Deacons
  January 6, 2006 - Hong Kong

China: Venture Capital Regulations

The National Development and Reform Commission promulgated the Provisional Measures for the Administration of Venture Capital Enterprises on 15 November 2005. When they enter into effect on 1 March 2006, the Measures will be the first national statute governing venture capital investment in China. Venture capital enterprises with foreign investment will continue to be governed by the 2003 Regulations for the Administration of Venture Capital Enterprises with Foreign Investment (as discussed in the April 2003 issue of China Legal Update). Venture capital enterprises with foreign investment which have been established according to law are eligible for the policy support which the Measures offer to venture capital enterprises (“VC enterprises”). Formation VC enterprises can take the form of a limited liability company, company limited by shares or other enterprise form specified by the state. A VC enterprise which has adopted the form of a company may appoint another VC enterprise or venture capital management consultancy to act as its management consulting company and be responsible for its investment management business. VC enterprises and venture capital management consultancies are established by simple registration with the state administration for industry and commerce. Business VC enterprises are permitted to engage in the following business activities: • venture capital investment business; • venture capital investment business carried out on behalf of other organisations such as VC enterprises or individuals; • venture capital investment consulting business; • venture capital investment management services provided to VC enterprises; and • participations in VC enterprises and venture capital management consultancies. VC enterprises are not permitted to engage in guarantee services or real property business activities. Policy support The national and local governments may establish venture capital investment guidance funds. The funds are to support the establishment and development of VC enterprises by taking equity participations and providing financial guarantees, etc. The state shall use beneficial tax policies to support the development of VC enterprises and to encourage them to invest in small and medium size enterprises, in particular in the high tech sector. The foregoing preferential policies shall be set forth in regulations to be drafted by the relevant authorities. VC enterprises are permitted to use listing, equity assignment, buy-back by an invested enterprise, etc. to exit from their investment.