Municipal Technology Administrative Authority (hereinafter referred to as the "Municipal Technology Administrative Authority" ) shall fulfill the following obligations:

(1) Formulating relevant policies on encouragement and standardization venture capital and putting them into force after being approved by the Municipal Government;

(2) Formulating and promulgating Guidelines for Investing Venture Capital in Hi-tech Industries and Projects;

(3) Verifying and determining qualification of enjoying hortative and preferential policies for venture capital institutions; and

(4) Implementing direction and supervision over the activities of Venture Capital Association.

The Municipal Foreign Trade and Economic Cooperation Authority (hereinafter referred to as the "Municipal Foreign Trade and Economic Cooperation Authority" ) shall be in charge of examination and approval of those applications filed by overseas investors for the establishment of solely-owned or joint venture capital institutions or venture capital management institutions.

The Municipal Industrial and Commercial Authority (hereinafter referred to as the "Municipal Industrial and Commercial Authority" ) shall be in charge of the registration of and implement supervisions over venture capital institutions and venture capital management institutions.

Chapter II Establishment of Venture Capital Institutions

Section I Requirements for Establishment

Article 6 Venture capital institutions may be formed into companies of limited liability, joint-stock and limited partnership.

Article 7 To apply for establishment of venture capital institution shall meet the following requirements:

(1) The investors have sound credit record, and the director and the administrative officers to be appointed have pledged to obey relevant trade criterions;

(2) Their main business is venture capital;

(3) Having specific business blueprint or investment strategy;

(4) The amount of registered capital or capital subscription is no less than the minimum amount of capital required by these regulations;

(5) The investment management personnel equipped with specialty qualification for venture capital; and

(6) Other requirements as stipulated by laws and regulations.

Article 8 The registered capital shall not be less than RMB 50 million in case the venture capital institution is formed into a joint-stock company, while in the case of limited liability company, it shall not be less than RMB 30 million. In the case of limited partnership, the amount of capital subscription contributed by the limited partner shall not be less than 30 million.

Article 9 The requirements for overseas investors who apply for establishment of venture capital institution shall meet relevant rules of the state.

Article 10 In the case of establishing venture capital institution, the whole capital contributions shall be made in currency.

To apply for modification of main business so as to become venture capital institution, the enterprise shall abide by Article 8 of these regulations, while the total amount of capital in currency and net assets value of its stock rights in the technological venture capital enterprise at the time applying for modification shall not be less than 70% of the registered capital.

Section II Procedure for Establishment

Article 11 In the case that local investors apply for establishment of venture capital institution, the investors may directly apply for enterprises registration to the Municipal Industrial and Commercial Authority.

Article 12 In the case that overseas investors apply for establishment of solely-owned venture capital institution or joint venture capital institution, they shall apply for enterprises registration to the MICA with approval of the Municipal Foreign Trade and Economic Cooperation Authority in advance.

Article 13 In the case that sino-foreign contractual joint ventures, sino-foreign cooperative joint ventures or solely foreign-funded enterprises apply for modification of main business so as to become venture capital institutions, they shall be approved by the original examination and approval authority and be registered of the modifications; while other enterprise may directly register the modifications with the Municipal Industrial and Commercial Authority.

In the case of increasing or decreasing registered capital, joining new investor, transferring subscribed capital between the original investors or to new investor after establishment of a venture capital institution, such modifications shall be reported to original examination and approval authority for approval and registration of corresponding modifications.

Article 14 In the case of establishing venture capital institutions by local and overseas investors, the capital subscription may be contributed within 3 years from the date registering of the establishment, but the amount of capital subscription contributed before registering of the establishment shall not be less than 25% of the registered capital.

Chapter III Establishment of Venture capital Management Institutions

Section I Requirement for Establishment

Article 15 Venture capital institutions may be formed into company of limited liability, joint-stock etc..

Article 16 To apply for establishment of a venture capital management institution shall meet the following requirements:

(1) The investors have sound credit record, while the director and the administrative officers to be appointed have pledged to obey relevant trade criterions;

(2) Their main business is to manage investment business for venture capital institutions via trust;

(3) Having sound institution framework and management scheme, while their investment management personnel equipped with specialty qualification for venture capital;

 (4) The amount of registered capital or subscribed capital is no less than the minimum amount of capital required by these regulations; and

(5) Other requirements as stipulated by laws and regulations.

Article 17 To form venture capital institution into joint venture company, the company' s registered capital shall be no less than RMB 10 million, while the registered capital shall be no less than RMB 1 million in the case of establishing limited liability company.

