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XIAMEN'S RULES ON MANAGEMENT OF SHARES AND BONDS

(Issued by Xiamen Municipal Government
on September 1, 1986)

 

 



SUBJECT: SECURITIES

ISSUING-DEPT: XIAMEN SPECIAL ECONOMIC ZONE

ISSUE-DATE: 09/01/1986

IMPLEMENT-DATE: 09/01/1986

LENGTH: 2109 words

TEXT:

CHAPTER I GENERAL PROVISIONS

[Article 1] The present regulations are specially formulated to strengthen financial management and to make better use of shares, bonds to raise more public funds to promote the horizontal economic relations among enterprises and the development of the Xiamen Special Economic Zone.

[Article 2] State-owned, collectively-owned, domestic associted enterprises, as well as enterprises involving foreign investment (i.e joint venture, cooperative and wholly foreign-owned enterprises) desiring to raise capital through the issuance of shares and bonds shall be governed by the present Regulations.

CHAPTER II SHARES

[Article 3] A share certificate is a proof of the amount of capital invested in a joint stock enterprise. The holder of a share certificate is a shareholder of the enterprise. In compliance with the articles of association of the enterprise, a shareholder is entitled to participate in or supervise over the management of the operation of the enterprise, draw interest on the share, receive dividends as well as bear the economic liability which is being limited to the share capital the holder has contributed and the risk of bankruptcy of the enterprise.

[Article 4] All small state-owned enterprises, urban and rural collectively owned enterprises, joint enterprises of various economic forms and enterprises involving foreign investment which are economic entities enjoying the status of a legal person are allowed to issue shares for subscription by other enterprises, institutions and individuals.

[Article 5] The value of the shares to be issued, in the case of old enterprises, shall not exceed the net worth of its existing assets (i.e. the total value of fixed assets and circulating capital after deducting depreciation and borrowed capital).

In the case of a newly inaugurated joint stock enterprise issuing shares, the initiator of the flotation shall subscribe no less than 30% of the total amount of the shares of the enterprise.

[Article 6] A registered share is a share certificate issued under the name of its subscriber, the withdrawal of which is generally not allowed. However, under certain conditions, an enterprise is allowed to issue fixed-term share certificates. A fixed-term share certificate holder, with the only exception that he is not allowed to participate in the management of business operations of the enterprise, enjoys the same rights and benefits and bears the same responsibility in accordance with the stipulations in Article 3 of the present Regulations.

[Article 7] Shares are divided into two kinds: collective shares and individual shares. Shares subscribed by enterprises and institutions are collective shares and those subscribed by individuals are individual shares. Both kinds of shares enjoy the same rights and benefits and bear the same responsibility in accordance with the stipulations in Article 3 of the present Regulations.

[Article 8] Distribution of share profit can be of two patterns: sharing out dividends and interest or sharing out dividends but paying no interest. A joint stock enterprise can choose either one of the two patterns.

A. Sharing out dividends according to the profit situation of the enterprise: An enterprise can set up its dividend distribution account provided that it can guarantee paying its taxes in accordance with the Chinese tax laws and it has made the arrangement for any special reserve funds. Dividends must be distributed in proportion to the amounts of shares held by individual shareholders. The maximum amount of dividends an enterprise can distribute shall not exceed 15% of its share capital. However, in case of good economic returns, the percentage can exceed 15% after the decision has been approved by the municipal People's Bank of China.

B. Paying interest and sharing out dividend: The annual interest paid out by an enterprise on its shares can be listed as a cost item. The interest rate on collective shares shall not be higher than that offered by banks on fixed deposits of enterprises. The interest rate on individual shares shall not be higher than that offered by banks on one year individual savings deposits. In addition, the enterprise can decide on whether to share out dividend or not based on the profit and loss situations of the enterprise. Dividends are to be distributed in proportion to the amounts of shares held by individual shareholders. The sum of interest and dividends paid each year by an enterprise shall not exceed 12% of its share capital. In case of changes in the bank's interest rates on savings deposits, the total sum of interest may exceed 12% after having been approved by the People's Bank of China.

[Article 9] Shares are properties of their holders and are protected by the law of the State. They may be inherited, transferred, donated, bought or sold and may also be used as security for bank loans.

[Article 10] When a joint stock enterprise dissolves or declares bankrupt, after disbursing the wages and living expenses of its staff and workers, paying its taxes to the State, paying off its loans and debts, the remaining assets are to be used to pay back the shareholders' investment in proportion to the amounts of shares they hold (after the promulgation of the bankruptcy laws, matters on this regard will follow the new provisions).

CHAPTER III BONDS

[Article 11] Bonds issued by enterprises are certificates of creditor's rights with clearly stipulated time limit of repayment. Holders of the bonds are entitled to receive on schedule the amount of interest and full repayment of the principal. The holder of bonds does not have the right to participate in the management of the operation of a business and does not bear the economic liability of the enterprise.

[Article 12] All State-owned enterprises, joint enterprises of various economic forms, collectively-owned enterprises whose financial system is sound and complete and is making profit, and financial organizations which are legally registered and enjoy the status of legal person can issue bonds.

