JV Contract Revisions Roadmap · 2020. 1. 7. · JV Contract Revisions Roadmap 3 This is where we...

JV Contract Revisions Roadmap

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docQbot New FIL Forms

Existing JV Contract Revisions Roadmap

Date: 1 October 2019

Thank you for downloading docQbot’s Existing JV Contract Revisions Roadmap! Please

take a few minutes to read the important information below regarding how to use this JV

Contract Revision Roadmap.

Background

Under the new Foreign Investment Law (“FIL”) all 125,000-plus existing Sino-foreign joint

ventures will need to undergo conversion into limited liability companies (“LLCs”) under the

Company Law prior to the end of 2024. This will not be a simple or straight-forward exercise

since these existing Sino-foreign joint venture contracts will need to be extensively revised to

conform to the vastly different corporate governance requirements under the Company Law.

While WFOEs in many (but certainly not all) cases are expected to simply replace their old

articles of association with an entirely new set of articles that comply with the requirements of

the Company Law, it is anticipated that Sino-foreign JVs will be much more likely to revise

their old JV Contracts to make the necessary conforming changes to delete the legacy

clauses which are no longer required as a matter of law and to insert new provisions which

are in compliance with the provisions of the Company Law.

This will entail much more than the simple deletion of some old clauses and insertion of

some new clauses. To properly reflect even the basic corporate governance requirements

under the Company Law, revisions will need to be made throughout the entire JV contract.

Moreover, the Company Law provides the parties with much more flexibility than was

previously available under the EJV Law or the CJV Law. This creates both opportunities as

well as challenges as it will open up new areas for possible negotiation.1

Purpose and Scope of this JV Roadmap

In this Existing JV Contract Revisions Roadmap (“JV Roadmap”) our relatively modest

objective is to map out in general terms some of the key provisions of legacy JV contracts

that are likely to need to be revised in order to come into compliance with the requirements

under the Company Law. Of necessity, this is provided solely for reference since the base

legacy JV contract in each particular case will not be identical in form or substance and the

changes to be agreed by the parties will also differ from transaction to transaction. The

relationship dynamics between the parties (including relative shareholding percentages and

other factors) will also impact the renegotiation process.

For the base JV contract we have opted to use a modified version of a template (“JV Base

Template”) drafted in 2005 by Robert Lewis, docQbot co-founder and Chief Expert (then

managing partner of the Beijing office of Lovells), and John Jiang (then co-founding partner

of EastBright Law Firm and now a partner in Zhong Lun Law Firm). This JV Base Template

1 There are many more additional considerations in respect of joint venture conversion under the FIL

which are addressed in greater detail in the book, The Dawn of a New Era for FDI in China (“New Era

for FDI”), written by Robert Lewis, docQbot co-founder and Chief Expert, and published by Law Press

China.


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was one of several sample templates produced as part of series of legal skills training

programs conducted by Mr. Lewis and Mr. Jiang in cooperation with the All China Lawyers

Association. These templates received broad circulation and were adopted as a primary

reference base by many FDI lawyers across China over the succeeding years. Thus, this JV

Base Template is representative of many JV contracts of its era generally and provides a

useful base for comparison purposes.

In terms of approach, we have used the annotations to the free sample docQbot JVA

template as set out in the New Era for FDI book as a guide in connection with the preparation

of this JV Roadmap. Rather than produce a detailed mark-up of the JV Base Template, we

have instead chosen simply to highlight clauses which the parties may elect to revise and at

the same time provide some modest high-level guidance in the form of margin comments.

Users are invited to refer to the detailed clauses in the free sample docQbot JVA template

and the related annotations in the New Era for FDI book for additional guidance and sample

reference clauses which reflect and incorporate corporate governance terms which conform

to the requirements of the Company Law.

A quick look at the JV Roadmap will disclose that the number of required or possible

revisions to be made to an existing JV contract will be quite substantial in nature and scope

and will thus require ample time for discussion and negotiation. Consequently, it is

recommended that each party to a Sino-foreign joint venture undertake an assessment of the

JV contract early in the grace period and determine the preferred approach to and timing for

conversion. Investors which leave this assessment to too late may face additional

constraints and loss of negotiating leverage depending on the circumstances of each

particular joint venture deal.2

Use of the JV Roadmap

As is the case with the other free sample FIL-compliant templates provided by docQbot, we

are providing this JV Roadmap free of charge in the hopes that you will in fact use it and that

it will prove helpful to you in the new post-FIL legal environment.

The post-FIL era is expected to usher in a second golden age for FDI in China, but it will also

be a time of intense price competition for that part of the work that investors will rightly expect

can be commoditized. The objective for FDI practitioners will be to preserve existing client

relationships and capture new client relationships by offering superior service quality at a

competitive price at the initial stage (which will involve a much higher degree of repetitive

work) in order to be in a position to capture the more bespoke and high-value JV contract

renegotiation work as well as a continuing long-term client relationship.

From the perspective of in-house counsel and investors, they clearly want to reduce costs

but not at the expense of quality of service, particularly given the critical importance of

corporate governance in joint venture relationships which are already inherently sensitive

and challenging. In addition, in many cases the in-house legal team will take the lead

internally and advance the JV contract renegotiations well down the road before engaging

outside counsel.

2 See chapter 3 of New Era for FDI for a more extensive discussion of timing considerations in

connection with the renegotiation of existing JV Contracts and the undertaking of related entity

conversion procedures, and chapter 4 in respect of the projected impact on the China legal

services market.


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This is where we at docQbot come in. With such high projected volumes of conversion and

JV contract renegotiation work, particularly in the latter half of the five-year grace period

under the FIL, the traditional legal services model will inevitably prove to be too expensive

and time consuming for several key work segments of the JV conversion process, resulting

in potential disruption of many existing lawyer-client relationships where the external lawyers

are unable to adapt to changing market dynamics. docQbot’s cutting-edge LegalTech tools

and market-leading know-how for the post-FIL legal environment are designed to cut through

this proverbial Gordian knot, helping FDI lawyers do more work for more clients and in-house

counsel save time and costs.

In addition to the entire docQbot FDI/FIE ecosystem, we are in the process of creating a

suite of new tech-supported tools and know-how that will drive dramatic increases in

efficiencies in the FIE conversion process overall, one set for investors and in-house counsel

and a second set for FDI lawyers, creating a win-win scenario for all parties. Once the new

FIL implementation regulations are issued (currently expected in December 2019 ahead of

the effectiveness of the FIL), we will be in a position to finalize preparation of all of the

LegalTech and know-how elements of our online/offline FIE entity conversion solutions, so

stand by for updates!

Now for the Legalese

You would have no respect for us as lawyers if we didn’t include a full set of disclaimers, so

here goes!

The JV Contract Revision Roadmap is provided for instructional and reference purposes only

and should not be construed as legal advice. Users may use and revise this JV Roadmap

without restriction for their own internal purposes and in connection with the provision of legal

services for their internal or external clients and otherwise subject to the applicable terms of

use. All other rights are reserved.

The user of this JV Roadmap is required to exercise independent legal judgment or take

independent legal advice in respect of each provision hereof and make any and all revisions

or supplements necessary or appropriate to ensure that such provisions (a) are applicable

and appropriate to the subject transaction, and (b) comply with relevant requirements of

applicable law as then in effect.

This JV Roadmap is provided as general guidance only on an “as is” and “as available”

basis, and no warranties, assurances and/or representations of any kind, whether express or

implied (including, without limitation, implied warranties of fitness for a particular purpose),

are made or given in respect hereof. Use of this JV Roadmap does not create an attorney-

client relationship between the user and any lawyer or law firm which is a member of the

Expert Committee.

Copyright Beijing DocQbot Shangwen Technology Data Co., Ltd. 北京尚问智能数据科技有限

公司 (Company No. 91110108MA018Y426Y) (“docQbot”) 2019.

Comments Welcome

Our mission is to help you save time and money on your China-related deals while reducing

risks and creating new value. To do so, we need your feedback, so let us know what you

think. We value your input. Please feel free to contact us at [email protected] with

any suggestions or for more information.

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[JOINT VENTURE CONTRACT]

THIS CONTRACT ("Contract") is made in [city and province], China on this [●] day of [●],

[YEAR] by and between [Party A name], [Party A entity form] established and existing under

the laws of China, with its [legal address] at [address] (hereinafter referred to as "Party A"),

and [Party B name], [Party B entity form] organized and existing under the laws of [Party B

jurisdiction of incorporation] with its [registered address] at [address] (hereinafter referred to

as "Party B"). Party A and Party B shall hereinafter be referred to individually as a "Party"

and collectively as the "Parties".

PRELIMINARY STATEMENT

After friendly consultations conducted in accordance with the principles of equality and

mutual benefit, the Parties have agreed to establish an equity joint venture in accordance

with the EJV Law and the EJV Implementing Regulations, other Applicable Laws, and the

provisions of this Contract.

NOW THE PARTIES HEREBY AGREE AS FOLLOWS:

1. DEFINITIONS AND INTERPRETATION

Unless the terms or context of this Contract otherwise provide, this Contract shall be

interpreted in accordance with, and each of the terms used herein shall have the

meaning ascribed to it in Schedule A.

2. PARTIES TO THE CONTRACT

2.1 Particulars of Parties

The Parties to this Contract are:

(a) Party A, [Party A name] (in Chinese: [(Chinese name)]), [Party A entity form]

established and existing under the laws of China with its legal address at

[Party A legal address] (in Chinese: [(Chinese address)]).

[Legal] [Authorized] Representative of Party A:

Name: [Party A rep name] (in Chinese: [(Chinese Name)]

Title: [Party A rep position]

Nationality: Chinese

(b) Party B, [Party B name], [Party B entity form] organized and existing under the

laws of [Party B jurisdiction of incorporation] with its registered address at

[Party B registered address].

Authorized Representative of Party B:

Name: [Party B rep name]

Title: [Party B rep position]

Nationality: [Party B rep nationality]

Commented [DQB1]: It will no longer be the required or preferred practice to style this as a “contract” as opposed to an “agreement as was the case under the old EJV Law. For new greenfield joint ventures going forward, the docQbot recommended form is to style this as a Joint Venture Agreement (JVA). However, it will also still be permitted to refer to this as a contract. Alternatively, in a post-conversion amended and restated JVA scenario it may also be appropriate to style this as a Shareholders Agreement (SHA) since the company establishment procedures will already have been completed and the company will already be in place.

Commented [DQB2]: In a post-conversion scenario, it may also be appropriate to add the company as a party in line with international practice. While this is permitted under the Company Law, it is less common in practice in China.

Commented [DQB3]: Upon conversion, the entity form will need to be changed, with the most likely option being a limited liability company under the Company Law.

Commented [DQB4]: All references to the EJV Law and EJV Implementing Regulations will need to be updated to refer to the Company Law.

Commented [DQB5]: Defined terms can appear in an annex on in the body of the agreement.

Commented [DQB6]: The Company Law requires that the AoA for a company set out the names of the shareholders. It has been customary for both legacy JV contracts and JV AoA to set out such particulars in a separate section as shown here, but this is not a strict requirement and so long as the shareholder names(s) are set out in the agreement this should be sufficient. Consequently, this legacy clause 2 may be retained or deleted. If it is retained, then the relevant particulars should be updated (the need to update regularly being one reason parties may prefer to omit this legacy clause in the traditional form from the agreement).

