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What is the procedure to change the business scope? 

  • First, the Shareholder(s) or the Director(s) of the company should adopt a written resolution or convene a shareholder meeting or board meeting to obtain their approval to change the business scope and amend the Articles of Association;
  • Then the Articles of Association should be revised according to the shareholders’ or directors’ decision;
  • If the change of business scope involves a specific pre-approval or certificate, the application to change the business scope shall be applied with the SAMR within 30 days of such pre-approval date or certificate issuance date by relevant authorities;
  • Finally, upon duly registered with the SAMR, the company will receive its revised business license;
  • The company’s tax registration shall also be updated with the Tax Bureau within 30 days after the SAMR approval to change the business scope. Such new registration with the Tax Bureau may interrupt the issuance of fapiao (Chinese invoices) and should, therefore, be anticipated.

What will happen if an FIE carries out activities exceed its business scope?

Company:

  • The local SAMR where the company was registered (i) will first send a notice to the FIE requiring it to change the registered business scope with the SAMR within certain timeframe, and (ii) has the discretion to give the company penalties such as a warning, confiscation of illegal gains, a fine up to RMB 30,000 on a case-by-case basis. In case of failure to comply with such regulation, the company will be imposed a fine up to RMB 10,000.
  • For business activities which shall be conducted after obtaining specific approval, instead of ordering the company to change its business scope, the local SAMR where the company was registered (i) will first send a notice to the FIE requiring it to suspend business for rectification, and (ii) impose other penalties such as warning, fines, confiscation of illegal gains. Under this situation, the SAMR can also revoke the business license of the company depending on the situation.

Legal Representative:

For certain business activities restricted or prohibited by laws and regulations, it might incur fines imposed by the SAMR, other administrative penalties, even criminal liabilities to the legal representative of the company. 

Contracts:

  • The contracts signed outside of the business scope will remain valid and effective except for businesses restricted or prohibited by laws and regulations of the PRC.

-> This article may also be of interest to you : Main Administrations in China : Who to deal with when doing business in China ?

To know more, download our legal handbook related to setting up a business structure in China …

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