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Securities

Administration of Initial Public Offering and Listing of Shares Procedures

(2010-11-4)

 
PART ONE: GENERAL PROVISIONS
Article 1: These Procedures have been formulated in accordance with the Securities Law and the Company Law in order to standardize the act of initial public offering and listing of shares and protect the lawful rights and interests of investors and the public interest.

Article 2: These Procedures shall apply to initial public offering and listing of shares in the territory of the People"s Republic of China.

These Procedures shall not apply to the subscription and trading of shares of domestic companies in foreign currencies.

Article 3: Initial public offering and listing of shares shall meet the conditions of offering prescribed in the Securities Law, the Company Law and these Procedures.

Article 4: Information disclosed by the issuer in accordance with the law must be truthful, accurate, complete, and may not contain any false record, misleading representation or major omission.

Article 5: The sponsor and its sponsor representative shall follow the principles of due diligence and good faith in duly performing their obligations of prudent verification and guidance, and shall assume responsibility for the truthfulness, accuracy and completeness of the issuance sponsorship document issued by them.

Article 6: The securities service institutions and their personnel that issue relevant documents for the issuance of securities shall rigorously perform their statutory duties in accordance with the business standards and ethics generally accepted in their industry and assume responsibilities for the truthfulness, accuracy and completeness of the documents issued by them.

Article 7: Verification and approval by China Securities Regulatory Commission (hereafter, the "CSRC") of the initial public offering of shares of an issuer does not represent a substantive judgment or guarantee with regard to the investment value of the shares or the returns to the investors. After the shares are issued in accordance with the law, the investment risks arising from the change in the operation and earnings of the issuer shall be borne by the investors themselves.
PART TWO: OFFERING CONDITIONS
Section One: Qualifications of Issuer

Article 8: The issuer shall be a company limited by shares established in accordance with the law and legally existing.

With the approval of the State Council, a limited liability company may, when it is converted into a company limited by shares in accordance with the law, adopt the method of establishment by way of share offer and make a public offering of shares.

Article 9: The issuer shall have continuously operated for three or more years after the establishment of the company limited by shares, unless otherwise approved by the State Council.

If a limited liability company is converted into a company limited by shares by converting the entire original net asset value on the book into shares, the period of its continuous operation may commence from the date of establishment of the limited liability company.

Article 10: The registered capital of the issuer shall have been fully paid, the procedures for transfer of property rights of the assets used for capital contribution by the promoter or the shareholders shall have been completed, and there shall not be any major ownership dispute over the main assets of the issuer. 

Article 11: The production and operation of the issuer shall be in conformity with the provisions of laws and administrative regulations and the company"s articles of association and in line with the industrial policy of the State.

Article 12: In the last three years, there shall have been no major change in the major businesses, directors and senior management personnel of the issuer, and there shall have been no change in its de facto controlling person.

Article 13: The equity interests in the issuer shall be clear, and there shall be no major ownership dispute over the shares in the issuer held by the controlling shareholder and by the shareholders that are controlled by the controlling shareholder or de facto controlling person.

Section Two: Independence

Article 14: The issuer shall have a complete business system and the capability of operating independently and directly in the market. 

Article 15: The assets of the issuer shall be integral. A production enterprise shall have the production system, auxiliary production systems and supporting facilities that are related to production and operation, legally possess the ownership of or use rights to the land, factory buildings, machineries and equipment, as well as trademarks, patents and non-patented technology that are related to the production and operation, and have independent raw material procurement and product sales systems. Non-production enterprises shall have the business system and relevant assets that are related to their operation.

Article 16: The personnel of the issuer shall be independent. The senior management personnel of the issuer, such as the general manager, deputy general manager, person in charge of finance and secretary to the board of directors, shall not hold any position other than the position of director or supervisor in the controlling shareholder, de facto controlling person or other enterprises controlled by them, nor shall they receive salaries from the controlling shareholder, de facto controlling person or other enterprises controlled by them. The financial personnel of the issuer may not concurrently hold positions in the controlling shareholder, de facto controlling person or other enterprises controlled by them.

Article 17: The finance of the issuer shall be independent. The issuer shall establish an independent financial accounting system, shall be able to make financial decisions independently, and shall have a compliant financial accounting system and a financial management system for its branches and/or subsidiaries. The issuer shall not share a bank account with the controlling shareholder, de facto controlling person and other enterprises controlled by them.