Commented [DQB7]: Note that there is a distinction between the legal representative and an authorized representative. Under Chinese law (which continues to apply), each Chinese company must designate and register a legal representative. Foreign companies do not have a legal representative and so would appoint an authorized representative.


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2.2 Parties' Authorised Representatives

Each Party shall have the right to change its legal or authorized representative and

shall promptly notify the other Party of such change and the name, position and

nationality of its new legal or authorized representative.

3. ESTABLISHMENT OF THE COMPANY

3.1 Establishment of Company

The Parties hereby agree to establish the Company promptly after the Effective Date

in accordance with the EJV Law, the EJV Implementing Regulations, other Applicable

Laws, and the provisions of this Contract.

3.2 Name of Company

The name of the Company shall be “[JV Chinese name]” in Chinese, and “[JV name]”

in English.

3.3 Company Legal Address

The legal address of the Company shall be [JV legal address], China (in Chinese:

[Chinese address]).

3.4 Company Branch Offices

The Company may establish branch offices inside China and overseas with the

consent of the Board and approval from the relevant governmental authorities.

3.5 Limited Liability Company

The form of organization of the Company shall be a limited liability company. [Neither

Party shall have any liability to the Company except to the extent of its agreed capital

contributions. The Company shall be liable to its creditors to the extent of its assets.]

3.6 Chinese Laws Applicable

The Company shall be a legal person under the laws of China. The Company shall

be subject to the jurisdiction of and shall be protected by all relevant laws, decrees

and rules and regulations of China. The activities of the Company shall comply with

the Applicable Laws of China.

4. PURPOSE, SCOPE AND SCALE OF OPERATION

4.1 Purpose of Joint Venture

The purpose of the joint venture shall be to utilize the combined technological,

management, operational and marketing strengths of the Parties within the approved

scope of business of the Company to achieve good economic results and a return on

investment satisfactory to the Parties.

4.2 Scope of Business

The scope of business of the Company shall be to [design, manufacture and market

[JV products] [to provide [●] services.]

Commented [DQB8]: The concept of effective date has changed now that the overall approval regime has been changed.

Commented [DQB9]: As per prior comment, these references will need to be updated.

Commented [DQB10]: All references to board approvals should be assessed as some matters may now require shareholders meeting approvals.

Commented [DQB11]: All references to government approvals must also be assessed as such approvals will no longer be required in all cases.

Commented [DQB12]: This is a legacy clause that reflected concerns of many foreign investors in earlier periods that the concept of limited liability may not be fully recognized and respected. These concerns are no longer relevant given that the concept of limited liability is now well established in China beyond dispute.

Commented [DQB13]: This is a legacy clause with no substantive effect and can be deleted.

Commented [DQB14]: Depending on the changes made to the clauses below, this heading may need to be revised.



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4.3 Business Plan

The Business Plan of the Company shall be established by the Board in view of

actual market conditions, expected sales volumes, the employees' ability to absorb

new technology and any other factors considered important by the Board. Such plan

may be expanded or reduced by the Board from time to time in light of market and

other relevant conditions.

4.4 Independent Entity

The Company shall conduct its business as an independent economic entity and will

operate autonomously.

5. TOTAL INVESTMENT AND REGISTERED CAPITAL

5.1 Total Investment Amount

The total amount of investment required by the Company is presently estimated by

the Parties to be [total investment amount].

5.2 Registered Capital Amount

The Company's registered capital shall be [registered capital amount].

5.3 Contributions to Capital

(a) Party A's contribution to the registered capital of the Company shall be [Party

A registered capital contribution], representing a [Party A equity share

percentage] share of the registered capital of the Company.

(b) Party B's contribution to the registered capital of the Company shall be [Party

B registered capital contribution], representing a [Party B equity share

percentage] share of the registered capital of the Company.

5.4 Payment of Registered Capital; Conditions Precedent

(a) Subject to Article 5.4(c) below, each Party shall make its contribution to the

registered capital of the Company in accordance with the schedule set forth in

Schedule C.

(b) Subject to Article 5.4(c) below, in the event that a Party fails to make its capital

contribution, in whole or in part, in accordance with the provisions of this

Contract, such Party shall be liable to pay simple interest to the Company at a

rate equal to [default interest rate] per annum on the unpaid amount from the

time due until the time the full outstanding amount including penalty interest is

paid to and received by the Company.

(c) Neither Party shall have any obligation to make its contribution to the

Company's registered capital until it has received each of the following

documents:

(i) a copy of the Approval Letter and the Approval Certificate approving

this Contract and the Articles of Association without Material

Modification; and


Commented [DQB17]: This is a legacy clause with no substantive effect and can be deleted. This reflected concerns of foreign investors in the early stages of FID in China that the autonomy of the joint venture company may not be respected by government officials. Since JV contracts previously required government approvals this clause was seen as a way to confirm these points.

Commented [DQB18]: The concept of total investment will no longer apply under the Company Law, so this should be deleted.

Commented [DQB19]: Same point as above.

Commented [DQB20]: For a post-conversion amended and restated JVA or SHA it may be more appropriate to state the registered capital in the present tense since the company already exists and has been capitalized while in this greenfield JV contract template the company was yet to be formally established.

Commented [DQB21]: See above.

Commented [DQB22]: See above.

Commented [DQB23]: For a post-conversion amended and restated JVA or SHA this may clause be deleted as the initial capital funding should have already been completed for older JVs (which were established at a time when capital contributions were subject to strict time limitations). If the parties have not completed their capital contributions, then it will be appropriate to assess whether this constitutes a breach of contract or violation of law. Appropriate revisions to this clause may also be made to reflect the actual circumstances at the time of the entity conversion.


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(ii) a copy of the Business License incorporating the business scope set

out in Article 4.2 without Material Modification.

(d) If the Approval Letter, Approval Certificate or the Business License (each

being an “Approval Document”) is issued with a Material Modification, the

Parties shall consult together to determine whether:

(i) to accept such Material Modification and waive the corresponding

condition precedent in Article 5.4(c), or

(ii) to apply to the relevant government departments to have such

Approval Document amended and re-issued in a form which remedies

the Material Modification to the satisfaction of both Parties.

In addition, if the Approval Letter and/or the Approval Certificate is issued with

a Material Modification, and the Parties do not agree to accept such Material

Modification and to waive the corresponding condition precedent, then the

Parties shall not apply to the SAIC for the issuance of the Business License

until such Material Modification is remedied to the satisfaction of both Parties.

(e) In the event that:

(i) any Approval Document is not issued within [ninety (90)] days of the

date of submission of the relevant application in respect thereof;

(ii) the Examination and Approval Authority rejects any of the documents

submitted for approval and the Parties cannot agree on the changes

needed to obtain such approval within [ninety (90)] days of the

notification of such rejection to the Parties; or

(iii) there is any Material Modification to any Approval Document that is not

accepted by the Parties and that cannot be remedied in the manner

described in Article 5.4(d) above within [ninety (90)] days of the date of

issuance of such original Approval Document,

and the Parties do not agree to waive the corresponding condition precedent

in Article 5.4(c) or to extend the time for fulfilling the same, then either Party

shall have the right to issue written notice to the other Party declaring this

Contract and the Articles of Association immediately null and void, whereupon

the Parties shall apply for the cancellation of the Business License (if issued)

and, where any capital contributions have been made to the Company, the

liquidation of the Company pursuant to Article 20.4. In such case, neither

Party shall have any right whatsoever to require the other Party to make any

further contribution to the registered capital of the Company or otherwise to

require any other performance of this Contract or (except in cases of wilful

misconduct) to claim any damages from the other Party.

5.5 Investment Certificates

When a Party has made all or any part of its contribution to the registered capital of

the Company, a Chinese registered accountant appointed by the Board shall verify

such contribution and issue a capital contribution verification report in the form

required under Applicable Laws. In accordance with such report, the Company shall

issue an Investment Certificate to the relevant Party. An interim certificate shall be

Commented [DQB24]: Investment certificates are no longer required.


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issued in respect of each partial contribution made by a Party. Upon completion of all

capital contributions by a Party, any interim certificate(s) shall be returned to the

Company for cancellation and a final Investment Certificate shall be issued. Any

interim or final Investment Certificate shall be signed by the Chairman and the Vice

Chairman of the Board and stamped with the Company seal, and shall certify the

amount of registered capital contributed by such Party and the date on which such

capital contribution was made.

5.6 Assignment of Registered Capital

(a) A Party may sell, transfer or otherwise dispose of (each a "transfer") all or any

part of its interest in the registered capital of the Company to any third party

only with the prior written consent of the other Party, the approval of the Board

and the approval of the Examination and Approval Authority. Upon receipt of

approval from the Examination and Approval Authority, the Company shall

register the change in ownership with the SAIC. All transfers shall be handled

in compliance with the Changes in Equity Interests of Investors in Foreign

Investment Enterprises Several Provisions issued by MOFCOM and the SAIC

on 28 May 1997 (“Changes in FIE Equity Interests Provisions”) and all

other Applicable Laws.

(b) If a Party (the "Assigning Party") proposes to transfer all or any part of its

interest in the registered capital of the Company to a third party, the other

Party shall have a pre-emptive right to purchase such interest at the price

offered to the third party. The Assigning Party shall notify the other Party in

writing of the terms and conditions of the proposed transfer. If the other Party

does not exercise its pre-emptive right of purchase within [thirty (30)] days

after delivery of such notice, such other Party shall be deemed to have

consented to such transfer and covenants that it will sign all necessary

documents in connection therewith and will cause the directors appointed by it

to attend in person, by proxy or by telecommunications any Board meeting at

which such transfer is to be considered and to vote in favor of a resolution

approving such transfer or to sign a written resolution circulated in lieu of such

a meeting of the Board, as the case may be.

(c) If a Party desires to sell all or part of its interest in the registered capital of the

Company to the other Party, and the other Party desires to purchase such

interest, the Parties shall request an Independent Appraiser to conduct a

valuation of the Company using the Industry Valuation Method. The

Independent Appraiser shall complete the valuation of the Company within

[forty-five (45)] days. The valuation determined by the Independent Appraiser

shall be the valuation adopted by the Parties for purposes of this provision

save that where the valuation is a State-owned asset valuation required by

Applicable Laws, the Parties may agree an adjustment to such valuation

where and to the extent permitted under Applicable Laws. The purchase price

for all or part of a Party's share of the registered capital of the Company shall

be calculated by multiplying the value of the Company as determined above

by the percentage of such Party's share of the registered capital to be

transferred.

(d) Notwithstanding clauses (a) and (b) of this Article 5.6 above, the Assigning

Party may transfer all or part of its amount of the registered capital of the

Commented [DQB25]: Under the Company Law, equity transfers are now subject to approval by more than half of the non-transferring shareholders.

Commented [DQB26]: Such transfers no longer require government approvals.

Commented [DQB27]: The State Administration for Industry and Commerce has now been replaced by the State Administration for Market Regulation. All references to government departments in the JV contract should be checked and updated as appropriate.

Commented [DQB28]: These provisions are expected to be repealed as part of the overall transition from the EJV Law to the Company Law under the FIL.