Section II Procedure for Establishment

Article 18 In the case that local investors apply for establishment of venture capital management institution, the investors may directly apply for enterprises registration to the Municipal Industrial and Commercial Authority.

Article 19 In the case that overseas investors apply for establishment of solely-owned venture capital management institution or jointly venture capital management institution, they shall apply for enterprises registration to the Municipal Industrial and Commercial Authority with the approval of the Municipal Foreign Trade and Economic Cooperation Authority in advance.

Article 20 In the case of increasing or decreasing registered capital, joining new investor, transferring subscribed capital between the original investors or to new investor after establishment of a venture capital institution, such modifications shall be reported to original examination and approval authority for approval and registration of corresponding modifications.

Article 21 The investors of venture capital management institution shall contribute their whole declared capital before registration of the establishment.

Chapter IV Business Scope and Rules for Management

Section I Rules for Venture Capital Institutions

Article 22 A venture capital institution may carry out the following business:

(1) Investing in technological or other venture capital enterprises and projects;

(2) Providing management services for venture capital enterprises invested in by it; and

(3) Other business as allowed by laws and regulations.

Article 23 A venture capital institution shall not practice the following activities:

(1) Engaging in those financial business such as absorbing deposits, providing loans, settling accounts, discounting bills, splitting and lending funds, trust investing, finance leasing and trading of foreign exchange or futures, etc.;

(2) Engaging in the business which may lead unlimited liability to its assets;

(3) Purchasing listed stock, but it shall be otherwise in the case that the held stock of an enterprise to be listed and in the case of stock swap, stock allotment and sales, stock presentation, etc.; and

(4) Other business as prohibited by laws and regulations.

Article 24 The total amount of investment invested in an enterprise by a venture capital institution shall not exceed 20% of the registered capital of the institution without being adopted by investors representing at least two third of the voting rights.

Article 25 A venture capital institution may withdraw its investment through merging, stock rights repurchasing and stock listing, etc..

Article 26 A venture capital institution may retain professional personnel who equipped with specialty qualification for venture capital or trust venture capital management institutions to manage its investment business.

Article 27 A venture capital institution may trust commercial banks to be trustees of its venture capital.

The venture capital institution may trust the institution which approved by the Municipal Government to be trustee of its stock rights or stock of a venture capital enterprise.

Section II Rules for Venture Capital Management Institutions

Article 28 In the case that a venture capital institution trusts a venture capital management institution to manage its investment business, the two parties shall conclude a written contract of management by entrustment.

A contract of management by entrustment in generally includes the following clauses:

(1) The amount of venture capital for management by entrustment;

(2) The scope and restriction of investment and standard for selecting investment projects;

(3) Procedure for making investment decisions;

(4) The list of middle and higher management who will undertake the obligation of management of investment;

(5) The content of management services to be provided to the invested enterprises;

(6) Calculation and payment of costs for administration and reward for achievement;

(7) Term and termination of management by entrustment;

(8) Liabilities for breach of contract; and

(9) Manners for solution of disputes.

Article 29 The venture capital management institution carries out activities of risk investment in the name of the entrusting institution as agreed in the contract of management by entrustment.

Article 30 In the case that a trustee venture capital management institution carries out investment activities with capital of the entrusting institution, the trustee shall use its own capital, which shall not be less than 1% of the amount of actual investment, for synchronization investment, except otherwise agreed upon by the parties.

Synchronization investment shall abide by the principles of "buying and selling at the same time" and "same payment for same stock" .

Any venture capital management institution shall not carry out investment activities stipulated by Article 23 of these regulations and use its own capital to carry out investment activities other than synchronization investment.

Article 31 Before bringing forward advices for investment, a trustee venture capital management institution shall investigate the investment object prudently and completely disclose the investigation result to the entrusting institution.

In case that the venture capital management institution fails to disclose serious defect exists in the assets, debts or intellectual property right of the enterprise to be invested in due to willfulness or gross negligence, which results in investment loss to the entrusting institution, the trustee institution shall be liable for civil compensation according to law.

Article 32 In case that a trustee venture capital management institution and its employees have interest relationship with the object to be invested in, the institution shall completely disclose such interest relationship and accept inquiry at the time providing investment advices for the entrusting institution.

Article 33 A trustee venture capital management institution shall completely disclose information on the implementation of investment business to the entrusting institution in time and be liable for the authenticity, veracity and integrality of the information disclosed by it.

Article 34 A venture capital management institution may be trusted to manage investment business of several venture capital institutions. The trustee institution shall equally provide investment advices and disclose information for all the entrusting institutions, except otherwise agreed upon by relevant parties.