Article 18: The organizational structure of the issuer shall be independent. The issuer shall establish a sound internal operation and management organization to independently perform the functions of operation and management, and there shall not be a mixing of organizations between the issuer and the controlling shareholder, de facto controlling person and other enterprises controlled by them.

Article 19: The business of the issuer shall be independent. The business of the issuer shall be independent from the controlling shareholder, de facto controlling person and other enterprises controlled by them. There shall not be competition in the same industry, or any connected transaction that is not conducted on an arms" length basis between the issuer and the controlling shareholder, de facto controlling person and other enterprises controlled by them.

Article 20: There shall not be other serious defects in the issuer"s independence.

Section Three: Standardized Operation

Article 21: The issuer shall have established sound systems of shareholders" general meeting, board of directors, board of supervisors, independent directors and secretary to board of directors in accordance with the law, and the relevant organizations and personnel shall be capable of performing their duties in accordance with the law. 

Article 22: The directors, supervisors and senior management personnel of the issuer shall understand the laws and regulations relating to the issuance and listing of shares and shall be aware of the statutory obligations and liabilities of a listed company and its directors, supervisors and senior management personnel.

Article 23: The directors, supervisors and senior management personnel of the issuer shall meet the employment qualifications prescribed by laws, administrative regulations and rules and shall not be in any of the following circumstances: 
  1. having been subject to the measure of securities market entry denial imposed by the CSRC and the entry denial period has not expired;
  1. having been subject to administrative penalty by the CSRC within the most recent 36 months or to public reprimand by a stock exchange within the most recent 12 months; or
  1. having been subject to formal investigation by the judicial authority for suspected involvement in a crime or to formal investigation by the CSRC for suspected involvement in violation of laws or regulations, and there has been no clear conclusion yet.
Article 24: The internal control system of the issuer shall be sound and effectively implemented, and shall be able to reasonably ensure the reliability of financial reports, the lawfulness of production and operation and the efficiency and result of operation.

Article 25: The issuer shall not be in any of the following circumstances:
  1. within the most recent 36 months, it has made a public offer or disguised public offer of securities without the verification and approval of the statutory authority; or the relevant illegal act is still continuing at the moment although it was committed more than 36 months before;
  1. within the most recent 36 months, it has been subject to administrative penalty for violation of laws and administrative regulations relating to industry and commerce administration, taxation, land administration, environmental protection, customs and others areas, and the circumstances are serious;
  1. within the most recent 36 months, it has submitted an offer application to the CSRC but the offer application documents submitted contained false records, misleading representations or major omissions; or it did not meet the offering conditions but has obtained approval of offer by deceptive means; or it interfered with the examination and verification of the CSRC and its share issuance examination committee by improper means; or it has falsified or altered the signatures and seals of the issuer or its directors, supervisors or senior management personnel;
  1. the offer application documents submitted for the current offer contain false records, misleading representations or major omissions;
  1. it is subject to formal investigation by the judicial authority for suspected involvement in a crime and there has been no clear conclusion yet; or
  1. other circumstances where the lawful rights and interests of investors and the public interests are seriously harmed.
Article 26: The company"s articles of association of the issuer shall have specified the examination and approval authority and deliberation procedures for provision of security to external parties, and no security has been provided to the controlling shareholder, de facto controlling person and other enterprises controlled by them in violation of provisions.

Article 27: The issuer shall have a rigorous fund management system, and its funds shall not be used by the controlling shareholder, de facto controlling person or other enterprises controlled by them in the form of loans, debt repayment or payment on its behalf or in other forms of fund appropriation.

Section Four: Finance and Accounting

Article 28: The assets of the issuer shall be of good quality, the asset and liability structure shall be reasonable, the profitability shall be relatively strong and the cash flow shall be normal.

Article 29: The internal control of the issuer shall be effective in all major aspects, and a certified public accountant shall have issued an internal control attestation report with an unqualified conclusion.

Article 30: The basic accounting work of the issuer shall be standardized and the financial statements shall be prepared in accordance with the provisions of the enterprise accounting standards and the relevant accounting systems, fairly reflecting the financial status, business results and cash flow of the issuer in all major aspects, and a certified public accountant shall have issued an unqualified audit report.

Article 31: The financial statements prepared by the issuer shall be based on the transactions or matters that have actually occurred. Due care shall be maintained in conducting accounting recognition, measurement and reporting. Consistent accounting policy shall be used for identical or similar economic activities without arbitrary changes. 