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Company to an Affiliate (the “Affiliate Assignee”) of the Assigning Party on

the following conditions:

(i) the Affiliate Assignee shall assume and undertake to perform fully all of

the obligations of the Assigning Party under this Contract [and to have

assigned to it any shareholder loans made by the Assigning Party to

the Company]; and

(ii) the Assigning Party shall acknowledge and agree that to the extent that

the Affiliate Assignee fails to perform any obligation hereunder the

Assigning Party is not released from, and remains jointly and severally

liable with the Affiliate Assignee for, the full performance of the

provisions of this Contract and any damages for the breach thereof.

The Affiliate Assignee and the Assigning Party each shall provide to the other

Party a written undertaking in respect of the foregoing in form and substance

satisfactory to the other Party. In respect of any transfer pursuant to this

clause (d), the other Party hereby waives its pre-emptive rights, waives notice

in accordance with clause (b) of this Article 5.6 above, irrevocably consents to

such transfer, covenants that it will sign all necessary documents in

connection therewith and covenants that it will cause the directors appointed

by it to attend in person, by proxy or by telecommunications any Board

meeting at which such transfer is to be considered and to vote in favor of a

resolution approving such transfer or to sign a written resolution circulated in

lieu of such a meeting of the Board, as the case may be.

5.7 Encumbrance of Investment

A Party may only mortgage, pledge or otherwise encumber all or any part of its

interest in the Company's registered capital in compliance with the Changes in FIE

Equity Interests Provisions and all other Applicable Laws.

5.8 Increase or Reduction of Registered Capital

(a) Any increase or reduction in the registered capital of the Company must be

(i) approved by a unanimous vote of the members of the Board present at a

meeting or by unanimous written resolution and (ii) submitted to the

Examination and Approval Authority for approval. Upon such approval, the

Company shall register the increase or reduction with the SAIC. Except as

provided in clause (b) below in respect of unilateral contributions to increases

in the Company’s registered capital, each Party shall contribute to any

increase or bear its proportionate share of such reduction in proportion to its

percentage interest in the registered capital of the Company at the time of the

increase or reduction.

(b) The Parties acknowledge that if the Company achieves the operations,

revenue and earnings targets anticipated by the Parties, one or more

increases in the registered capital of the Company will be required to support

the expansion of the Company's business. Each Party desires to facilitate

such expansion by contributing its proportionate share of the required

increase(s) in the registered capital of the Company. However, if a Party

(“Declining Party”) for any reason declines to contribute its proportionate

share of any required increase, then such Declining Party hereby irrevocably

agrees that the other Party may contribute the full amount of such increase in

Commented [DQB29]: See related comment above.

Commented [DQB30]: This is now subject to a minimum 2/3rds vote at the shareholders meeting.

Commented [DQB31]: Such approvals are no longer required except where the investment is subject to the Negative List.

Commented [DQB32]: See related note above.


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the registered capital unilaterally. The resulting changes in the Parties' relative

shares of the registered capital shall be handled in accordance with the

Changes in FIE Equity Interests Provisions and all other Applicable Laws. The

Declining Party hereby covenants that it will sign all necessary documents and

cause the directors appointed by it to attend in person, by proxy or by

telecommunications any Board meeting at which such matters are considered

and to vote in favor of all resolutions necessary or desirable to effect such

unilateral contribution to the increase in the registered capital of the Company

and the resulting change in the Parties' relative interests in the registered

capital of the Company or to sign a written resolution circulated in lieu of such

a meeting of the Board, as the case may be.

(c) In the event that the Company’s operations are reduced substantially from the

scale of operation originally anticipated by the Parties, or the Company

experiences substantial and continuing losses resulting in negative retained

earnings not anticipated by the Parties in the agreed Business Plan, or in any

other circumstance permitted under Applicable Laws or agreed by the Parties,

the Parties may agree to reduce the registered capital of the Company on a

pro rata basis. In determining the amount of any reduction in the Company’s

registered capital, the Parties may request an Independent Appraiser to

perform a valuation of the Company using the Industry Valuation Method,

and/or applying such other factors as the Parties mutually deem appropriate.

5.9 Additional Financing

(a) The Company may borrow the difference between the registered capital and

the total investment amount of the Company from time to time. The Company

may obtain loans from sources inside or outside China.

(b) Any external financing raised by the Company shall not confer any right on

any lender to acquire an interest in the registered capital of the Company or to

participate in the Business.

(c) If any guarantee is required as security for any external financing of the

Company approved by the Board in accordance with Article 8.2(c)(v), and if

the Parties agree to provide guarantees in relation to such financing, the

Parties shall severally guarantee the obligations of the Company under such

external financing in proportion to their respective interests in the registered

capital of the Company at such time as the guarantee is given (unless

otherwise agreed in writing by the Parties).

6. APPROVALS

6.1 Pre-Establishment Approvals

Party A shall[, and Party B shall use its reasonable endeavours to assist Party A to]

obtain, in a timely manner, all necessary Pre-Establishment Permits required for the

establishment of the Company and any Additional Permits needed for the conduct of

the Business.

Commented [DQB33]: This is an old-style clause providing for unilateral capital increases and was designed to address concerns of foreign investors in earlier stages of FDI in China that the Chinese party may not have sufficient capital to fund necessary capital increases for anticipated expansions. Such matters can now be handled by supermajority shareholders resolutions, and the parties can agree to proportionate or disproportionate capital contributions as they deem appropriate.

Commented [DQB34]: Capital reductions historically were very difficult to get approved, and this legacy clause reflects the prevailing conditions at the time this JV Base Template was drafted. Again, such matters can now be addressed by supermajority shareholders resolution under the Company Law.

Commented [DQB35]: As noted above, the concept of total investment amount will no longer be applicable under the Company Law. Some of the other provisions in this Article 5.9 also reflect conditions and concerns at the time the JV Base Template was drafted and so may be modified appropriately.

Commented [DQB36]: For a post-conversion amended and restated JVA or SHA, the provisions on initial set up approvals may be deleted.


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6.2 Procedures for Pre-Establishment Approvals

[Without limiting the generality of Article 6.7,] Party A shall[, and Party B shall use its

reasonable endeavours to assist Party A to,] obtain the following Pre-Establishment

Permits on or prior to the Business License Issuance Date:

(a) approval of the project proposal and feasibility study report for the Business;

(b) approval of this Contract and the Articles of Association;

(c) approval of the other Ancillary Contracts (where required by Applicable Laws

to be approved at the same time as the foregoing);

(d) [a State-owned asset valuation by the Independent Appraiser of the non-cash

assets to be contributed by way of capital contribution in kind by Party A and

adjusted where and to the extent permitted by Applicable Laws as agreed by

the Parties;

(e) SASAC's or MOF's confirmation of the record filing of such valuation of such

capital contribution by Party A to the registered capital of the Company;] and

(f) the Business License.

6.3 Ancillary Contracts and Post-Establishment Additional Permits

Promptly following the Business License Issuance Date, the Parties shall procure the

Company to enter into such of the Ancillary Contracts to which it is a Party.

After the Business License Issuance Date, the Parties shall use their best endeavours

to procure that the Company shall promptly apply for and obtain the Additional

Permits.

6.4 Amendments to and Additional Permits

The Parties shall procure that the Company shall, throughout the Term, apply for and

obtain all necessary amendments to the Pre-Establishment Permits set out in Article

6.8 and the Additional Permits set out in Article 6.9 as well as any new licenses,

permits, approvals and registrations as may be needed for the conduct of the

Business from time to time.

6.5 Maintaining Permits in Force

The Parties shall procure that throughout the Term, the Company shall take all steps,

and do all things needed to maintain in full force and effect all Permits obtained for its

establishment, valid existence and conduct of the Business.

6.6 Submission of Approval Documents

Each Party shall procure that all documents to be submitted to any relevant

government authority in connection with the obtaining of Permits [or Additional

Permits] by the Company shall be approved in writing by the other Party prior to

submission.

Commented [DQB37]: Note that the legacy FSR requirement no longer applies.


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6.7 Correspondence relating to Approvals

Each Party shall procure that all correspondence between it and any relevant

government authority in connection with the obtaining of Permits by the Company or

the establishment and operation of the Company shall be copied to the other Party

within [three (3)] Business Days after dispatch by the party or receipt from a relevant

government authority (as the case may be).

6.8 Visits to Government Authorities

Each Party shall be entitled to participate in all formal scheduled visits to, and

discussions and telephone conferences with, any relevant government authority in

connection with the obtaining of Permits by the Company or the establishment and

operation of the Company. Each Party shall provide the other Party with a written

report of any informal contacts with any relevant government authority in connection

with establishment and operation of the Company or the obtaining of Permits by the

Company within [three (3)] Business Days after such contact.

7. RESPONSIBILITIES OF THE PARTIES

7.1 Responsibilities of Party A

In addition to its other obligations under this Contract, Party A shall have the following

responsibilities:

(a) assist in obtaining the relevant Permits, and approvals and registrations

required in respect of the Ancillary Documents (if any), and promptly and in

any event within [three(3)] Business Days provide to Party B and (following

establishment) the Company all documents received by Party A from any

government department in respect of any Permits and/or any of the Ancillary

Contracts or otherwise in relating to the establishment, operations or business

of the Company;

(b) assist in obtaining amendments to, or renewals of, any of the Permits as

required by the Business from time to time;

(c) make its contribution to the registered capital of the Company as provided in

Article 5.4 hereof;

(d) promptly following the Business License Issuance Date, sign and perform

each Ancillary Contract to which it is a party (if any) and cause each of its

Affiliates to sign and perform each Ancillary Contract to which such Affiliate is

a party (if any);

(e) handle other matters entrusted to it pursuant to separate written agreement

entered into by the Company and Party A from time to time.

7.2 Responsibilities of Party B

In addition to its other obligations under this Contract, Party B shall have the following

responsibilities:

(a) make its contribution to the registered capital of the Company as provided

herein;

Commented [DQB38]: This is a legacy clause from the traditional EJV contract form which in many cases has been drafted in an overbroad manner, giving rise to unnecessary disputes between the parties. This clause in this JV Base Template has already been drafted in a manner so as to ameliorate many of the common problems with this clause, but since this clause for the most part relates to pre-establishment responsibilities of the parties, it may be appropriate to delete this in the context of a post-conversion amended and restated JVA or SHA.


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(b) promptly following the Business License Issuance Date, sign and perform

each Ancillary Contract to which it is a party (if any) and cause each of its

Affiliates to sign and perform each Ancillary Contract to which such Affiliate is

a party (if any);

(c) handle other matters entrusted to it pursuant to separate written agreement

entered into by the Company and Party B from time to time.

8. BOARD OF DIRECTORS

8.1 Formation of the Board

(a) The Board shall be formed on the Business License Issuance Date.

(b) The Board shall consist of [total number of directors] directors, [number of

Party A directors] of whom shall be appointed by Party A and [number of Party

B directors] of whom shall be appointed by Party B.

(c) Each director shall be appointed for a term of three (3) years and may serve

consecutive terms if re-appointed by the Party originally appointing him. A

director shall serve and may be removed at the pleasure of the Party that

appointed him. If a seat on the Board is vacated by the retirement,

resignation, illness, disability or death of a director or by the removal of such

director by the Party which originally appointed him, the Party which originally

appointed such director shall appoint a successor to serve out such director's

term.

