Voluntary deregistration of a company in China is a rigorous process that involves multiple steps and requires adherence to detailed legal provisions. Beyond the statutes, understanding practical implementation nuances is crucial for navigating the procedure effectively. This guide provides a detailed overview of the legal framework, procedural steps, special provisions for foreign-invested enterprises (FIEs), challenges, and practical considerations associated with voluntary deregistration. By carefully navigating these steps and considerations, businesses can better position themselves to comply with regulations and address stakeholder concerns effectively.
1. Overview of Voluntary Deregistration
A company in China cannot simply cease operations; it must formally terminate its legal existence through the deregistration process. This involves the following key stages:
(a) Declaration of dissolution.
(b) Formation of a liquidation group.
(c) Asset liquidation and debt settlement.
(d) Submission of a liquidation report.
(e) Deregistration with the relevant authorities.
The primary goal of this process is to safeguard the interests of creditors, employees, shareholders, and other stakeholders while ensuring compliance with tax and regulatory obligations.
2. Procedural Steps
Step 1: Resolution of Dissolution
The decision to dissolve must be approved by a resolution of the company’s shareholders. A two-thirds majority vote is required under the Company Law of the People’s Republic of China. Alternatively, all shareholders may sign a unanimous written resolution.
Once the resolution is passed, the company must publish the dissolution notice within ten days on the National Enterprise Credit Information Publicity System (“NECIPS”).
Step 2: Formation of the Liquidation Group
The board of directors is responsible for appointing a liquidation group within 15 days of the dissolution decision. The liquidation group shall consist of directors by default unless the company’s articles of association or a shareholder resolution specifies otherwise. The leader of the liquidation group shall be appointed by a resolution of the company’s shareholders from among the group members.
Failure to form a liquidation group may result in court intervention, with the court appointing an external liquidation administrator. The liquidation group must, within 10 days of its formation, announce the names of its members and leader via the NECIPS.
Step 3: Notification to Creditors and Debt Claim Submission
The liquidation group must notify known creditors within 10 days of its formation and publish a public announcement on NECIPS or in a newspaper within 60 days. The public notice must include the following details:
- The notice period.
- Contact person for debt claims.
- Contact information.
- Address for submitting claims.
Creditors must submit their claims within 30 days of receiving the notice or within 45 days from the public announcement date if they were not directly notified. Creditors’ claims should specify the nature of the debt and include supporting documentation. The liquidation group is responsible for maintaining a registry of all submitted claims.
No repayments to creditors are permitted during the debt claim submission period.
Step 4: Liquidation Activities
While accepting claims from creditors, the liquidation group will simultaneously undertake other critical activities related to the company’s liquidation. These responsibilities include the following key actions:
A. Asset Valuation and Inventory Compilation
- Identify and appraise company assets.
- Compile a comprehensive asset-liability statement and property inventory.
- Apply to the court for bankruptcy proceedings if assets are insufficient to cover debts.
B. Liquidation Plan Development
- Develop a detailed liquidation plan based on the asset and liability assessment.
- Submit the plan for approval to the shareholders. If the liquidation group is court-appointed, the plan must instead be submitted to the court for approval.
C. Execution of the Approved Liquidation Plan
- Resolve unfinished business activities.
- Handle matters related to deregistration of branches, exit of external investments, and disposal of pledged equity.
- Settle employee wages, social insurance contributions, and administrative fines.
- Pay customs and tax dues, including any penalties and overdue amounts, and handle necessary tax documentation.
- Clear outstanding debts and claims.
- Liquidate/sell the remaining assets after settling the company’s debts.
During the liquidation period, the company remains in existence but must not engage in activities unrelated to the liquidation.
Step 5: Distribution of Remaining Assets
After settling liquidation expenses, employee wages, social insurance fees, statutory compensation, and outstanding taxes and debts, any remaining assets are distributed to shareholders based on their capital contributions. Shareholders cannot receive distributions of remaining assets until all debts are cleared as required by law.