Article 32: The issuer shall fully disclose its relationship with connected parties and appropriately disclose its connected transactions according to the principle of importance. The prices in connected transactions shall be fair and there shall be no manipulation of profits through connected transactions.

Article 33: The issuer shall meet the following conditions:
  1. the net profits in the last three fiscal years shall be positive and exceed RMB 30 million in aggregate; the net profits shall be calculated on the basis of the lower of the net profits before and after deducting non-recurring profits and losses;
  1. the net cash flow from business operation in the last three fiscal years shall exceed RMB 50 million in aggregate; or the business revenue in the last three fiscal years shall exceed RMB 300 million in aggregate;
  1. the total amount of share capital before the offer shall not be less than RMB 30 million;
  1. the intangible assets as at the end of the last reporting period (after deducting land use rights, aquaculture rights, mining rights, etc.) shall not account for more than 20% of the net assets; and
  1. there shall be no loss that has not been made up as at the end of the last reporting period.
Article 34: The issuer shall have paid taxes in accordance with the law and all tax preferential treatments shall comply with the provisions of laws and regulations. The business results of the issuer shall not be heavily reliant on the preferential tax treatments. 

Article 35: The issuer shall not be subject to major debt repayment risks, nor shall it be subject to major contingencies that affect its continued operation such as security, litigation and arbitration.

Article 36: None of the following circumstances may exist in the documents submitted by the issuers:
  1. deliberate omission or fabrication of any transaction, matter or other important information;
  1. abuse of any accounting policy or accounting estimate; or
  1. manipulation, falsification or alteration of any accounting record or relevant vouchers on which the preparation of financial statements is based.
Article 37: The issuer may not be in any of the following circumstances that affects its continued profitability:
  1. the business model or the type or structure of products or services of the issuer has undergone or will undergo a major change that has or will have a major adverse effect on the continued profitability of the issuer;
  1. the position of the issuer in the industry or the business environment of the industry in which the issuer is operating has undergone or will undergo a major change that has or will have a major adverse effect on the continued profitability of the issuer;
  1. the business revenue or net profit of the issuer in the most recent fiscal year is heavily reliant on a connected party or a customer with a high degree of uncertainty;
  1. the net profit of the issuer in the most recent fiscal year has been primarily derived from the investment returns outside the scope of the consolidated financial statements;
  1. there is a risk of major adverse change in the availability or use of the major assets or technology, such as trademarks, patents, proprietary technology and franchise rights, that are being used by the issuer; or
  1. other circumstances that may have a major adverse effect on the continued profitability of the issuer.
Section Five: Application of Offer Proceeds

Article 38: There shall be a clear direction in the application of the offer proceeds which, in principle, shall be applied towards the main business.

Except in the case of a financial enterprise, the offer proceeds shall not be applied towards financial investment such as holding of tradable and saleable financial assets, lending to other parties and entrustment of financial management, nor shall they be invested in companies whose main business is the purchase and sale of negotiable securities. 

Article 39: The amount of the offer proceeds and the investment projects shall commensurate with the current production and operation scale, financial status, technology level and management capability of the issuer.

Article 40: The projects in which the offer proceeds are invested shall comply with the provisions of the industrial policy of the State and the investment administration, environmental protection, land administration and other laws, regulations and rules.

Article 41: The board of directors of the issuer shall carry out a careful analysis on the feasibility of the projects in which the offer proceeds are invested, and ensure that such investment projects have relatively good market prospects and profitability, so as to mitigate investment risks and raise the efficiency of the application of the offer proceeds.

Article 42: The implementation of the projects in which the offer proceeds are invested shall not give rise to competition within the industry or have an adverse effect on the independence of the issuer.

Article 43: The issuer shall establish a dedicated deposit system for offer proceeds. The offer proceeds shall be deposited into a dedicated account determined by the board of directors.
PART THREE: OFFERING PROCEDURES
Article 44: The board of directors of the issuer shall adopt a resolution regarding the specific plan of the proposed share offer, the feasibility of the use of the offer proceeds and other matters that must be specified in accordance with the law, and shall submit the resolution to the shareholders" general meeting for approval.

