Changing equity stakes in foreign investment enterprises

With increasingly equal treatment of domestic companies and foreign investment enterprises (FIEs) in the PRC, the gap between the two has narrowed.

Accordingly, foreign shareholders in FIEs are adjusting the structures of their enterprises through equity transfers and other means. Transfers of equity interests in FIEs involve such issues as the execution of equity transfer contracts, board resolutions, shareholders’ pre-emption rights, foreign investment approval procedures, re-registration and income tax registration.

Types of equity transfer

In a foreign-to-Chinese transfer, a foreign company transfers all or part of its equity interest in an FIE to a Chinese company (the original Chinese investor or another Chinese enterprise), reducing the foreign company’s equity holding in the FIE (partial transfer) or resulting in the conversion of the FIE into a wholly Chinese-owned enterprise (complete transfer).

Vera Wei is a senior associate in the Japan practice of Martin Hu & Partners