(d) A director appointed by [Party appointing COB] shall serve as the Chairman of

the Board (“Chairman”) and a director appointed by [Party appointing VCOB]

shall serve as Vice Chairman of the Board (“Vice Chairman”). The Chairman

shall be the legal representative of the Company. Whenever the Chairman is

unable to perform his responsibilities for any reason, the Chairman shall

designate the Vice Chairman [or another director] to perform his

responsibilities temporarily in accordance with this Contract and the Articles of

Association.

(e) Directors shall satisfy all qualification requirements under Applicable Laws,

including those requirements set out in the PRC Company Law. The Party

appointing a director shall submit written notice of his appointment or removal

to the other Party and (following formation of the Board) the Chairman and the

Secretary to the Board ("Secretary"). At the time this Contract is executed,

each Party shall notify the other Party in writing of the names, titles and

nationalities of the initial slate of directors appointed by it. A summary of the

qualifications and experience of each proposed new director shall be attached

to the notice of appointment. Each appointment or removal of a director shall

be submitted to the Board for ratification at the next regular or interim Board

meeting. The Secretary shall record such appointment or removal of a

director in the Company’s books and register the same with the SAIC.

(f) The Chairman, acting in consultation with the Vice Chairman, shall appoint a

Secretary for a term of three (3) years. The Secretary shall be a responsible

and mature individual who is fluent in written and spoken English and

Commented [DQB39]: Provisions relating to the establishment and powers of the shareholders meeting as required under the Company Law should be inserted here.

Commented [DQB40]: In the context of a post-conversion JVA or SHA, this may be changed to past tense.

Commented [DQB41]: In the context of a post-conversion JVA or SHA, this and other related references in these provisions regarding the establishment of the board of directors may be changed to present tense where appropriate.

Commented [DQB42]: Under the Company Law, directors are elected by the shareholders at the shareholders meeting. To achieve the same practical effect, the parties may agree to nomination rights and that each party will exercise its voting rights to elect the directors so nominated. Appropriate changes to these legacy provisions thus will need to be made.

Commented [DQB43]: Under the Company Law, either the chairman of the board or the GM can be the legal representative.

Commented [DQB44]: The board secretary position is not required under the Company Law for non-listed companies and are not common in Sino-foreign joint ventures, but many parties find it useful to provide for such a position to facilitate the operations of the board.


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Chinese. The Secretary shall perform his duties in accordance with the

provisions of this Contract and the Articles of Association under the

supervision of the Chairman and the Vice Chairman. The Secretary shall not

be appointed from the members of the Board or the Management Personnel

but may be an employee of the Company or one of the Parties. The term of

the Secretary may be extended or the Secretary may be removed or replaced

by the Chairman acting in consultation with the Vice Chairman.

(g) The Chairman, Vice Chairman, Secretary and each director shall bear

fiduciary responsibilities to the Company in accordance with Applicable Laws

and such additional ethical policies as the Board may adopt (collectively,

“applicable ethical rules”). The Chairman, Vice Chairman, Secretary and

the other directors shall serve without remuneration[, but all reasonable costs,

such as round-trip airplane tickets and reasonable accommodation incurred by

the directors in the performance of duties assigned by the Board shall be

borne by the Company in accordance with such policies and guidelines as the

Board may adopt from time to time].

(h) No director shall bear any personal liability for any acts performed in good

faith in his capacity as a director or as assigned by the Board, except for wilful

misconduct, and/or acts in violation of Applicable Laws or applicable ethical

rules. Subject to the foregoing, the Company shall indemnify each director

against any claims that may be brought against such director for acts

performed in his capacity as a director of the Company.

8.2 Powers of the Board

(a) The Board shall be the highest authority of the Company.

(b) Adoption of resolutions relating to the following matters shall require the

unanimous affirmative vote of each and every director of the Board present in

person, by proxy or by telecommunications at a duly convened meeting of the

Board:

(i) the amendment of this Contract and the Articles of Association;

(ii) the merger of the Company with another legal entity or organization, or

the investment of capital or assets by the Company in another legal

entity or organization;

(iii) the termination or dissolution of the Company and resulting liquidation

thereof;

(iv) the increase, reduction or assignment of the registered capital of the

Company;

(v) the execution by the Company of any contract with a Party or an

Affiliate of such Party other than the Ancillary Contracts and contracts

entered into in the ordinary course of the Company’s business on an

arm’s length basis;

(vi) any matter which under Applicable Laws requires unanimous Board

approval; and

Commented [DQB45]: Under the Company Law, the shareholders meeting is the highest authority of the company.

Commented [DQB46]: As a general matter, these items are now subject to supermajority approval at the shareholders meeting level. These items should be modified and moved to the list of shareholders meeting approval items as appropriate.


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(vii) any other matter which in accordance with the provisions of this

Contract requires unanimous Board approval or which the Board by

unanimous affirmative vote determines shall be adopted only by

unanimous affirmative Board resolution.

(c) Adoption of resolutions relating to the following matters shall require the

affirmative vote of a simple majority of the directors present in person, by

proxy or by telecommunications at a duly convened meeting of the Board:

(i) review and approval of the Company’s annual budgets and financial

reports, annual profit distribution plan and the amount and timing of

allocations to and use of the reserve fund, the expansion fund and the

employee bonus and welfare fund;

(ii) review and approval of the Company’s annual production and

operation plans;

(iii) review and approval of Company policies and procedures regarding

management of financial accounts, execution of legal documents,

applicable ethical rules and ethical practices and other important

matters;

(iv) decisions on the appointment, compensation, discipline and dismissal

of the Management Personnel;

(v) the sale, transfer or other disposition of, or the granting of an

Encumbrance over, all or substantially all of the assets of the Company

or the giving of any financial guarantee by the Company for the

obligations of any third party;

(vi) the establishment of Company bank accounts and the appointment of

the Company’s Independent Auditor;

(vii) the establishment of bank credit facilities or the borrowing of loans

having an aggregate value in excess of [●] United States Dollars

(US$[●]) or its RMB equivalent in a single transaction or a series of

related transactions;

(viii) the purchase of capital equipment, land use rights, buildings or other

assets having an aggregate value in excess of [●] United States

Dollars (US$[●]) or its RMB equivalent in a single transaction or a

series of related transactions other than such purchases made in

accordance with the operating budget approved by the Board;

(ix) the execution of technology license contracts with third parties other

than as contemplated in this Contract or any Ancillary Contract or other

than in the ordinary course of business on customary terms and

conditions;

(x) the establishment of branch offices and liaison offices in China and

abroad pursuant to Applicable Laws; and

(xi) any other matter which, in accordance with the provisions of this

Contract, requires Board approval or which the Board determines shall

require Board approval.

Commented [DQB47]: The Company Law does not specify which board matters require unanimous, supermajority, special majority (simple majority plus at least one director nominated by the minority shareholder) or simple majority, so other than the four legacy unanimous board approval items above (which are now subject to shareholders approval as noted above), the parties are free to agree as to which matters are subject to minority shareholder veto rights and which may be controlled solely by the majority shareholder.


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8.3 Meetings

(a) The first Board meeting shall be held within thirty (30) days from the Business

License Issuance Date. Thereafter, meetings shall be held at least once each

[six (6)] months subject to always holding at least [two (2)] meetings in each

calendar year. Meetings generally shall be held at the legal address of the

Company or such other address in China or abroad as is designated by the

Board.

(b) The date of regular Board meetings shall be set by the Chairman following

consultation with the Vice Chairman. Prior to each such regular Board

meeting, the Secretary, under the supervision and direction of the Chairman

and the Vice Chairman, shall prepare the agenda for such Board meeting

together with drafts of proposed resolutions and such other supplemental

materials to be considered by the Board at such meeting as the Chairman and

Vice Chairman deem appropriate. The Chairman and Vice Chairman shall

consult with the General Manager in connection with the preparation of the

agenda and such resolutions and other materials. The General Manager shall

be responsible for the preparation of all reports, plans, policies and

procedures to be submitted to the Board for review and approval as provided

under Articles 8.2(b) and (c) above and otherwise as requested by the

Chairman and Vice Chairman. The Secretary, under the direction of the

Chairman and the Vice Chairman, shall give each director at least [ten (10)]

days written notice in advance of each regular Board meeting, specifying the

date, time and place of such regular Board meeting. Such written notice shall

be accompanied by a copy of the agenda, the proposed draft resolutions and

other materials specified above.

(c) An interim Board meeting shall be scheduled upon the written request of [1/3

of total number of directors] or more of the directors of the Company. Such

request shall specify the matters proposed to be discussed in reasonable

detail and shall be delivered to the Chairman, the Vice Chairman, the

Secretary and each of the other directors. The Chairman, following

consultation with the Vice Chairman, shall decide on the timing and location of

such interim Board meeting, provided that such interim Board meeting shall be

held not less than [fifteen (15)] days and not more than [forty-five (45)] days

following delivery of such request. The Secretary, under the supervision and

direction of the Chairman and the Vice Chairman, shall prepare an agenda

covering the matters set out in such request. The Secretary, under the

direction of the Chairman and Vice Chairman, shall give each director at least

[ten (10)] days written notice in advance of such interim meeting, specifying

the date, time and place of such interim Board meeting. Such written notice

shall be accompanied by the agenda and the materials included in the request

for meeting.

(d) In extraordinary circumstances requiring immediate action by the Board and

otherwise as provided in this Contract, the Chairman and the Vice Chairman

acting jointly may call an emergency meeting of the Board. The Secretary,

under the direction of the Chairman and Vice Chairman, shall give each

director at least [twenty-four (24)] hours written notice in advance of such

emergency meeting, specifying the date, time and place of such emergency

Board meeting. Such written notice shall be accompanied by an agenda and

Commented [DQB48]: The Company Law is silent on the frequency of board meetings so this is left to the discretion of the parties.

Commented [DQB49]: The Company Law now leaves this to the agreement of the parties.


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such additional materials as the Chairman and Vice Chairman deem

appropriate.

(e) The Chairman shall be responsible for convening and presiding over regular,

interim and emergency Board meetings. Board meetings may be attended by

directors in person, by proxy or by telecommunications. [2/3 of total number of

directors] directors present in person, proxy or by telecommunications shall

constitute a quorum necessary for the conduct of business at a meeting of the

Board.

(f) If a Board member is unable to participate in a Board meeting in person or by

telecommunications, he may issue a written proxy and entrust a

representative to participate in the meeting on his behalf. The representative

so entrusted shall have the same rights and powers as the Board member,

including the right to be counted in the quorum, to vote on any resolution and

to sign relevant documents. Such representative shall present such written

proxy to the Secretary prior to the start of the Board meeting, and the

Secretary shall attach such proxy to the minutes of the Board meeting.

(g) Management Personnel and other employees of the Company may attend all

or part of any Board meeting at the invitation of the Chairman and Vice

Chairman. In addition, with the prior approval of the Chairman and Vice

Chairman, any director may invite any other person to attend all or part of any

Board meeting, provided that such guest shall sign non-disclosure agreements

in such form as the Chairman and Vice Chairman deem appropriate. No

Management Personnel, any other employee or any guest attending a Board

meeting shall have the right to vote on any resolution presented at the Board

meeting [save where acting in their capacity as a director]. The Secretary

shall note the presence of such guests in the minutes of the meeting.

