Key points to secure corporate compliance in equity financing

From the establishment to the termination of a company, and at the production and sales stages, compliant operation is a mandatory requirement. However, the key points of compliance in different economic activities are not identical. In corporate equity financing, the key points requiring attention mainly include the following.

Universal key points

Form of equity. There are two principal ways in which an investor can secure equity in a company: (1) subscription for an increase in the company’s registered capital; or (2) acquisition or bequeathal of equity held by an existing shareholder.

With respect to the first method, the investor has the obligation of making a genuine capital contribution in full. In practice, such problems as still pending capital verification, failure to pay in full on time, overly high appraised value of non-monetary assets, registration of transfer of title to capital contribution not carried out, etc., characterise some companies. Notwithstanding the fact that the Company Law has established the registered capital subscription system, an investor is nonetheless required to pay in its capital contribution in accordance with the law and the company’s articles of association.

With respect to the second method, the focus of attention falls on the qualifications to be a party, the capacity to act of the transferor and transferee, and the transaction process.

Shen Guoquan is a senior partner and Zhang Zhixue is a lawyer at AllBright Law Offices