[Article 13] The total value of bonds issued by an individual enterprise cannot exceed the net worth of its assets.

[Article 14] Bonds may be transferable and be used as security for bank loans.

[Article 15] The maximum interest rate payable on schedule to bondholders shall not exceed, in the case of individual bonds, 30% plus interest at rates offered by banks for savings deposits for the same time limit. In the case of bonds purchased by enterprises, the maximum rate of interest shall not exceed 30% plus interest at rates offered by banks for savings deposits of enterprises for the same time limit. The interest of bonds is to be defrayed, in accordance with the use of the raised capital, from the cost or from the reserves of special funds respectively.

[Article 16] Enterprises can choose to sell bonds only to their staff and workers and the funds raised will be specifically used to meet the need for developing the production of the enterprises.

This kind of bonds may also be transferable but transferees are restricted to staff and workers of the enterprise concerned.

Holders of such bonds can have the principal and interest of their bonds refunded and paid in advance of maturity if they are transferred out of the enterprise.

Relevant stipulations of the present Regulations are applicable to other matters concerning this kind of bonds.

CHAPTER IV MANAGEMENT, ISSUANCE AND PURCHASING OF SHARES AND BONDS

[Article 17] Public issuance of shares and bonds by enterprises is to be managed, examined and approved by the Xiamen branch of the People's Bank of China. The Bank has the right to examine and supervise the use of capital of enterprises issuing the shares of bonds so as to ensure an effective implementation of State financial policy and protect the legitimate interests of the shareholders and bondholders. It has the right to stop any presumptuous issuance of shares and bonds and order the enterprise to return the funds thus collected.

[Article 18] For the issuance of shares and bonds, the enterprise concerned should submit an application to the Xiamen branch of the People's Bank of China in accordance with the following stipulations:

(1) A document, showing the approval after examination by the department in charge of the enterprise, should be submitted. The issuance of shares or bonds for State-owned enterprises should have their approval certificates issued by the relevant financial departments.

(2) Business licenses issued by the State Administration for Industry and commerce, or documents testifying approval of the business operation of the enterprises, should be submitted for examination. Financial organizations should submit their financial business licenses issued by the People's Bank of China.

(3) Prospectuses or measures formulated by the enterprise planning share and bonds issues (to be clearly stated are the investment project concerned, return on investment estimates, present assets, total amount, scope of the issue, and profit distribution) should be submitted.

(4) Existing enterprises should submit their financial statements of the last fiscal year and the last quarter of the current year.

(5) Newly inaugurated joint stock enterprises should submit documental evidence of the initiator's subscription.

(6) When the purpose of the issuance is for fixed assets investment, documental evidence from the investigating and ratifying organs appointed by Xiamen Municipal People's Government sanctioning the inclusion of the capital raised in the fixed assets investment plan, should be submitted for examination.

(7) If the issuance is entrusted to financial institutes, a letter of authorization should be submitted.

[Article 19] All shares and bonds are to be subscribed voluntarily.

All cadres in party offices or administrative organs and public organizations and military men in service, are not allowed to purchase shares.

In purchasing shares and bonds, enterprises can only use funds which are owned by, and placed at the disposal of, the same enterprise as stipulated by the State.

In purchasing shares and bonds, institution can only use the remnant of the balance of the capital which are owned by, and at the disposal of, the same institution in accordance with the stipulations.

[Article 20] Shares and bonds can be issued outside the Xiamen Special Economic Zone and to other areas of the country. Fellow countrymen in Taiwan, Hongkong and Macao, as well as overseas Chineses, may subscribe in accordance with the present Regulations shares and bonds publicly issued in the Xiamen Municipality.

[Article 21] Enterprises, whose issuance of shares and bonds have been approved by departments concerned, may entrust financial agents to be in charge of the issuance. The commission or the agency charge can be settled through negotiation between the agents and the enterprises. The agents in charge of the issuance should examine whether the sources of the capital which used by the enterprises and institutions to purchase shares and bonds are in line with the stipulations in Article 19.

The agents in charge of the issuance do not bear any joint liability for the business operation conditions of the enterprises issuing shares and bonds.

CHAPTER V PROCEDURES OF OWNERSHIP TRANSFER OF SHARES AND BONDS

[Article 22] The transfer and change of ownership procedures of shares and bonds can be handled by the issuing enterprises, or may be entrusted to financial agents.

[Article 23] The method of spot transaction will be practised for the buying and selling of shares and bonds. Speculations in buying and selling, as well as unlawful practices of imitations and forgery of shares and bonds are strictly prohibited.

CHAPTER VI SUPPLEMENTARY ARTICLES

[Article 24] Shares and bonds issued by enterprises for their staff and workers should be handled with reference to the stipulations of the present Regulations.

[Article 25] The present Regulations are not applicable to enterprise shares and bonds issued in foreign countries. The present Regulations are not applicable to the bonds issued by the government.

[Article 26] The Xiamen branch of the People's Bank of China is responsible for the interpretation of the present Regulations.

[Article 27] The present Regulations come into trial implementation on September 1, 1986.