[Direct answer]The criminal risk review is clear and necessary for companies planning to raise funds and go public. According to Article 12 of the Securities Law, companies issuing new shares for the first time must meet the condition that the issuer and its controlling shareholders and actual controllers have not committed criminal offenses such as embezzlement, bribery, and misappropriation of property in the past three years. Once major criminal risks are exposed, it will directly lead to the rejection of the review or even constitute the crime of fraudulent issuance of securities. The criminal risk review can identify illegal points of the actual controllers, directors, supervisors, and senior managers, and core businesses in advance, rectify the problematic aspects in advance, and substantially reduce the risk of failed listing and criminal accountability. It is recommended to entrust professional lawyers to conduct a compliance review before going public. For more details, please refer to the following link:Financial capital legal services、Corporate commercial legal services.

I. Legal basis and interpretation of provisions

1. Article 12 of the Securities Law of the People's Republic of China (effective March 1, 2020)

The article stipulates the conditions that companies must meet when issuing new shares for the first time in a public offering. It specifies that the issuer's financial accounting reports for the past three years must be issued without any reservations, and that the issuer, its controlling shareholders, and actual controllers must not have committed criminal offenses such as embezzlement, bribery, misappropriation of property, misuse of funds, or disruption of the socialist market economic order in the past three years. This is a mandatory threshold for criminal records in listing reviews and is also the primary benchmark for risk assessments.

2. Article 160 of the Criminal Law of the People's Republic of China (amended and implemented on March 1, 2021)

This article stipulates the crime of fraudulent issuance of securities. Where a controlling shareholder or an actual controller organizes or instigates others to commit fraudulent issuance, or conceals relevant matters resulting in significant falsehoods in the issuance documents, he shall be sentenced to fixed-term imprisonment of not more than five years or criminal detention, and shall also be fined or given a single fine; where the circumstances are particularly serious, he shall be given a heavier punishment. Where a unit commits the crime mentioned in the preceding paragraph, the unit shall be fined, and the persons directly in charge and other directly responsible persons of the unit shall be punished in accordance with the provisions, that is, the double punishment system. This is the most serious consequence of "rushing through the review with hidden problems".

3. Article 178 of the Company Law of the People's Republic of China (effective as of July 1, 2024)

The article specifies the circumstances under which a person may not serve as a director, supervisor, or senior manager of a company, including being sentenced to criminal punishment for embezzlement, bribery, misappropriation of property, misuse of funds, or disruption of the socialist market economic order, and having served his/her sentence for no more than five years; or having been deprived of political rights for a crime and having served his/her sentence for no more than five years. If the actual controller or senior executives have such records, they will directly trigger employment restrictions and affect the qualification of the listed entity.

II. Practical experience of Henglue Law Firm

Based on the practical observations of Beijing Henglu Law Firm in serving enterprises with financing and listing needs, the criminal risks of companies planning to go public are often concentrated in four categories: Firstly, the actual controllers or senior executives of the companies may have historical issues such as commercial bribery, misappropriation of funds, and embezzlement of duties, which violate the issuance barriers stipulated in Article 12 of the Securities Law; Secondly, the core business model of the companies may be operating on the verge of illegally absorbing public deposits, illegal fund-raising, and pyramid schemes; Thirdly, unresolved issues such as equity holding on behalf of others, fund misappropriation, and related-party transactions may pose hidden risks of fraudulent issuance; Fourthly, data compliance and the risk of infringing on citizens' personal information have become a key focus of inquiries in the Science and Technology Innovation Board and internet enterprises. The most common pitfall for clients is the "declare first, remedy later" approach, which means that once a case is initiated, all previous efforts will be in vain. For more details about related services, please refer to the following link:Financial capital legal services、Business and commercial legal services.