(h) Either Party may at its own cost designate a reasonable number of

professional advisers as it may deem necessary to attend a Board meeting as

observers to provide assistance to the directors appointed by it.

(i) Board meetings shall be conducted in English and Chinese. The Secretary,

under the direction of the Chairman and Vice Chairman, shall arrange for an

interpreter to be present at each Board meeting. Such interpreter shall be an

employee of the Company or a Party unless it is impractical to do so, and shall

be subject to the provisions applicable to guests in the immediately preceding

clause.

(j) The Chairman shall present each item on the agenda for discussion in the

order listed in the agenda unless otherwise agreed by the Chairman and Vice

Chairman. The Chairman shall allow each director to have an opportunity to

ask questions and express his opinion in an orderly manner with respect to

each matter presented. Following the conclusion of the discussion on each

matter, the Chairman shall call for a vote to approve, approve with

modifications, reject or defer action on the resolution proposed in respect of

such matter. Each director shall have one vote. [The Chairman shall not have

an extra vote under any circumstances.] Resolutions shall be adopted by the

affirmative vote of the number of directors present at the meeting in person, by

proxy or by telecommunications in accordance with the requirements of

Articles 8.2(b) and (c).

Commented [DQB50]: Again, under the Company Law quorum requirements are left to the agreement of the parties.

Commented [DQB51]: See comments on casting votes in the annotations to the sample JVA template in the New Era for FDI book.


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(k) The Secretary shall prepare and complete accurate minutes of each Board

meeting in accordance with the provisions of this Contract and the Articles of

Association. Such minutes shall be in both English and Chinese and shall

record all items of business presented and transacted at such Board meeting.

A copy of the notice of the Board meeting together with all attachments thereto

shall be attached to the minutes. Within [fifteen (15)] days following the date

of the Board meeting, the Secretary shall deliver a draft of the minutes to the

Chairman and Vice Chairman for review. Within [fifteen (15)] days following

their receipt of such draft minutes, the Chairman and Vice Chairman shall

approve the minutes as drafted or approve the draft with modifications. If

either the Chairman or the Vice Chairman does not provide a response within

such time period, he shall be deemed to have approved the minutes as

drafted. Within [five (5)] days following review and approval of the minutes by

the Chairman and Vice Chairman, the Secretary shall distribute the minutes to

all the Directors. Any director who wishes to propose any amendment or

addition thereto shall submit the same in writing to the Secretary within [five

(5)] days following receipt of the proposed minutes. If any director does not

provide a response within such time period, he shall be deemed to have

approved the minutes as drafted. The minutes shall be finalized by the

Secretary under the direction of the Chairman and Vice-Chairman within [five

(5)] days following the conclusion of the above comment period for directors.

The finalized minutes shall be signed by the Secretary and the Chairman

and/or the Vice Chairman.

(l) The Secretary shall be responsible for maintaining the Company’s minute

book. The Secretary shall place the complete original of the finalized and

signed minutes of each Board meeting with all attachments thereto into the

Company minute book in chronological order. In addition, the Secretary shall

maintain separate records of signed and/or chopped originals of the following:

(i) this Contract, the Articles of Association, the Approval Letter, the

Approval Certificate and the Business License;

(ii) the Ancillary Contracts and the government approvals and registrations

(if any) issued in respect of the Ancillary Contracts;

(iii) the Additional Permits, the government approvals and registrations (if

any) in respect of the Tax Concessions;

(iv) all amendments to and renewals of any of the foregoing together with

the government approvals and registrations in respect of such

amendments;

(v) all changes in the directors or Management Personnel appointed by

either Party together with all registrations in respect thereof; and

(vi) all other official correspondence between the Company and any

relevant government department and other similar official documents

pertaining to the establishment, management, operation, business or

assets of the Company.

Any Party shall have the right, during regular Company business hours, to

inspect the Company minute book and the other Company record books

described above and make photocopies of any document contained therein.

Commented [DQB52]: While the Company Law requires that board meeting minutes be prepared and signed by the attending directors, the balance of this clause is discretionary in nature and may be retained, revised or omitted as the parties may agree.

Commented [DQB53]: The specifics of this clause are also discretionary in nature.


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(m) In lieu of any meeting of the Board, a written resolution may be adopted by the

Board if such resolution is sent to all members of the Board then holding office

and is affirmatively signed and adopted by the number of directors who could

adopt such resolution at a duly convened meeting of the Board in accordance

with Articles 8.2(b) and (c) above. The Secretary shall circulate such written

resolutions at the request or direction of the Chairman, Vice Chairman or [1/3

of total number of directors] or more of the directors of the Company. Such

request shall attach the form of the proposed resolution together with such

supporting materials as the requesting party may deem appropriate. If made

by [1/3 of total number of directors] or more of the directors of the Company,

such request shall be delivered to the Chairman, the Vice Chairman and the

Secretary. If made by the Chairman or the Vice Chairman, such request shall

be delivered to the Secretary and (in the case of a request by the Chairman)

the Vice Chairman or (in the case of a request made by the Vice Chairman)

the Chairman. The Chairman and/or the Vice Chairman may prepare written

comments on the matter addressed in the proposed written resolution. Within

[ten (10)] days following receipt of such request, the Secretary shall circulate

the proposed resolution together with all supporting materials supplied by the

requesting party and any additional comments thereon provided by the

Chairman or the Vice Chairman to each director by hand, fax, email and/or

domestic or international courier service to the current mailing or email

address and/or fax number(s) for such director registered in the records of the

Company. The Secretary, under the direction of the Chairman and Vice

Chairman, shall specify the time within which response by the directors is

required, provided that unless otherwise approved by the Chairman and the

Vice Chairman such response time period shall not be less than [fifteen (15)]

days or more than [forty-five (45)] days following the delivery of the proposed

written resolution by the Secretary to the directors. A director shall signify his

approval of the proposed resolution by signing and returning the same to the

Secretary in accordance with the instructions given and within the response

time designated by the Secretary. Signed resolutions delivered to the

Secretary by hand, fax or email photo-image shall be deemed timely if

delivered or transmitted prior to the expiration of the response time designated

by the Secretary. Signed resolutions delivered to the Secretary by fax or

email photo-image shall be followed by delivery of the original signed

resolution to the Secretary by hand, post or domestic or international courier

as promptly as possible. If a director or his valid proxy fails to sign and return

such written resolution within the response time designated by the Secretary,

or if he approves the resolution with modifications, such director shall be

deemed to have voted against the resolution. Such written Board resolution

may be signed in counterparts by the approving directors. The Secretary shall

inform the Board of the results of the voting on such written resolution within

[five (5)] days of the conclusion of the designated response time. If approved,

such written resolution shall be filed with the minutes of the Board proceedings

and shall have the same force and effect as a vote taken by members present

in person, by proxy or by telecommunications at a duly convened Board

meeting. If a non-counterpart original resolution signed by all approving

directors is required for submission to any government department, the

Secretary will be responsible to arrange for the signature of the same, and all

directors shall provide full and timely co-operation in the signature thereof.

Commented [DQB54]: See comments on written board resolutions in the annotations to the sample JVA template in the New Era for FDI book.


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(n) Neither the Chairman nor the Vice Chairman nor any other director or other

officer of the Company shall have the power to bind the Company except

pursuant to authority expressly granted pursuant to a resolution of the Board

approved in accordance with the provisions of this Contract and the Articles of

Association.

8.4 Board Deadlock

(a) If a Deadlock Matter arises, the Parties shall immediately refer the Deadlock

Matter to their respective senior representatives with primary responsibility for

the Company for their resolution.

(b) If the respective managers of the Parties fail to resolve the Deadlock Matter

within [five (5)] Business Days after the Deadlock Matter is referred to them

under Article 8.4(a), the Parties shall, immediately upon the expiry of such

[five (5)]-Business Day period, refer the Deadlock Matter to the Group

Managing Director of Party B and the equivalent officer of Party A for their

resolution.

(c) If the Group Managing Director of Party B and the equivalent officer of Party A

fail to resolve the Deadlock Matter within [ten (10)] Business Days after the

Deadlock Matter is referred to them under Article 8.4(b), the Parties shall,

immediately upon the expiry of such [ten (10)]-Business Day period, refer the

Deadlock Matter to the Chief Financial Officer of Party B and the equivalent

officer of Party A for their resolution.

(d) If the Chief Financial Officer of Party B and the equivalent officer of Party A fail

to resolve the Deadlock Matter within [ten (10)] Business Days after the

Deadlock Matter is referred to them under Article 8.4(c), the Parties shall,

immediately upon the expiry of such [ten (10)]-Business Day period, refer the

Deadlock Matter to the Chief Executive Officer of Party B and the equivalent

officer of Party A for their resolution.

(e) If the Chief Executive Officer of Party B and the equivalent officer of Party A

fail to resolve the Deadlock Matter within [five (5)] Business Days after the

Deadlock Matter is referred to them under Article 8.4(d), [the provisions of

Article 8.5 shall apply.] [the provisions of Article 20.3 shall apply.]

(f) [No Deadlock Matter may be referred by a Party for determination by

arbitration under Article 24.2] [The arbitration provisions in Article 24 do not

apply to any Deadlock Matter except to the extent that they relate to the

interpretation of this Contract or to the respective rights and obligations of any

Party pursuant to this Contract.]

Commented [DQB55]: See comments on deadlock in the annotations to the sample JVA template in the New Era for FDI book.

Commented [DQB56]: At the time this JV Base Template was drafted, Sino-foreign joint venture companies were not required to elect a board of three supervisors (or, alternatively, one or two supervisions, as the parties maty agree). Appropriate provisions should be insert here if not already included in the existing JV contract.


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9. OPERATION AND MANAGEMENT

9.1 Management System

The Company shall adopt a management system under which the Management

Personnel shall report to and work under the supervision and direction of the Board.

9.2 Management Personnel

The Management Personnel shall be individuals of high integrity with appropriate

professional qualifications and experience. The General Manager of the Company

shall be nominated by [GM nominating Party]. The Deputy General Manager of the

Company shall be nominated by [DGM nominating Party]. The Chief Financial Officer

of the Company shall be nominated by [CFO nominating Party]. The Parties shall

procure that the appointment of each of the Management Personnel so nominated

shall be confirmed by the Board [unless the Party in question can demonstrate that a

proposed Management Personnel candidate is not permitted under Applicable Laws

to take up such position].

9.3 Employment of Management Personnel

Management Personnel shall be employed by the Company in accordance with the

terms of individual employment contracts entered into between the Management

Personnel and the Company and approved by the Board. The Management

Personnel may be rewarded, disciplined or removed by the Board. The General

Manager shall have the right to submit recommendations to the Board for the reward,

discipline or dismissal of the Deputy General Manager or the Chief Financial Officer

for consideration and action by the Board, and the Board shall give such

recommendations of the General Manager due deference and consideration. If any of

the Management Personnel is removed by the Board, the replacement shall be

nominated by the original nominating Party in accordance with Article 9.2 above.

