March 30, 2009

China Strengthens Management of the Appraisal of Capital Contribution via Non-Cash Contributions

On March 30, 2009, the Ministry of Finance and the State Administration for Industry and Commerce jointly issued the Circular on Several Issues Concerning the Management of Appraisal of Capital Contribution via Non-Cash Properties (the "Circular"). According to the Circular, an asset appraisal is required in the following circumstances: (i) an investor makes a non-cash capital contribution, e.g., in-kind, intellectual property and land use rights, which coincide with the "permitted" forms of non-cash contributions stipulated by the PRC Company Law ("Non-Cash Contributions"); and (ii) at the time of capital verification or application for corporate registration, the capital verification agency or investor detects the status of the Non-Cash Contributions has changed significantly, or the value of such Non-Cash Contributions may have changed significantly, compared with the appraised in the abovementioned circumstance. The Circular further specifies that the investor shall be liable for the authenticity and validity of the Non-Cash Contributions, and that appraisal agencies shall be liable for the reasonableness of their appraisals of Non-Currency Contributions. Generally, the Circular appears to provide for stricter regulation of Non-Cash Contributions.

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