The practical path of physical examination and rectification:The criminal risk audit is not simply about issuing a report, but a closed-loop process of "identification - classification - rectification - isolation": first, review the historical financial transactions and personnel involvement records, and then check them against the various criminal charges in the Criminal Law and the issuance conditions in the Securities Law; for the potential risks identified, distinguish between "convicted criminal records" and "pending administrative violations". The former affects the qualification for employment and issuance conditions, while the latter can be resolved through making up for the deficiency, standardizing procedures, or splitting assets; for the core business model, assess whether it violates red lines such as illegal finance or infringement of personal information, and adjust the business structure if necessary. The value of professional lawyers lies in transforming criminal risks into actionable compliance checklists, rather than creating anxiety. For related consultations, please refer to the relevant materials.Specialised legal services（This paragraph summarizes practical experience and does not cite specific case details or amounts.）

III. Frequently Asked Questions

Q1: Why do the listing review processes attach great importance to criminal records?

According to Article 12 of the Securities Law, if the issuer, its controlling shareholders, or actual controllers have committed specific criminal offenses within the past three years, they do not meet the issuance conditions, and the review will be directly rejected. If the directors, supervisors, or senior executives have been convicted of economic crimes and their probation period has not expired for more than five years, they will also trigger the qualification restrictions for assuming positions under the Company Law. Criminal records are a hard threshold for listing, so the review will inevitably focus on verification, and it belongs to a veto-type matter.

Q2: In history, could companies still go public despite engaging in commercial bribery?

It is necessary to distinguish whether the case has been adjudicated or whether the statute of limitations has expired. If the actual controller is sentenced to imprisonment for commercial bribery and the execution period has not exceeded five years, he may simultaneously violate the issuance conditions of the Securities Law and the employment restrictions of the Company Law; if the statute of limitations has expired and the regulatory rectification has been completed, and the circumstances are minor, the offering may proceed after demonstration, but it must be truthfully disclosed in the prospectus. Concealing it will constitute the risk of fraudulent issuance, which is not worth the candle.

Q3: What does a criminal risk check usually include?

There are three main aspects of the inspection: 1. Personnel: Check the criminal involvement and punishment records of controlling shareholders, directors, supervisors, senior executives, and core employees. 2. Business operations: Verify whether the business model violates legal red lines such as illegal deposit-taking, unlawful fundraising, pyramid schemes, or infringement of citizens' personal information. 3. Historical issues: Address legacy problems prone to criminal risks, including equity substitution, fund misappropriation, related-party transactions, and tax compliance. For each issue, a rectification list will be compiled to proactively mitigate potential risks.

Q4: What are the consequences of declaring illness when applying for a visa?

The consequences are serious. If major criminal violations or concealment of facts are found after the declaration but before the listing, the China Securities Regulatory Commission may issue a decision of non-registration, and the registered ones may be revoked. The responsible parties may also be guilty of fraudulent issuance of securities and bear the double punishment system liability according to Article 160 of the Criminal Law. The unit and the directly responsible persons will be punished together. After the listing, they may also be prosecuted, and their reputation and capital plans will be damaged.

Q5: When is the most appropriate time to conduct a criminal risk physical examination?

The earlier, the better. It is preferable to complete it before the stock reform, the introduction of strategic investors, and the declaration of the reference date. Early physical examinations can reserve a window for rectification and eliminate potential risks before the declaration; if they are exposed only during the inquiry stage, the room for manoeuvre will be extremely limited. It is recommended to include criminal compliance physical examinations in the standard procedures of preparing for listing, and have professional lawyers provide feasible rectification plans, rather than making temporary remedies.

IV. Suggestions for Protecting Rights

  • It is proposed to conduct a criminal risk check before the company goes public, and screen each employee against the qualifications for positions stipulated in Article 12 of the Securities Law and the Company Law.
  • For potential risks such as historical commercial bribery and misappropriation of funds, it is necessary to standardize and rectify them as soon as possible, keep the relevant evidence, and avoid submitting applications with hidden problems.
  • For core business models involving finance and data, it is necessary to assess in advance whether they may cross legal red lines and, if necessary, adjust the business structure accordingly.
  • Hire a professional lawyer to issue a rectification list, transforming criminal risks into actionable compliance measures.

If you are facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the evidence materials, so as to avoid missing the statutory time limit. →Financial capital legal services·Beijing Henglu Law Firm