Step 6: Final Liquidation Report and Confirmation
Upon completion of the liquidation process, the liquidation group must prepare a detailed liquidation report and submit it for confirmation to the shareholder or the court. The confirmation of the liquidation report requires the approval of shareholders representing at least two-thirds of the voting rights.
Step 7: Deregistration with Authorities
After completing the liquidation process, the liquidation group must apply for deregistration with the relevant authorities, addressing the following steps:
A. Tax Deregistration
The company must apply to the tax authorities for deregistration. During this process, the tax authorities will conduct a preliminary review to check for any outstanding matters. If unresolved issues are identified, the tax authorities will issue a Tax Matters Notification to the company, specifying the pending issues. The company must resolve all outstanding matters before proceeding with the tax deregistration. Once the review is complete and no issues remain, the tax authorities will issue a Tax Clearance Certificate.
B. Customs Deregistration (if applicable)
Companies involved in customs-related activities must apply for deregistration of their customs registration. Any outstanding taxes (including late fees), penalties, or other unresolved matters must be settled before the customs deregistration can be processed.
C. Business Deregistration with the Relevant Branch of Market Supervision and Administration Bureau
The liquidation group must apply to the relevant branch of the Market Supervision and Administration Bureau (the “company registration authority”) for deregistration within 30 days of completing the liquidation. The following documents must be submitted:
- Application for deregistration.
- Resolution or decision for deregistration.
- Confirmed liquidation report.
- Tax Clearance Certificate.
If the company has been issued a physical business license, both the original and duplicate copies must be returned to the company registration authority. After applying for deregistration, the company is prohibited from engaging in any production or business activities unrelated to the deregistration process.
D. Social Insurance Deregistration
The company must apply for social insurance deregistration within 30 days of completing its deregistration with the company registration authority. All outstanding social insurance fees, late fees, and penalties must be cleared before the deregistration is processed.
Step 8: Closure of Bank Accounts and Disposal of Seals
The company must close all bank accounts and render its official seals void. These actions mark the final step in terminating the company’s operational footprint.
3. Simplified Deregistration Procedures
A. Eligibility
Companies may qualify for simplified deregistration if:
- No liquidation proceedings are necessary due to the absence of unresolved debts or financial obligations.
- No outstanding liabilities exist, including debts, employee wages, social insurance fees, statutory compensation, or taxes (including late fees and penalties).
- No unaddressed violations or compliance issues are pending.
- Shareholders have provided or are willing to provide a written guarantee affirming the truthfulness of the above conditions, accepting joint liability for any false claims.
B. Preliminary Procedures
Before initiating a simplified deregistration process, a company must also first complete the deregistration of its branches and settle all outstanding tax and customs obligations. Additionally, the company may verify with the company registration and tax authorities its eligibility to waive the requirement for a tax clearance certificate. This waiver may apply if the company has not engaged in any taxable transactions or business operations since its establishment.
C. Application Process for Simplified Deregistration
The company must submit an “Application for Deregistration of Enterprises” duly signed by the legal representative and a written commitment signed by all shareholders to the company registration authority.
The commitment and deregistration application must be published on the NECIPS platform for a 20-day public notice period. During this time:
- Creditors, stakeholders, or relevant authorities may raise objections.
- Tax authorities will conduct a review and raise objections if there are unresolved tax or social insurance issues.
If no outstanding matters are identified, the application can proceed without delays. After the 20-day notice period, if no objections have been raised, the company may complete the deregistration process within the following 20 days. During and after the notice period, the company is prohibited from engaging in any activities unrelated to deregistration.
D. Post-Deregistration Steps
After completing the simplified deregistration process, the company must also complete social insurance deregistration and close all bank accounts and dispose of official seals.
4. Foreign-Invested Enterprises (FIEs): Special Provisions
FIEs face unique deregistration requirements beyond standard procedures. These include:
A. Approvals Related to Negative List or Licensing Requirements
FIEs involved in sectors listed under the Foreign Investment Negative List or requiring industry-specific licenses may need prior approval before deregistration.
B. Reporting with the Ministry of Commerce (MOFCOM)
FIEs are required to submit a deregistration report to the Ministry of Commerce (MOFCOM). However, submitting deregistration documentation to the company registration authority fulfills this requirement, as the latter forwards relevant data to MOFCOM, eliminating the need for separate submissions.