Article 35 A trustee venture capital management institution shall not embezzle entrusting venture capital or use the capital to provide a guaranty for itself or any third party, or deposit the capital into its own bank account.

Chapter V Encouragement and Preferential Policies

Article 36 The government shall encourage and support venture capital institutions to invest in those projects listed in the Guidelines for Investing Venture Capital in Hi-tech Industries and Projects, and provide policy direction and fund support according to need.

Article 37 The governmental subsidies for trial-produce of new technological products, midway experiments and important scientific research projects shall be used in priority to support such projects of venture capital enterprises.

Article 38 A venture capital institution may use all of its capital to carry out investment.

Article 39 In case the amount of investment in a project listed in the Guidelines for Investing Venture Capital in Hi-tech Industries and Projects invested by a venture capital institution has exceeded its registered capital or 70% of the total amount of its capital subscription, and thereinto the investment in the original enterprise is not less than 30% of the total amount of investment, such institution can enjoy preferential policy for hi-tech enterprises.

The accumulative total investment as described in the aforesaid paragraph shall include the investment which had been withdrew from the invested enterprise and encashed in the past five years before the date of calculation; the calculation of amount of investment of a venture capital institution shall base on the actual amount at the time of investing.

Article 40 A venture capital institution may set aside 5% of its gross income of the current year for risk subsidy fund to make up for the company's　losses　of　the　previous　year and current　year; The balance of the risk subsidy fund, which shall not exceed 10% of net assets value of the end of the current year, may be carried forward to next year.

Article 41 The proportion of capital subscription by a venture capital institution in an enterprise in hi-tech achievements shall not be limited, and the income distribution system that distributing on the basis of intellectual elements such as technology, share option and yearly pay scheme, etc. may be put into practice.

Chapter VI Supervision and Administration

Article 42 When implementing annual inspection over venture capital institutions or venture capital management institutions, the Municipal Industrial and Commercial Authority shall bring the information that whether the venture capital institutions or venture capital management institutions abide by relevant provisions of these regulations into the content for annual inspection, and report the result of the check or disposal result to the Municipal Technological Authority.

Article 43 In the case that the Municipal Industrial and Commercial Authority find the venture capital institutions or venture capital management institutions failing to conform with provisions of these regulations, the authority shall make the decision of disapproval of pass of annual inspection for those institutions.

Those venture capital institutions fail to pass the annual inspection shall be suspended of preferential policies arranged for them originally for one year, while in the same case those venture capital management institutions shall be suspended of being entrusted of new investment business for one year.

In the case that the Municipal Industrial and Commercial Authority find the venture capital institutions or venture capital management institutions failing to conform with provisions of these regulations for two continuous years, those institutions shall be ordered to modify their names according to the law, being prohibited to use the words "venture capital" , "risk investment" or "VC" in their names.

Article 44 Any one who uses the words "venture capital" , "risk investment" or "VC" in its name without authorization and undertakes investment activities or investment management activities, it shall be punished by the Municipal Industrial and Commercial Authority according to relevant rules.

Article 45 In case any venture capital institution or venture capital management institution in violation of these regulations, infringing upon the legal rights and interests of the investors and consigners, the parties infringed may complain to relevant government authority or directly bring a civil suit to the people' s court.

Chapter VII Venture Capital Association

Article 46 The Venture Capital Association is a self-disciplined trade organization for venture capital institutions and venture capital management institutions.

Any venture capital institution and venture capital management institution which established in the Special Zone shall join the Venture Capital Association.

Article 47 The Venture Capital Association shall fulfill the following obligations:

(1) Formulating common pledge for venture capital industry and other criterion of conduct, fulfilling obligations stipulated by the common pledge and supervising its members to fulfill the common pledge and other criterion of conduct;

(2) Carrying on information service, boosting business affiliation and cooperation, driving communication activities between local and overseas venture capital enterprises, and cultivating professionals for venture capital;

(3) Taking charge in the recognition and administration of specialty qualification of employees of venture capital institutions; and

(4) Undertaking relevant matters assigned by the government.

Chapter VIII Supplementary Provisions

Article 48 In case the venture capital institutions or venture capital management institutions registered before the implementation of these regulations fail to meet the requirements for establishment stipulated by these regulations, those institutions shall meet such requirements within one year from the date these regulations take effect.

Article 49 In case relevant provisions are absent in these regulations, other laws, regulations and rules shall be applicable.

Article 50 These regulations shall take effect as of April 1, 2003.