9.4 General Manager Duties

The General Manager shall be responsible for all of the day-to-day operations and

management of the Company other than those matters expressly reserved for

decision and action by the Board as set out in Articles 8.2(b) and (c) above. He shall

be responsible to the Board and shall carry out all matters under the authority granted

to him by the Board. The General Manager shall have the authority at his sole

discretion to hire and dismiss all employees of the Company other than the other

Management Personnel. The General Manager shall have the power to decide the

internal operational structure of the Company. He shall appoint department

managers as appropriate to be responsible for the work of their respective

departments. The other Management Personnel and such department managers

shall report to and work under the supervision and direction of the General Manager.

The General Manager has the power to use funds, within the budgetary parameters

approved by the Board.

9.5 General Manager and Deputy General Manager

The General Manager shall consult with the Deputy General Manager with respect to

all major decisions. The Deputy General Manager shall assist the General Manager

in the performance of his responsibilities as requested by the General Manager. The

General Manager and the Deputy General Manager shall perform their respective

Commented [DQB57]: The DGM position, while technically required under the EJV Law, has more recently fallen out of favor and has been omitted from most JV contracts. Such position is no required under the Company Law and thus may be deleted subject to the agreement of the parties.

Commented [DQB58]: This sets out a broad scope of authority for the GM. It can also be limited to a specified scope of authority as granted by the board. In any event, if this broader formulation is used, then the reference to matters reserved for approval by the board must now be expanded to include matters reserved for approval by the shareholders meeting.

Commented [DQB59]: See comments above regarding the DGM. This legacy clause was designed to try to reduce some of the natural tension between the GM and DGM.


www.docQbot.com 19

duties on a full time basis and shall not hold posts concurrently as general manager

or deputy general manager in any other economic entity [or with other enterprises in

competition with the Company].

9.6 Management Personnel Indemnification

No Management Personnel shall bear any personal liability for any acts performed in

good faith in his capacity as Management Personnel or as assigned by the Board,

except for wilful misconduct, acts in violation of Applicable Laws or applicable ethical

rules. Subject to the foregoing, the Company shall indemnify each of the

Management Personnel against any claims that may be brought against such

Management Personnel for acts performed in such capacity on behalf of the

Company.

10. MARKETING AND SALES

10.1 Marketing Policy

The General Manager shall be responsible for formulating the marketing policy and

strategy of the Company for approval by the Board. All marketing activities of the

Company shall be conducted in accordance with such approved policy and strategy.

10.2 Market for [Products][Services][Products and Services]

The Company may [sell the Products] [provide the Services to customers] in the PRC

domestic market and on the international market.

10.3 Sales and Distribution

[Services] [Products] [Products and Services] may be sold through direct sales by the

Company or otherwise as decided by the General Manager in accordance with the

sales and distribution guidelines (if any) approved by the Board from time to time. The

pricing of [Services] [Products] [Products and Services] shall be decided by the

General Manager in accordance with budgetary guidelines approved by the Board

[subject to the requirements of Applicable Laws of the PRC concerning the pricing of

the [Services] [Products] [Products and Services] (if any)].

11. EQUIPMENT AND SERVICE PROCUREMENT

11.1 Procurement Policy

The Company shall purchase its required equipment, software, material, means of

transportation and articles for office use and other supplies in or outside the PRC on

the basis of the competitiveness of the terms and conditions of procurement, quality,

quantity, pricing, and delivery terms of the products and in accordance with the

procurement policy formulated by the General Manager and approved by the Board

from time to time.

11.2 Preference for Party A and Party B

Where Party A or Party B or any of their respective Affiliates is willing to provide

services to the Company , the Company shall give preference to Party A or Party B or

any of their respective Affiliates (as the case may be) over other service suppliers,

provided that the terms, conditions, price and quality offered by Party A, Party B or

any of their respective Affiliates (as the case may be) are equal to, or more favourable

Commented [DQB60]: This legacy clause can be omitted. See related discussion in Chapter 3 of the New Era for FDI book.



www.docQbot.com 20

than those offered by the other service suppliers, and the experience and expertise of

Party A, Party B or any of their respective Affiliates (as the case may be) is equal to

or better than that of the other service suppliers.

12. NON-COMPETITION

12.1 Restrictions

(a) Unless it has obtained the prior written consent of Party [●], Party [●] must not,

either alone or jointly, with, through or on behalf of any person, directly or

indirectly:

(i) carry on or be engaged or concerned or interested in [the [manufacture

or] [sale] of the Products] [and/or] [the provision of the Services];

(ii) seek to, in competition with the Company:

(1) procure orders from;

(2) do business with; or

(3) procure, directly or indirectly, any other person to procure

orders from or do business with,

any person who is, or has been, a customer of the Company at any

time during the term of this Contract; or

(iii) solicit, or contact with a view to the engagement or employment by any

person, any employee, officer or manager of the Company or any

person who has been an employee, officer or manager of the

Company within the previous [two(2)-year] period, except for an

employee who has been seconded to the Company who returns at the

end of the secondment period to the Party that previously employed

such person.

(b) Party [●] agrees to procure that each of its Affiliates shall comply with the

provisions of this Article 13.1 as though it applied directly to the Affiliate.

12.2 Invalidity

(a) Each of the restrictions set out in Article 13.1 is a separate and independent

restriction on Party [●] and each of its Affiliates and the validity of one

restriction shall not be affected by the invalidity or unenforceability of another.

(b) Each Party considers the restrictions in Article 13.1 to be reasonable and

necessary for the protection of the interests of the Company. If any such

restriction shall be held to be void but would be valid if deleted in part or

reduced in application, such restriction shall apply with such deletion or

modification as may be necessary to make it valid and enforceable.

12.3 Duration

The covenants set out in Article 13.1 shall continue to apply to Party [●] and each of

its Affiliates for a period of [●] months from the date on which this Contract is

terminated or Party [●] ceases to hold any interest in the registered capital of the

Company whichever is the first to occur. The covenants set out in Article 13.1 shall be


www.docQbot.com 21

construed during this period by reference to the business, customers, employees,

officers or managers or contracting parties of the Company as at the date on which

Party [●] ceases to hold any interest in the registered capital of the Company or as at

the effective date of such termination.

[13.4 Acknowledgment

Party [●] agrees and acknowledges that, notwithstanding Article 13.1, Party [●] or any

of its Affiliates may establish joint ventures with, or acquire interests in [Name

specific partner and project] in the PRC [describe the relevant industry sector]

industry to [provide [●] services] [to manufacture [●] products] in the PRC (each a

"Permitted Investment")].

13. SITE

The Company will conduct operations at the Site and at such other locations as

approved by the Board and the relevant government departments. In accordance

with the terms of this Contract, promptly following the Business License Issuance

Date, the Company will sign the [Land/Building Lease Contract] and submit it to the

relevant government departments for registration as required under Applicable Laws.

14. LABOUR MANAGEMENT

14.1 Company Staff

Matters relating to the recruitment, employment, dismissal, resignation, wages and

welfare of, and other matters concerning, the staff and workers of the Company shall

be determined autonomously by the Company without outside interference, in

accordance with Applicable Laws and the policies adopted by the Company from time

to time.

14.2 Labour Union

Working Personnel shall have the right to establish a Labour Union in accordance

with Applicable Laws. Working Personnel shall be employed by the Company in

accordance with the terms of a collective labour contract or individual labour contracts

entered into between the Company and the Working Personnel.

14.3 Labour Protection

The Company shall conform to the Applicable Laws of China concerning labour

protection and ensure safe and civilized operation. Labour and social insurance for

the Working Personnel of the Company shall be handled in accordance with

Applicable Laws.

14.4 General Manager's Discretion

The General Manager shall determine the qualification and number of employees in

accordance with the operating needs of the Company.




www.docQbot.com 22

15. FINANCIAL AFFAIRS AND ACCOUNTING

15.1 Accounting System

(a) The Chief Financial Officer of the Company, under the leadership of the

General Manager, shall be responsible for the financial management of the

Company.

(b) The Chief Financial Officer shall prepare the accounting system and

procedures in accordance with the Enterprise Accounting System and

supplementary stipulations promulgated by the Ministry of Finance. The

accounting system and procedures to be adopted by the Company shall be

submitted to the Board for approval. Once approved by the Board, the

accounting system and procedures shall be filed with the department in

charge of the Company and with the relevant local department of finance and

the tax authorities for the record. The debit and credit method, as well as the

accrual basis of accounting, shall be adopted as the methods and principles

for keeping accounts.

(c) The Company shall adopt Renminbi as its bookkeeping base currency, but

may also adopt [United States Dollars] or other foreign currencies as

supplementary bookkeeping currencies.

(d) All accounting records, vouchers, books and statements of the Company shall

be made and kept in Chinese and English.

(e) For the purposes of preparing the Company's accounts and statements,

calculation of declared dividends to be distributed to the Parties, and for any

other purposes where it may be necessary to effect a currency conversion,

such conversion shall be in accordance with the posted exchange rate, as

determined by the median rate for buying and selling announced by the

People's Bank of China or other legally recognized rate on the date of actual

receipt or payment.

15.2 Auditing

(a) The Company’s Independent Auditor shall be engaged by the Company as its

auditor to examine and verify the annual financial report. The Company’s

Independent Auditor shall be appointed by the Board.

(b) Quarterly and annual financial statements, and such other reports as the

General Manager and Chief Financial Officer may direct, shall be prepared

and submitted to the Board. Such statements shall be in both Chinese and

English and shall reference both RMB and [United States Dollars]. The

annual financial statements will include the following statements (including

footnotes):

(i) balance sheet;

(ii) profit and loss statement;

(iii) cashflow statement;

(iv) statement of changes in financial position; and

Commented [DQB64]: The applicable accounting rules have since been updated. Reference should now be made to the Accounting Standards for Business Enterprises – Basic Standards.


www.docQbot.com 23

(v) profit distribution recommendations.

(c) The quarterly financial statements shall be presented to the General Manager

and the Board in sufficient time for the Board to approve them and then for the

General Manager to arrange for their filing with the proper authorities. The

annual financial statements shall be audited and presented to the General

Manager and the Board within the first three (3) months of the succeeding

year for approval by the Board. The annual financial statements shall be

certified by the Independent Auditor. The General Manager shall file the

certified annual financial statements with the proper authorities prior to the

expiration of the fourth month of the succeeding year.

(d) Each Party may, at its own expense, appoint either the internal staff of such

Party or an independent accountant (which may be either an accountant

registered abroad or registered in China) to audit the books, accounts and

other financial, commercial and legal records of the Company on behalf of

such Party. Reasonable access to such records shall be given to such

internal or independent auditor and such auditor shall keep confidential all

documents under his auditing.

15.3 Bank Accounts and Foreign Exchange Control

The Company shall separately open a foreign exchange account and a Renminbi

account at an authorized bank within China approved by the SAFE and, with the

approval of SAFE, may open a bank account in the name of the Company outside

China. The Company's foreign exchange transactions shall be handled in

accordance with the Applicable Laws of China relating to foreign exchange control.

15.4 Fiscal Year

The Company shall adopt the calendar year as its fiscal year, which shall begin on

January 1 and end on December 31 of the same year except that the first fiscal year

of the Company shall commence on the Business License Issuance Date and shall

end on the immediately succeeding December 31.

15.5 Profit Distribution

(a) After the payment of income tax by the Company, the Board will determine the

annual allocation to the reserve fund and expansion fund of the Company and

the bonus and welfare fund for the workers and the staff from the after-tax net

profits.

