[Direct answer]In the Beijing area, approvals on a case-by-case basis are generally no longer required, but registration and reporting are still mandatory. With the reform of the foreign investment management system, China has implemented the pre-establishment national treatment plus negative list management system for foreign investment. The transfer of equity in a wholly foreign-owned enterprise (WFOE) constitutes a change in the equity of a foreign-invested enterprise. In areas outside the negative list, administrative approval is generally no longer required, and the management is instead carried out through enterprise change registration and foreign investment information reporting systems. If the transfer involves areas restricted or prohibited by the negative list, the relevant special management measures for market access must be complied with. In addition, if the company's articles of association or shareholders' agreements stipulate otherwise regarding the transfer of equity, the provisions of such agreements shall be followed. For special circumstances such as state-owned assets and foreign mergers and acquisitions, additional regulations may apply. Therefore, whether approval or filing is required should be determined based on whether the industry is included in the negative list, as well as the specific form of the equity change and the registration requirements.

I. Problem background and typical scenarios

The shareholders of foreign-funded enterprises plan to transfer equity, exit, or introduce new investors, but they are unsure whether they still need to report to the commerce department for approval as they did in the past, and they are worried that the transaction might be invalidated due to non-compliance with the procedures. With the reform of the foreign investment legal system, the management methods for the transfer of foreign-funded equity have undergone significant changes. Only by accurately grasping the current rules can the transaction proceed smoothly.

II. Key points of dispute

First, how has the approval and filing system for the transfer of foreign-invested equity evolved? Second, the scope of application of the negative list and special management measures. Third, the requirements for change registration and foreign investment information reporting. Fourth, the effectiveness of the equity transfer contract and its relationship with administrative approval.

III. Professional analysis by Henglue Law Firm

The first layer is institutional reform: The Foreign Investment Law establishes a pre-entry national treatment plus negative list management system, abolishes the case-by-case approval for the establishment and modification of foreign-invested enterprises in areas outside the negative list, and correspondingly changes the transfer of foreign-owned equity to registration and information reporting management. The second layer is the application of the negative list: Enterprises in areas subject to the negative list must comply with the requirements of special management measures for entry, and those in restricted areas must also meet corresponding conditions. They are not allowed to enter prohibited areas without authorization. The third layer is registration and reporting: Enterprises should apply to the market supervision and management department for equity transfer registration and submit foreign investment information through the enterprise registration system. Failure to submit the information on time may result in corresponding responsibilities. The fourth layer is contract effectiveness: Equity transfer contracts generally take effect upon their establishment, and parties should perform their obligations according to the agreement and complete the registration. Whether obtaining approval or filing records generally does not affect the effectiveness of the contract itself, but may affect the external validity of the equity transfer. Henglue advises that in practice, equity transfers often lead to subsequent disputes. Courts will focus on reviewing the effectiveness of the agreement, whether the investment obligations have been fulfilled, and whether there is a breach of contract. In installment transfer transactions, if the transferee transfers the equity to others before fulfilling the payment obligations, it may constitute an anticipated breach of contract, and the transferor has the right to claim that the remaining payments are due in advance. If the new company established after the transferee's investment has not been established and the contractual purpose has failed, the transferee may also request to rescind the agreement and return the investment. Therefore, it is necessary to clarify the equity structure, payment arrangements, and breach of contract liability clauses before the transaction.

IV. Practical suggestions and legal basis

The first step is to verify whether the industry in which the equity to be transferred is located is included in the negative list of foreign investment. The second step is to review the company's articles of association and shareholders' agreements regarding the procedures for equity transfer and the provisions on preemptive rights. The third step is to handle the registration of equity changes with the market supervision and management department and fulfill the obligation to report foreign investment information. The fourth step is to specify the payment of the purchase price, the delivery conditions, the liability for breach of contract, and the dispute resolution clauses in the transfer agreement. Main legal basis: - The Foreign Investment Law of the People's Republic of China (effective January 1, 2020) - The Implementing Regulations of the Foreign Investment Law of the People's Republic of China (effective January 1, 2020) - The Company Law of the People's Republic of China (amended in 2018) regarding equity transfer. - Specific application shall be subject to the currently effective provisions.

5. Henglu Law Firm's Reminder

There are three key points regarding the transfer of foreign-invested equity: generally, transactions outside the negative list will no longer be subject to case-by-case approval, but will instead be registered and reported; transactions within the negative list must meet the entry requirements; and the transfer agreement should clearly specify payment and liability for breach of contract. For transactions involving corporate commercial and equity transactions, they can be conducted through the following channels:Business and contract disputes in enterprisesFor services involving corporate governance and general legal matters, clients can combine them with other legal services to form a comprehensive solution.Intellectual property and corporate lawFor cases involving the recovery and enforcement of funds, you may refer to the following documents for reference:Creditor's rights and debts, and enforcementFor columns involving cross-border affairs, you can seek advice from us\nFinancial capital and cross-border transactions involving foreign entitiesTeam.

VI. Frequently Asked Questions

Q1: Does the transfer of foreign-invested equity require approval?

Generally, no administrative approval is required outside the negative list, and the procedures are changed to handling change registration and reporting foreign investment information. For the areas within the negative list, they must comply with the requirements of the corresponding special management measures for market access.

Q2: What should I do if an item is on the negative list?

For those fields included in the negative list, they shall comply with the special management measures for access; for those involving restricted categories, they must meet specific conditions; and for those involving prohibited categories, investment is not allowed. Otherwise, it may not be possible to complete the registration process or to assume corresponding responsibilities.

Q3: What procedures do I need to go through?

It mainly includes resolutions of the shareholders' meeting or the board of directors, agreements on the transfer of equity, changes in registration by the market supervision and management department, and the submission of foreign investment information through the enterprise registration system.

Q4: When does the contract come into effect?

The equity transfer contract generally takes effect upon its establishment, and the parties shall perform their obligations according to the agreement and complete the registration formalities. Generally, the approval or filing procedures will not affect the validity of the contract, but they may affect the external effectiveness of the equity transfer.

Q5: Is the priority stipulated in the articles of association binding?

If the company's articles of association and shareholder agreements stipulate otherwise regarding the equity transfer procedure and the preemptive right, the transferor shall first proceed in accordance with the agreed terms, and then complete the registration and reporting procedures in accordance with the law.

This article is written based on the common judicial interpretations in the Beijing area. If the case occurs in other regions, it is recommended to consult local lawyers to verify the regional differences.

If you are currently facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the relevant evidence materials, to avoid missing the statutory time limit. →Business and commercial legal services·Beijing Henglue Law Firm

Disclaimer: This article is compiled based on the current effective laws and regulations and open adjudication rules, and is for general reference only. It does not constitute a formal legal opinion on specific cases. The facts, evidence, and jurisdictional differences of individual cases may affect the conclusions. In case of disputes, please consult a practicing lawyer in time.