Article 45: The resolution made by the shareholders" general meeting of the issuer regarding the proposed share offer shall include at least the following matters:
  1.  the type and quantity of the proposed share offer;
  1.  the targets of offer;
  1. the price range or the pricing method;
  1. the use of the offer proceeds;
  1. the distribution plan for the accumulated profits prior to the offer;
  1. the period of validity of the resolution;
  1. the authorization of the board of directors to handle the specific matters of the proposed offer; and
  1. other matters that must be specified.
Article 46: The issuer shall prepare the application documents in accordance with the relevant provisions of the CSRC, which shall be sponsored and submitted to the CSRC by a sponsor.

Issuers in certain industries shall provide the relevant opinions of the administrative authorities.

Article 47: The CSRC shall decide whether or not to accept the application within five working days of receipt of the application documents.

Article 48: After the CSRC has accepted the application documents of the issuer, the application documents shall undergo a preliminary examination by the relevant functional departments and examined and verified by the offer examination and approval committee.

Article 49: In the course of the preliminary examination, the CSRC shall seek the opinion of the people"s government at the provincial level of the place of registration of the issuer on whether it consents to the issuer"s share offering, and shall seek the opinion of the National Development and Reform Commission on whether the projects in which the offer proceeds of the issuer are invested comply with the industrial policy of the State and the provisions of investment administration.

Article 50: The CSRC shall render a decision to approve or disapprove the offer application of the issuer on the basis of the statutory conditions and shall issue the relevant document accordingly.

The issuer shall offer the shares within six months from the date on which the CSRC approves the offer. If it fails to offer the shares within six months, the approval document shall become void and the issuer may make the share offer only after obtaining the approval of the CSRC again.

Article 51: If there is any major event in relation to the issuer after the offer application is approved and before the share offer is completed, the issuer shall withhold or suspend the offer, report to the CSRC in a timely manner and perform the information disclosure obligation at the same time. If the event affects the conditions of offer, the issuer shall carry out the approval procedures again.

Article 52: If the share offer application is not approved, the issuer may submit a share offer application again after six months of the date on which the CSRC issues the disapproval decision.
PART FOUR: INFORMATION DISCLOSURE
Article 53: The issuer shall prepare and disclose the prospectus in accordance with the relevant provisions of the CSRC.

Article 54: The guidelines concerning the contents and formats of the prospectus are the minimum requirement of information disclosure. All information that has a major impact on the investment decision of the investors shall be disclosed regardless of whether it is expressly specified in the guidelines.

Article 55: The issuer and all of its directors, supervisors and senior management personnel shall sign and affix their seal on the prospectus and ensure that the contents of the prospectus are truthful, accurate and complete. The sponsor and its sponsor representative shall verify the truthfulness, accuracy and completeness of the prospectus and sign and affix their seal on the verification opinion. 

Article 56: The financial statement cited in the prospectus shall be valid within six months of the date on which its last reporting period ends. In special circumstances, the issuer may apply for an appropriate extension, but such extension may not exceed one month. A financial statement shall have an ending date at year end, half-year end or quarter end. 

Article 57: The period of validity of the prospectus shall be six months beginning from the date on which the prospectus is last signed before the offer application is verified and approved by the CSRC.

Article 58: After the application documents are accepted and before the offer examination committee carries out examination and verification, the issuer shall disclose the prospectus (submission draft) in advance on the website of the CSRC (www.csrc.gov.cn). The issuer may publish the prospectus (submission draft) on its corporate website provided that the contents of the disclosure are completely identical and such disclosure is not earlier than the disclosure made on the website of the CSRC.

Article 59: The issuer and all of its directors, supervisors and senior management personnel shall ensure that the contents of the prospectus (submission draft) disclosed in advance are truthful, accurate and complete.

Article 60: The prospectus (submission draft) disclosed in advance is not an official document for the share offer of the issuer and must not contain pricing information, and the issuer may not offer shares on the basis thereof.

The issuer shall state in a prominent place of the prospectus (submission draft) disclosed in advance: "The offer application of the Company has not yet obtained the approval of the CSRC. This Prospectus (Submission Draft) does not have the legal validity for share offer and serves the purpose of advance disclosure only. Investors shall base their investment decision on the full text of the officially announced prospectus."

Article 61: The issuer shall, prior to the offer, publish the summary of the prospectus on at least one newspaper and periodical designated by the CSRC, publish the full text of the prospectus on the website designated by the CSRC and place the full text of the prospectus at the domicile of the issuer and the domiciles of the stock exchange on which the shares are to be listed, the sponsor, the lead underwriter and other underwriting institutions for review by the public. 