(b) The after-tax net profit of the Company (after the deduction of the allocations

to the funds mentioned in clause (a) above) shall be distributed to the Parties

in proportion to their respective interests in the registered capital unless the

Board determines that such profits should be reinvested in the Company. If

for any reason Party B’s share of the Company’s after-tax net profits for any

period cannot be remitted to Party B outside of China in [United States dollars]

or any other foreign currency acceptable to Party B, then the Company shall

not make any distribution of profits to Party A for such period until such time

as such Party B profit share can be so remitted.

(c) If the Company is carrying forward losses from any previous years, the profit

of the current year shall first be used to cover the losses. No profit shall be

Commented [DQB65]: This requirement remains unchanged.

Commented [DQB66]: This is now a matter that is subject to approval at the shareholder meeting level.

Commented [DQB67]: The concepts of reserve fund, expansion fund and the bonus and welfare fund for the workers and the staff historically applicable for FIEs will no longer apply under the Company Law. Instead, there will be a statutory accumulation fund and a discretionary accumulation fund. The allocations to the statutory accumulation fund are prescribed by law, while the allocations to discretionary accumulation fund are to be determined by the shareholders meeting.

Commented [DQB68]: The Company Law provides that the parties may agree to disproportionate profit distributions. See related discussion in the annotations to the sample JVA template in the book, New Era for FDI.


www.docQbot.com 24

distributed unless the cumulative deficit from the previous years is made up.

The profit retained by the Company and carried over from the previous years

may be distributed together with the distributable profit of the current year, or

after the deficit of the current year is made up therefrom.

16. TAXATION AND INSURANCE

16.1 Income Tax, Customs Duties and Other Taxes

(a) The Company shall pay tax under the Applicable Laws of China relating to

taxation.

(b) Promptly following the Business License Issuance Date, or promptly following

the first date the Company is eligible to do so under Applicable Laws, the

Company will submit applications to the relevant government authorities for

the Tax Concessions in compliance with Applicable Laws.

(c) The Chinese and expatriate employees of the Company shall pay tax on their

individual income in accordance with the relevant provisions of the Applicable

Laws of China relating to taxation.

16.2 Insurance

(a) The Company shall, at its own cost and expense, at all times take out and

maintain full and adequate insurance for the Company against loss or damage

by fire and such other risks as are customarily insured against by taking out

insurance policies with issuers established in the PRC.

(b) The property, transportation and other items of insurance of the Company will

be denominated in Chinese and foreign currencies, as appropriate. The

types, scope and amounts of insurance coverage shall be determined by the

General Manager.

17. REPRESENTATIONS AND WARRANTIES

17.1 Mutual Representations and Warranties

Each Party represents and warrants to the other Party that on the date hereof [and as

of the Effective Date]:

(a) it satisfies all qualification requirements under Applicable Laws or otherwise

imposed by the Examination and Approval Authority in relation to a Chinese

or a foreign investor in the [describe the business of the Company]

industry (as the case may be);

(b) it is an independent legal person duly organized, validly existing and in good

standing under the laws of the place of its establishment or incorporation;

(c) it has obtained all consents and approvals and taken all actions necessary

for it to validly enter into and give effect to this Contract and it has full

authority to enter into this Contract and to perform its obligations hereunder;

(d) its signatory to this Contract is either its legal representative or its duly

authorized representative and, on signing this Contract, and from and after

Commented [DQB69]: This last sentence of this clause is not specifically required under the Company Law.

Commented [DQB70]: This is a legacy clause which can be omitted as the company will have to pay taxes in accordance with applicable legal requirements in any event, and issues relating to insurance can be left to the decision of the board.


www.docQbot.com 25

the Effective Date, the provisions of this Contract shall constitute valid,

lawful and legally binding obligations of such Party;

(e) no steps have been taken or legal proceedings commenced or threatened

against such Party for its winding-up or for it to be declared bankrupt or

insolvent or for a liquidation committee or administrator to be appointed in

respect of its assets or business;

(f) its execution of this Contract and its performance of its obligations

hereunder: (i) will not violate any provision of its business license, articles of

incorporation, articles of association or similar organizational documents; (ii)

will not violate any Applicable Laws or any governmental authorization or

approval; (iii) will not violate or result in a default or breach under any other

contract or agreement to which it is a party or any unilateral commitment or

undertaking which binds it or give any third party a right to take action

against it; and (iv) will not violate any judgment or arbitration award of any

tribunal to which it is subject or the order or ruling of any government or

regulatory body to whose jurisdiction it is subject;

(g) no lawsuit, arbitration or other legal or governmental proceeding is pending

or, to its knowledge, threatened against it that would affect its ability to

perform its obligations under this Contract; and

(h) it has disclosed to the other Party all documents issued by any

governmental department that may have a material adverse effect on its

ability to fully perform its obligations under this Contract, or the ability of the

Parties to realise the objectives of the Company and the documents

previously provided by it to the other Party do not contain any falsehoods,

untruths, misstatements or omissions of material facts.

17.2 Repetition

Each Party further represents and warrants to the other Party that each of the

representations and warranties given by it under Article 18.1 shall be true in all

respects as at the date of signature of this Contract[,] [and] on the Effective Date [and

as at the scheduled date of the final capital contribution by the Parties to the

registered capital of the Company].

17.3 Consequences of Inaccuracy in Representations and Warranties

If any of the above representations and warranties of a Party are not accurate in all

material respects on any date set out in Article 18.2, then such Party shall be in

material breach of this Contract.

17.4 Liability for Breach

If a Party breaches any of the representations or warranties given by it in Articles 18.1

or repeated in 18.2, then in addition to any other remedies available to the other Party

under this Contract or under Applicable Laws, it shall indemnify and keep indemnified

the other Party and the Company against any losses, damages, costs, expenses,

liabilities and claims that such Party or the Company may suffer as a result of such

breach.


www.docQbot.com 26

18. THE JOINT VENTURE TERM

18.1 Joint Venture Term

The joint venture term of the Company (“Term”) shall be [fifty (50)] years,

commencing on the Business License Issuance Date.

18.2 Extension

If the Board unanimously approves the extension of the Term, the Company shall

submit an application to the Examination and Approval Authority for approval no less

than [six (6)] months prior to the expiry of the Term.

19. TERMINATION, DISSOLUTION, BUYOUT AND LIQUIDATION

19.1 Termination

(a) This Contract shall terminate upon the expiration of the Term unless extended

pursuant to Article 19.2.

(b) This Contract may be terminated at any time prior to expiration of the Term by

the mutual written agreement of the Parties.

(c) A Party ("Notifying Party") may notify the other Party in writing at any time

prior to the expiration of the Term that it desires to terminate this Contract if:

(i) the other Party materially breaches this Contract or materially violates

the Articles of Association, and such breach or violation is not cured

within [sixty (60)] days of the Notifying Party's giving written notice of

such breach to the breaching Party; or

(ii) the other Party materially breaches any Ancillary Contract to which it is

a party, and such breach is not cured within the applicable cure period

thereunder, or any Ancillary Contract is terminated or becomes or is

declared void or unenforceable for any reason (other than any reason

attributable to the Notifying Party), which has (in each case) a material

adverse effect on the business, assets or operations of the Company;

or

(iii) the other Party becomes bankrupt or insolvent, or is the subject of

proceedings for liquidation or dissolution, or ceases to carry on

business or becomes unable to pay its debts as they come due; or

(iv) the Company becomes bankrupt or insolvent, or is the subject of

proceedings for liquidation or dissolution, or ceases to carry on

business or becomes unable to pay its debts as they come due; or

(v) any Ancillary Contract is not signed by the Company and the other

parties thereto substantially in the form attached hereto within [thirty

(30)] days after the Business License Issuance Date; or

(vi) any Additional Permit [or Tax Concession] is not issued by the relevant

government department within [90] days of application; or

(vii) a Material Modification is made at any time by any government

authority to this Contract, the Articles of Association, the Approval

Commented [DQB71]: Under the Company Law, companies may adopt an indefinite term. It is expected that in connection with the conversion of an EJV or CJV into an LLC, most parties will opt to adopt an indefinite term. Corresponding revisions will need to be made to related clauses accordingly.


www.docQbot.com 27

Letter, the Approval Certificate, the business scope set out in the

Business License, any Ancillary Contract, any Additional Permit or any

Tax Concession and it cannot be resolved to the satisfaction of the

Party concerned within [sixty (60)] days of the issue of the relevant

document containing or imposing the Material Modification; or

(viii) the conditions or consequences of Force Majeure (as hereinafter

defined) have a material adverse effect on the business, assets or

operations of the Company and continue for a period in excess of six

(6) months and the Parties have been unable to find an equitable

solution pursuant to Article 23.2(c) hereof; or

(ix) [the Company is denied access to foreign exchange for a period in

excess of six (6) months, which denial has a material adverse effect on

the business, assets or operations of the Company; or]

(x) [the Company incurs for [three (3)] consecutive years aggregate

operating losses in excess of [thirty] percent ([30]%) of the Company's

registered capital; or]

(xi) [the legal or beneficial ownership of [●]% ([●] percent) or more of the

equity capital of the other Party is acquired by a person or entity which

(directly or through its Affiliates) manufactures or sells products or

provides services that compete with the products or services of the

Notifying Party or otherwise competes with the business of the

Notifying Party.]

The mere submission by the Notifying Party of a notice indicating an intention to

terminate this Contract shall not by itself constitute a termination of this Contract.

Upon the occurrence of any of the foregoing events, in addition to its other rights

under this Article 20.1(c) or Article 21 or under Applicable Laws, a Party entitled to

give notice of intent to terminate this Contract shall have the right to suspend

performance of its obligations under this Contract until such time as such event is

resolved.

19.2 Notification and Termination Procedure

(a) In the event that the Notifying Party gives written notice of a desire to

terminate this Contract pursuant to Article 20.1(c) above, the Parties shall

conduct negotiations for a [thirty (30)] day period after such notice is given in

an effort to resolve the situation which resulted in the giving of such notice. In

the event such matters are not resolved to the satisfaction of the Parties within

such [thirty (30)] day period, or such longer period as the Parties may agree in

writing, the Notifying Party shall have the right by written notice to the other

Party:

(i) to declare this Contract terminated, or

(ii) to initiate the equity buy-out procedures under Article 20.3. If the

Parties opt-out of the equity buy-out process in accordance with Article

20.3(c), then the Notifying Party again shall have the right to declare

this Contract terminated.

Commented [DQB72]: These clauses relate to events of default in the establishment phase so may be deleted in the context of a post-conversion JVA or SHA.

Commented [DQB73]: This is a legacy clause addressing concerns of foreign investors in earlier stages of FDI in China which may no longer be applicable.

Commented [DQB74]: This is a legacy clause designed to provide some objective standards for a related general concept under the EJV Law which permitted termination if the company experiences serious losses. Such clauses proved to be difficult to negotiate and implement in practice and so may be revised or deleted as appropriate.

