For foreign investors managing their subsidiaries in mainland China, dealing with company registration can be an irksome “full life cycle” lasting from incorporation until dissolution.

Unless being guided by experienced advisors, several weeks if not months may be spent in couriering documents back and forth just to get signatures done right so filings can be acceptable to officials at the SAMR (State Administration of Market Regulation), which used to be known as the SAIC (State Administration of Industry and Commerce).

Company registration in China is more than forms and information on file with the SAMR. Timely updated company registration is essential for banking, online payment processing, customs clearance and tax compliance among others.

Operationally speaking, company seal (a/k/a common seal) is also part of the registration as the seal is required in filing most documents with the SAMR. Production of company seals is regulated by the Public Security Bureau (the Police) and as such, company seals cannot be ordered from any stationary shops at will. Faking a company seal is subject to criminal prosecution.

It is not uncommon for many foreign investors to engage local law firms and/or CPA firms to take custody of company seals of local subsidiaries, which inevitably adds costs and delays.

All these hassles are on the way out as Electronic License and Electronic Seal are being adopted in Shanghai, Beijing, Shenzhen and beyond. In Shanghai, the reform has already begun in earnest. Several notable points are as follows:

  • E-license and E-seal are meant to relieve enterprises from the burden of repeatedly using traditional seals and printed licenses in dealing with multiple regulatory agencies. The objective is to achieve one stop e-verification of enterprise identities across multiple settings.
  • For newly established business entities, both E-license and a set of E-seals (including one enterprise name seal, one financial seal, one seal for invoices, one seal of the legal representative, one digital certificate, one key of electronic signature and one mold of stamps) will be provided by the SAMR at the same time. E-seals are bound with E-license, which are to be issued free of charge.
  • At the present time, the Shanghai Government does not intend to use electronic enterprise name seal to replace traditional company seal as enterprises will have to rely on traditional chops in dealing with other counterparties in business transactions and regulatory filings across China. But one thing is clear: the reform towards e-verification for regulatory matters is not limited to Tier 1 cities as this initiative is mandated by the State Council for nationwide coverage.
  • Existing entities may apply for E-license and E-seal, which make many governmental filings much easier to process.
  • In addition to Legal Representative which is a statutory position, a new role is created for handling E-license, namely License Administrator. License Administrator is given the authority to access and use E-license and to appoint agent(s) for dealing with regulatory agencies on behalf of the licensed legal person(s). Legal Representative has the authority to revoke Power of Attorneys issued by License Administrator.
  • Legal Representatives residing overseas will be relieved from the chores of signing off many documents to be filed with regulatory agencies.
  • In order to activate E-licenses, legal representatives must use a special WeChat mini program or AliPay mini program to install the specific App on mobile devices. At this writing, it seems only Shanghai allows foreign-based legal representatives to activate E-licenses without providing identity verification off line.

We are at the dawn of a new era in which regulatory filings get processed on mobile devices. Foreign invested enterprises will find doing business in China becomes notably easier.

06/30/2021

 

 

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