The Legal Provisions Of Foreign Capital Mergers And Acquisitions

Generally speaking, international direct investment is divided into two ways: newly built foreign-funded enterprises and domestic enterprises.

In the initial stage of reform and opening up, foreign direct investment in China mainly used "money invested" and "physical capital" to set up "three funded enterprises".

Since 90s, the direct investment in mergers and acquisitions of Chinese enterprises has become the main way of foreign investment in China.

Because the foreign M & A has a more obvious advantage than the new way, therefore, with the further opening of China's market, the foreign capital M & A has been developing vigorously and rapidly, but the relative legal regulations are lagging behind. The regulations already issued are mostly normative documents, and the legal order is relatively low, which brings some inconvenience to the practical operation.

This article will preliminarily discuss the legal practice of foreign mergers and acquisitions.

Company merger and acquisition (M&A) is the abbreviation for the merger and acquisition of a company.

There are differences between acquisitions and mergers.

The merger of a company means that by pferring the ownership of the company, all assets and responsibilities of one or more companies are pferred to another company. The acquirer obtains all the assets of the merged party and assumes the debts of the merged party. The annexation party must be dissolved.

Corporate takeover refers to the acquisition and control of a company by acquiring assets or shares. After the acquisition, the Target Corp can survive, and the acquirer generally does not assume Target Corp's debts.

The basic form of acquisition: according to the target of purchase, it can be divided into asset acquisition and share purchase. The former refers to the acquisition of all or most of the assets acquired by the acquirer; the latter refers to the acquisition of all or part of the shares of the Target Corp by the acquirer.

The basic form of annexation: one is absorption and merger, that is, a company absorbs one or more other companies and is disbanded by the absorption company.

The other is the new merger, that is, the merger of two or more companies to form a new company and the dissolution of the merger parties.

There are several basic principles for foreign investors to enter China's market through merger and acquisition.

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In accordance with the investment orientation encouraged and permitted by the "Interim Provisions on guiding foreign investment in China" and "Guidance Catalogue for foreign investment industries", foreign investors can buyout all the assets of the relevant state owned enterprises, collective enterprises and private enterprises in China, and complete the annexation to form wholly foreign-owned enterprises, so as to make the enterprise a wholly owned subsidiary.

Foreign investors can also buy part of the shares or assets of Chinese enterprises to achieve partial acquisitions.

Part of the share buyout can be purchased through the reorganization of the original enterprises in our country, acquiring more than 50% of the original shareholders of the enterprise or increasing the capital of the subscribing enterprises, so as to achieve the purpose of controlling the operation and management of the enterprises, or to achieve the purpose of holding shares or holding shares by holding a large number of B shares or H shares in the listed companies issuing A shares and B shares or H shares at the same time.

Foreign investors can also buy part of the assets of our domestic funded enterprises, and use this part of their assets as investment to form new foreign-invested enterprises to achieve some asset acquisitions.

Mergers and acquisitions are usually acquired through the acquisition of Chinese shares in foreign-funded enterprises or in the form of capital increase and subscription.

That is to say, on the basis of the original foreign-funded enterprises, Chinese shareholders reduce or withdraw, and foreign investors (including former foreign investors and foreign investors who are newly entering the Chinese market) are allowed to withdraw or reduce their shares, or the foreign investors increase their capital and expand their shares, so that the Chinese side will not participate in the capital increase and reduce their shareholdings accordingly, so as to enable foreign investors to enter the Chinese market by merger and acquisition or become shareholding by shares.

If a foreign investor already has a foreign-invested enterprise with legal person qualifications in the territory of China, then the foreign investment enterprise as a legal person of our country shall apply the relevant laws and regulations of the merger and acquisition of domestic enterprises while enjoying the merger and acquisition of Chinese enterprises, enjoy the rights and obligations of our legal persons.

However, if the M & A in the central and western parts of China is converted to more than 25% of the corresponding foreign capital ratio, it can also enjoy the treatment of foreign-invested enterprises, and if it is reinvested in profits from foreign invested enterprises within the country, it can also enjoy certain rebate benefits.

Indirect acquisition refers to the acquisition of shares in foreign companies by foreign investors outside China through the acquisition of foreign invested enterprises in order to indirectly own the shares of foreign invested enterprises.

The advantage of this acquisition method is that it is purely an offshore paction in China. Without the approval of any country in China, it is also very convenient to pfer the shares of our overseas companies, nor do we need to pay the relevant tax burden of our country. We only need to change the registration of the legal representatives and board members. However, the daily operation and management of foreign investors participating in or controlling foreign investment enterprises are relatively indirect. Moreover, lawyers need to make a due diligence investigation of foreign companies and foreign-funded enterprises within the country, so as to increase the cost of investigation.

Merger and acquisition of foreign capital is a very complex systematic project. It is difficult for both sides to complete the merger. They need assistance from investment banks, accounting firms, law firms and other professional intermediaries.

Especially lawyers, their legal services play a decisive role in foreign M & A activities. Lawyers provide their enterprises with M & a strategic plan with their professional knowledge and experience, choose the legal structure design of mergers and acquisitions, make due diligence, provide price determination and payment arrangements, coordinate the accounting, tax and professional consultants who participate in the acquisition work, and finally form a legal opinion on mergers and acquisitions and a complete set of merger and acquisition contracts and related agreements.

Usually, the implementation of a foreign M & A activity can usually be divided into four stages, namely, the preparatory stage of mergers and acquisitions, the survey stage of mergers and acquisitions, the stage of mergers and acquisitions and the stage of mergers and acquisitions.

