Domestic A-share listing by for-profit educational institutions

The Standing Committee of the National People’s Congress (NPC) amended the Education Law on 27 December 2015, revising the provision reading “no organization or individual may establish a school or other educational institution with the aim of making a profit” to “a school or other educational institution that is founded with, or the founding of which is participated in with, fiscal funds or donated assets may not be established as a for-profit organization”.

On 7 November 2016, the NPC Standing Committee revised the Law on Promoting Private Education. The revised law specifies that existing private schools may opt to register as for-profit private schools, registering anew and continuing to operate. The revised law will enter into effect on 1 September 2017.

IMPLICATIONS OF THE REVISION

The revision of the Law on Promoting Private Education has positive significance for the domestic listing of A shares by private schools. From permitting the existence of private schools as for-profit legal persons, it can be seen that the revised law has swept away the greatest obstacle to the listing of A shares by private schools.

The law specifies that founders of for-profit private schools can profit from their running of schools, with the surplus derived from running a school to be handled in accordance with such laws and administrative regulations as the Company Law. The tuition rates for for-profit private schools are to be subject to market regulation, with the schools deciding the same at their own discretion. Once a private school can earn revenue through pricing set at its own discretion, and treat the surplus from running the school as a profit source for the enterprise, the two major obstacles to such an entity lawfully securing operational profits and an ongoing operational capacity are fundamentally resolved, permitting private schools to rightly and properly list A shares in China.

The revised law specifies that a private school is required to establish a board of governors, board of directors or other manner of decision-making body and establish the corresponding supervisory mechanism. The founder of a private school participates in the running and management of the school with the authority of, and by the procedures specified in, the school’s charter. The above-mentioned provisions also provide the rule basis for the establishment by for-profit private schools of such corporate governance mechanisms as boards of directors, supervisory boards, shareholders’ general meetings, etc., that satisfy the standards for the governance of listed companies.

Jeffrey Yang is a senior partner and Feng Chengliang is a partner at AllBright Law Offices