Article 62: The offer sponsorship document issued by the sponsor and the relevant documents issued by the securities service institutions shall be regarded as the reference documents of the prospectus, which shall be disclosed on the website designated by the CSRC and placed at the domicile of the issuer and the domiciles of the stock exchange on which the shares are to be listed, the sponsor, the lead underwriter and other underwriting institutions for review by the public. 

Article 63: The issuer may publish the summary of the prospectus, the full text of the prospectus and the relevant reference documents on other newspapers, periodicals and websites provided that the contents of the disclosure are completely identical and such disclosure is not earlier than the disclosure made on the newspaper, periodical and website designated by the CSRC.
PART FIVE: REGULATION AND PENALTY
Article 64: If the offer application documents submitted by the issuer to the CSRC contain any false record, misleading representation or major omission, or if the issuer obtains offer approval by deceptive means but it does not meet the conditions of offer, or if the issuer interferes with the examination and verification work of the CSRC and its offer examination committee using improper means, or if the signatures and seals of the issuer or its directors, supervisors or senior management personnel are falsified or altered, the CSRC shall, in addition to imposing penalty in accordance with the relevant provisions of the Securities Law, adopt regulatory measures to terminate the examination and verification and shall not accept the share offer application of the issuer within 36 months.

Article 65: If the sponsor issues an issuance sponsorship document that contains any false record, misleading representation or major omission, or if the sponsor interferes with the examination and verification work of the CSRC and its offer examination committee using improper means, or if the signatures and seals of the sponsor or its relevant signatories are falsified or altered, or if the sponsor does not perform other statutory duties, the matter shall be handled in accordance with the relevant provisions of the Securities Law and the sponsor system.

Article 66: If a securities service institution fails to act with due diligence and the document that it prepares and issues contains any false record, misleading representation or major omission, the CSRC shall, in addition to imposing penalty in accordance with the provisions of the Securities Law and other relevant laws, administrative regulations and rules, adopt the regulatory measure of rejecting the special documents for issuance of securities issued by such institution in the next 12 months and rejecting the special documents for issuance of securities issued by the relevant signatories in the next 36 months.

Article 67: If the issuer, sponsor or securities service institution prepares or issues a document that does not conform with the requirements, or if it modifies a submitted document without authorization, or if it refuses to reply the relevant questions raised by the CSRC in the course of the examination and verification, the CSRC shall adopt regulatory measures according to the gravity of circumstances, such as regulatory dialogue and order of rectification, against the relevant institution and responsible persons and have the matter recorded in their files of good faith and make an announcement. If the circumstances are especially serious, a warning shall be issued.

Article 68: If the issuer has disclosed a profit forecast but the amount of realized profit fails to reach 80% of the forecast profit, the legal representative of the issuer and the certified public accountant that signed the profit forecast examination and verification report shall give a public explanation and apology at the shareholders" general meeting and in the newspaper and periodical designated by the CSRC, unless the failure is due to a matter of force majeure. The CSRC may issue a warning to the legal representative.

If the amount of realized profit fails to reach 50% of the profit forecast, the CSRC shall not accept the company"s application for public offer of securities in the next 36 months, unless the failure is due to a matter of force majeure.
PART SIX: SUPPLEMENTARY PROVISIONS
Article 69: Procedures for the administration of initial public offerings of shares without listing in the territory of the People"s Republic of China shall be formulated separately by the CSRC.

Article 70: These Procedures shall be implemented as of 18 May 2006. The Several Questions Regarding Share Issuance Work Circular (Zheng Jian [1996] No. 12), the Improvement of the Share Issuance Work in 1997 Circular (Zheng Jian [1997] No. 13), the Several Questions Regarding Share Issuance Work Supplementary Circular (Zheng Jian [1998] No. 8), the Investigation on the Restructuring of Enterprises That Propose to Issue Shares and be Listed Circular (Zheng Jian Fa Zi [1998] No. 259), the Investigation on the Restructuring and Operation of Companies Proposing Public Share Offer Circular (Zheng Jian Fa [1999] No. 4), the Engagement of Audit Institutions by Companies Proposing Share Offer and Other Questions Circular (Zheng Jian Fa Xing Zi [2000] No. 131) and the Further Standardizing the Relevant Work of Initial Offering and Listing of Shares Circular (Zheng Jian Fa Xing Zi [2003] No. 116) shall be repealed simultaneously.
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