From the point of view of the buyer (foreign merchant), the preparatory stage of the merger is the period from the buyer's preliminary determination to the preparatory work until the buyer completes the acquisition of the Target Corp.

From the point of view of the seller (China), the preparatory stage of the merger is the period from the seller's decision to the sale plan and the initial determination of the buyer's decision.

The main contents of the legal services at this stage are to assist buyers in collecting public information and information from Target Corp. Through analysis of public information and information, we can determine whether barriers affect M & A activities. By comprehensively studying the relevant laws and regulations of company law, securities law, competition law and tax law, we can determine the legality and feasibility of the M & A activity.

In the early stage of mergers and acquisitions, foreign investors should choose the target list of foreign investment according to the guidance list of foreign investment, and judge whether the industry chosen by the Target Corp will allow foreign investors to purchase and merge, and do not allow wholly foreign-owned industries. Mergers and acquisitions should not lead to foreign investors holding all the shares of the enterprise. The merger and acquisition of enterprises into foreign-funded enterprises must also meet the requirements for the establishment of foreign-funded enterprises stipulated in the detailed rules for the implementation of foreign investment law of the People's Republic of China.

Mergers and acquisitions, which are controlled or dominated by state-owned assets, should not lead foreign investors or non-state-owned enterprises to dominate or dominate.

If a preliminary agreement is reached after negotiations between the buyer and the seller, a letter of intent or Memorandum (MEMO) will be signed, which will serve as the basis for further consultation and review of the agreement reached between the two parties.

Generally speaking, whether the letter of intent constitutes a legally valid contract depends entirely on the intention of the parties concerned.

Among the more common binding provisions, such as confidentiality clause, exclusion clause, stock lock clause, cost sharing clause, etc.

In addition, the time table for the operation of mergers and acquisitions is also required to specify the obligations of the two parties in each period.

Due diligence is one of the most important jobs of lawyers in foreign mergers and acquisitions. It is also a stage where lawyers are prone to omissions. There have been precedents for clients who are not responsible for the investigation of lawyers.

Knowing the actual state of the Target Corp is very important for the buyer's decision whether to take M & A. therefore, the investigation list drawn up by the buyer's lawyer must be exhaustive, so as to fully understand the basic situation of the enterprise, including legal status, capital credit, property status, debt and debt, tax payment, contract rules, dispute lawsuits, social security of personnel, etc., so as to ensure that the first-hand information is obtained in a detailed and accurate way, and the risks and potential risks of mergers and acquisitions will be minimized.

As a seller lawyer, first of all, we should examine the main qualification of the M & A, confirm the behavior of the M & a first from the credit, payment and operational strength, and confirm whether there is a paction qualification. Secondly, we should understand the list of the foreign M & A parties, which is of great significance for clearing up all kinds of problems of Target Corp, timely processing and packaging legal technology, and ultimately completing the M & a smoothly.

When the buyer and the buyer conclude each other's investigation, they enter the execution stage of the merger and acquisition. After negotiation and negotiation, the two parties have signed the merger agreement. The main contents are composed of the main contract and the two parts of the annex.

In the main contract, besides the main clauses such as contract price, deposit terms, payment method, liability for breach of contract, application of law, dispute resolution, agreement's entry into force and modification, generally, the following important provisions should also be possessed:

It includes: the resolutions agreed by the respective board of directors that have been obtained by both sides; the authorized representatives of both sides have already obtained the lawful authorization of signing the contract for merger and acquisition; both sides have already obtained the necessary agreement and approval of the third party involved in the merger; all the statements and warranties of the two parties in the merger and acquisition activities should be fulfilled practically on the date of delivery; after all the prerequisites have been met, the two parties will fulfill the obligation of share pfer and payment.

Representations and guarantees mean liability and compensation, and the seller tries to narrow the scope of representations and guarantees, and the buyer will demand more statements and guarantees. Therefore, the scope of representations and guarantees is often the focus of negotiations between the two sides.

Statements and warranties generally include: the seller expresses to the buyer and guarantees that no major problems are concealed; the seller promises to maintain the Target Corp status and proper management during the pition period; the buyer expresses to the seller and guarantees that he has legal capacity and financial capability to acquire Target Corp; the two sides promise to have confidentiality obligations for all relevant information.

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In order to ensure that the two sides can perform their contracts in good faith, the purchase price can be agreed to be paid to third persons, usually banks or lawyers, or supervised by third people.

This clause also applies to the deposit or delay payment paid by the buyer.

In addition to the conditions authorized by the authorized representatives specified by the two parties, no party has the right to recover the custody or supervision funds from the depositary. In order to ensure the buyer's interest, a part of the funds will be required to be retained as a deposit and then paid to the seller by the depositor or the supervisor after the paction has been completed for a certain period of time.

There was a case in which the buyer took over shortly after the completion of the merger, and discovered that Target Corp had problems such as tax evasion and social insurance. However, because the contract price had already been paid, it had no effective restriction on the seller, and many negotiations were fruitless. It could only be handled according to the contract. The result was time-consuming and laborious.

Due to the fact that the agreement is usually signed for several months in the formal pfer period, the buyer usually wishes to intervene in the management of Target Corp or supervise the operation and management of Target Corp during this period. As a result, the seller will instinctively refuse to obstruct the buyer's intervention. Therefore, the pitional arrangement is crucial for smooth pition.