Hainan company establishment, especially for the foreign invested company, cannot be completed with out an Articles of Association (AoAs). The 11th article of the Company Law stipulates that the establishment of a company must formulate its Articles of Association in accordance with the law. The articles of association shall be binding on the shareholders, directors, supervisors and senior managers of the company.
Most foreigners may know that the Articles of Association (AoAs) are required to be submitted for Chinese governments to approve when setting up a company in China, but they may probably not know why the AoAs are required, and how the AoAs can protect or guide their business activities in China. The following information will give you an explanation.
Mandatory Items of AoAs
The following must be incorporated into the AoAs:
1. Name and domicile of the company;
2. Business Scope of the company;
3. Registered capital of the company;
4. Names of shareholders;
5. Forms, amount and date of capital contributions made by shareholders;
6. The organizations of the company and its formation, their functions and rules of procedure;
7. Legal representative of the company;
8. Stipulations concerning the assignment of equity, the ratio of profit distribution and losses to be borne by parties to the joint venture;
9. Principles governing finance, accounting and auditing;
10. Labour management;
11. Dissolution and liquidation.
Functions of AoAs
The functions of the AoAs can be summarized into three points, namely,
1. Legal basis for a company to do business with third parties
The AoAs provide the principles or detailed rules in terms of a company’s management structure, business activities, rights and obligations etc., which provides the basis for a company to do business with investor, creditors or any other third party. Once relevant, Chinese government approves the AoAs. Any business activity complying with the AoAs will be protected; otherwise Chinese government will punish it.
2. Important documents for setting up a company in China
The Company Law of the People’s Republic of China clearly states that the AoAs shall be made before a company can apply to be set up with relevant Chinese governments, who will conduct scrutiny inspection on the terms of the AoAs before giving approval or disapproval. Once disapproved, the proposed company cannot be set up.
3. Form the self governed rules of a company.
The investor, in accordance with the Company Law, formulates the AoAs, since the Company Law cannot consider each special requirement of each Company. While each company, based on the Company Law, formulates their own AoAs, which definitely reflects the particularity of the company, moreover provides the code of conduct for the company. In addition, the company itself can solve any violation of the AoAs internally as long as such is not violating the Chinese laws or regulations.
When formulating the AoAs of the proposed company, it is of particular importance for the investor to consider carefully. Making mistakes in this document can bear consequences, ranging from financial losses to losing control of their enterprise. Tannet, with a team of professionals, is competent to help you draft such a document as required to help you set up your business in Hainan or other parts of mainland China.
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If you have further inquires, please do not hesitate to contact Tannet at anytime, anywhere by simply visiting Tannet’s website english.tannet-group.com, or calling Hong Kong hotline at 852-27826888 or China hotline at 86-755-82143422, or emailing to tannet-solution@hotmail.com. You are also welcome to visit our office situated in 16/F, Taiyangdao Bldg 2020, Dongmen Rd South, Luohu, Shenzhen, China.
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