C. Deregistration with Foreign Exchange Administration
FIEs must deregister their basic foreign exchange information registration with designated foreign exchange banks before deregistration is complete. This step typically occurs after the liquidation announcement period and before the business license is canceled. Required documents include:
- For standard deregistration: a copy of the liquidation announcement. For simplified deregistration: a printout of the no-objection notice from NECIPS with the company’s official seal.
- A signed statement confirming that all corporate debts and liabilities have been fully settled and that no equity (or investment interests) is subject to freezing, pledges, or mortgages.
- Tax Clearance Certificate, if applicable.
D. Outbound Fund Transfers
For liquidations involving outbound transfers of remaining assets, FIEs must complete tax clearance in compliance with relevant regulations. They are also required to submit a liquidation audit report, prepared by a certified accounting firm, to the designated foreign exchange bank handling the transfer. This report must detail any gains distributed to foreign shareholders. If the company plans to apply for tax treaty benefits, pre-approval may be necessary before obtaining tax clearance and completing the foreign exchange settlement.
E. Closure of Foreign Exchange Accounts
Foreign exchange accounts must be closed before invalidating the company’s official seals. Companies may choose to close these accounts either concurrently with outbound fund transfers or after the transfers have been completed.
5. Challenges and Practical Considerations
A. Preliminary Self-Audit
Before initiating the deregistration process, companies are strongly advised to perform a thorough self-audit. This process helps uncover and address potential issues that might impede or complicate deregistration. Key steps include:
- Assessing Deregistration Feasibility: Evaluate the potential costs and challenges of deregistration. For example, companies with complex legacy issues, such as property disputes or unresolved debts, should carefully analyze the risks of proceeding.
- Reviewing Historical Audits: Confirm whether all required audits for previous years have been completed. This will have implications on tax clearance and other regulatory processes.
- Checking Regulatory Status: Ensure the company has not been listed as an irregular operation or abnormal entity due to non-compliance, such as failing to file annual reports.
- Updating Registration Records: Ensure that all required registration updates, such as changes to legal representatives or directors, have been properly recorded with the relevant authorities. For instance, if the legal representative has changed but this update has not been officially registered, it could hinder the deregistration process with the company registration authority. This is because the deregistration forms must be signed by the legal representative currently recorded in the system, who may also be required to personally verify their identity during the process.
- Resolving Tax Issues: Confirm that the company’s tax account is in good standing and not marked as “abnormal.” Address any missing filings or unresolved tax matters, ensuring that credentials such as accounts and passwords are accessible.
- Evaluating Financial and Legal Obligations, and Anticipating Bankruptcy Risks: Assess assets, liabilities, and contracts, using the latest balance sheet as a baseline. Determine whether there is any likelihood of insolvency or bankruptcy based on the company’s financial condition.
The purpose of this audit is to identify and resolve potential challenges in advance, ensuring a smooth and efficient deregistration process. By proactively addressing matters such as employee terminations, intellectual property disputes, real estate issues, or the disposal of international investments, companies can develop effective strategies to mitigate risks and avoid delays. This thorough preparation not only streamlines the liquidation and deregistration process but also safeguards the company against unforeseen liabilities.
B. Ongoing Obligations Before Completing Liquidation
Companies must continue submitting annual reports to the company registration authority on time and maintain a fixed contact address. Failure to do so may result in the company being listed in the abnormal business directory by the company registration authority. Companies must also continue to maintain proper bookkeeping, conduct audits, and file tax returns on a regular basis.
6. Conclusion
Voluntary deregistration is a meticulous process requiring strict adherence to statutory requirements and practical foresight. The operational details may be subject to updates, and specific requirements can vary across different regions. Companies are advised to engage legal, tax, and accounting professionals to navigate the complexities and ensure compliance. Proper planning and execution not only mitigate risks but also preserve the rights and interests of all stakeholders involved.
For further information, please contact:
Liuyan Lan, Partner, Anjie Broad Law Firm
lanliuyan@anjielaw.com