Commented [DQB75]: Under the EJV Law, the termination of the JV contract effectively terminated the company because the JV contract was a required constitutional document. Under the Company Law the termination of the JVA or SHA will not immediately result in the termination of the company. Related revisions to the JV contract may be appropriate.


www.docQbot.com 28

(b) As soon as practicable following termination of this Contract upon the

expiration of the Term in accordance with Article 20.1(a), the early termination

of this Contract by the agreement of the Parties in accordance with Article

20.1(b), or the Notifying Party’s declaration of termination under Article

20.2(a), an emergency Board meeting shall be held at which each Party shall

cause the directors appointed by it to attend such Board meeting in person, by

proxy or by telecommunications and to vote in favour of an unanimous

resolution approving the termination of this Contract or to sign a written

resolution circulated in lieu of such a meeting of the Board, as the case may

be.

(c) Following such Board approval of the termination of this Contract, the Board

shall submit a dissolution application to the original Examination and Approval

Authority for approval. Following such approval, such approved dissolution

application shall be registered with the SAIC. If the other Party fails to co-

operate in such termination and dissolution procedures, then to the extent

permitted under Applicable Laws, the Notifying Party shall have the unilateral

right to submit an application for termination and dissolution to the

Examination and Approval Authority and register such approved termination

and dissolution application with the SAIC.

(d) Following such registration with the SAIC, the Company shall then be

dissolved and liquidated in accordance with the relevant procedures under

Applicable Laws and the provisions of Article 20.4 below.

19.3 Equity Buy-Out Provision

(a) If the Notifying Party elects to proceed with the equity buy-out provisions in

accordance with Article 20.2(a)(ii), then the Parties shall determine the value

of the Company in accordance with the following provisions:

(i) The Parties shall conduct negotiations on the valuation of the

Company for a period of [thirty (30)] days after the date of such notice

(“negotiation period”). If the Parties are unable to agree on the

valuation of the Company by the end of such negotiation period, or

such longer period as the Parties may agree in writing, the Parties shall

jointly conduct a valuation of the Company in accordance with clause

(ii) below.

(ii) An Independent Appraiser shall conduct a valuation of the Company

using the Industry Valuation Method. The Independent Appraiser shall

complete the valuation of the Company within [forty-five (45)] days.

The value determined by the Independent Appraiser shall be the value

adopted by the Parties for purposes of this buy-out provision.

(b) The purchase price (“Buy-out Price”) for a Party’s share of the registered

capital of the Company shall be calculated by multiplying the value of the

Company as determined in accordance with Article 20.3(a) above by the

percentage of such Party’s share of the registered capital of the Company at

the time of valuation.

Commented [DQB76]: Dissolution, winding up or liquidation of the company now require shareholders meeting approval. Corresponding changes to the related provisions below will also be required.

Commented [DQB77]: Again, note that all references to government entities should be checked and updated as appropriate.


www.docQbot.com 29

(c) Upon completion of the valuation:

(i) The Parties shall conduct negotiations for [ten (10)] days to decide

whether either Party desires to purchase any or all of the other Party’s

interest in the registered capital of the Company at the applicable Buy-

out Price. If so, the Parties shall proceed with the buy-out provisions

under this Article 20.3. If not, or if at the end of such [ten (10)] day

period no agreement is reached, then unless the Parties otherwise

agree in writing, the Parties shall be deemed to have opted-out of

these equity buy-out provisions, and the Notifying Party shall have the

right to declare this Contract terminated in accordance with Article

20.2(a)(i) above and proceed with dissolution and liquidation of the

Company.

(ii) If only one Party has indicated an interest in purchasing any or all of

the other Party’s share of the registered capital of the Company, then

such proposed purchasing Party shall promptly provide written

confirmation of such intention to the other Party. If such proposed

purchasing Party fails to provide such confirmation to the other Party in

writing within [thirty (30)] days after completion of the valuation of the

Company, such purchasing Party shall be deemed to have elected to

decline to proceed with such purchase.

(iii) If both Parties have indicated an interest in purchasing the other

Party’s share of the registered capital of the Company, then unless the

Parties otherwise agree in writing, Party B shall have the first option to

purchase Party A's share of the registered capital of the Company at

the applicable Buy-out Price. Such option shall be exercised by Party

B in writing within [thirty (30)] days after completion of the valuation of

the Company. If Party B does not exercise its option within such time

or if Party B notifies Party A in writing that it will not exercise the option,

then Party A shall have [thirty (30)] days to notify Party B in writing

whether it intends to purchase Party B's share of the registered capital

of the Company at the applicable Buy-out Price or whether it declines

to do so.

If no Party elects to purchase the other Party’s share of the registered capital

of the Company at the applicable Buy-out Price, and the Parties are not

otherwise able to reach agreement on the purchase by one Party of the other

Party’s share of the registered capital of the Company, then the Parties shall

be deemed to have opted-out of these equity buy-out provisions, and the

Notifying Party shall have the right to declare this Contract terminated in

accordance with Article 20.2(a)(i) above and proceed with dissolution and

liquidation of the Company.

(d) Such sale and purchase of a Party’s share of the registered capital of the

Company shall comply with the requirements of the Changes in FIE Equity

Interests Provisions and all other Applicable Laws. The Buy-Out Price shall

be paid in accordance with the provisions of the relevant contracts to be

signed by the Parties.

(e) Until such time as the sale and purchase of a Party’s share of the registered

capital of the Company is completed, the Company shall, to the fullest extent

Commented [LR78]: As noted above, these provisions are expected to be repealed as part of the transition from the EJV Law to the Company Law.


www.docQbot.com 30

possible, maintain the conduct of its business in the ordinary course and no

Party shall hinder the Company from conducting its business.

19.4 Liquidation

(a) Within fifteen (15) days following approval and registration of the dissolution

application in accordance with Article 20.2(c), the Board shall appoint a

liquidation committee which shall have the power to represent the Company in

all legal matters. The liquidation committee shall perform its responsibilities in

accordance with Applicable Laws and the principles set out herein.

(b) The liquidation committee shall consist of [total number of directors] members,

of whom [number of Party A directors] members shall be appointed by Party A

and [number of Party B directors] members shall be appointed by Party B.

Members of the liquidation committee may be Board directors, senior

employees of the Company or relevant professionals. The members of the

liquidation committee shall bear fiduciary responsibilities to the Company and

comply in all respects with the requirements of Applicable Laws in the

discharge of their duties. The liquidation committee shall act by majority vote

following consultation save where otherwise required under Applicable Laws.

(c) The liquidation committee shall appoint the Independent Appraiser to conduct

a valuation of the Company’s assets on a current fair market value basis.

(d) On completion of all liquidation procedures in accordance with Applicable

Laws, the liquidation committee shall submit a final report to the Board for

confirmation. The Board shall convene an emergency meeting to review and

confirm such report. Following such confirmation by the Board the report shall

be submitted to the Examination and Approval Authority for the record. The

liquidation committee shall then carry out all de-registration procedures in

accordance with Applicable Laws. Each Party shall have a right to obtain

copies of all of the Company's accounting books and other documents at its

own expense but the originals thereof shall be left in the care of Party A.

19.5 Continuing Obligations

The provisions of Article 8 (Board of Directors) (but only in respect of Board action

required to be taken following termination of this Contract and prior to de-registration

of the Company), Article 19 (The Joint Venture Term), Article 20 (Termination,

Dissolution, Buyout and Liquidation), Article 21 (Breach of Contract) (but only with

respect to claims arising prior to the termination hereof or with respect to other

continuing obligations), Article 22 (Confidentiality) and Article 24 (Settlement of

Disputes) and the provisions of Schedule A (Definitions and Interpretation) (to the

extent required to interpret the aforesaid) shall survive the termination of this Contract

and the termination, dissolution, liquidation and de-registration of the Company.

20. BREACH OF CONTRACT

20.1 Remedies for Breach of Contract

Except as otherwise provided herein, if a Party ("breaching Party") fails to perform

any of its material obligations under this Contact or otherwise is in material breach of

this Contract, then the other Party (“aggrieved Party”) may:

Commented [DQB79]: Under the Company Law, this is a matter for shareholder meeting approval.

Commented [DQB80]: Under the Company Law, the members of the liquidation committee are to be representative of the parties and the composition is left to the agreement of the parties.

Commented [DQB81]: Under the Company Law, the liquidation report shall be submitted to the shareholders meeting or the court for confirmation.

Commented [DQB82]: This government department reference will also need to be updated.


www.docQbot.com 31

(a) give written notice to the breaching Party describing the nature and scope of

the breach and demanding that the breaching Party cure the breach at its cost

within a reasonable time specified in the notice ("Cure Period") (provided that

if any representation and warranty of a Party under Article 18.1 is not true and

correct in all material respects when made, or if there is a breach of Article 22,

then there shall be no Cure Period); and

(b) if the breaching party fails to cure the breach within the Cure Period (or, if

there is none, at any time following such breach), then in addition to its other

rights under Article 20.1(c)(i) or Applicable Laws, the aggrieved Party may

claim direct and foreseeable damages arising from the breach.

20.2 Limitation on Liability

Notwithstanding any other provision of this Contract, [except for a breach of Article 22

(Confidentiality) or infringement of the other Party's IPR,] neither Party shall be liable

to the other Party for damages for loss of revenues or profits, loss of goodwill or any

indirect or consequential damages in connection with the performance or non-

performance of this Contract. [Except for a breach of Article 22 (Confidentiality) or

infringement of the other Party's IPR,] the aggregate liability of a Party for all claims

for any loss, damage or indemnity whatsoever resulting from such Party’s

performance or non-performance of this Contract shall in no case exceed [●] United

States Dollars (US$[●]) or the RMB equivalent thereof.

21. CONFIDENTIALITY

21.1 Confidentiality Obligations

From time to time prior to and during the Term either Party (“disclosing Party") has

disclosed or may disclose Confidential Information to the other Party (“receiving

Party"). The receiving Party shall, during the Term of this Contract and for [●] years

thereafter:

(a) maintain the confidentiality of Confidential Information;

(b) not use Confidential Information for any purposes other than those specifically

set out in this Contract; and

(c) not disclose any such Confidential Information to any person or entity, except

to its employees or employees of its Affiliates, its agents, attorneys,

accountants and other advisors who need to know such information to perform

their responsibilities and who have signed written confidentiality agreements

containing terms at least as stringent as the terms provided in this Article 22

(collectively "Permitted Disclosure Parties").

21.2 Confidentiality Exceptions

The provisions of Article 22.1 above shall not apply to information that:

(a) can be shown to be known by the receiving Party by written records made

prior to disclosure by the disclosing Party;

(b) is or becomes public knowledge otherwise than through the receiving Party's

breach of this Contract; or


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(c) was obtained by the receiving Party from a third party having no obligation of

confidentiality with respect to such information.

21.3 Confidentiality Rules

Each Party shall formulate rules and regulations to inform its directors, senior staff,

and other employees, and those of their Affiliates of the confidentiality obligation set

forth in this Article 22.

21.4 Return of Material

Upon the Expiration Date [or upon the disclosing Party's request at any time], the

receiving Party shall (i) return to the other Party, or at the disclosing Party's direction

destroy, all materials (including any copies thereof) embodying the other Party's

Confidential Information and (ii) certify in writing to the other Party, within ten (10)

days following the other Party's request, that all of such materials have been returned

or destroyed.

22. FORCE MAJEURE

22.1 Definition of Force Majeure

"Force Majeure" shall mean all events which are beyond the control of the Parties to

this Contract, and which are unforeseen, unavoidable and insurmountable, and which

prevent total or partial performance by either of the Parties. Such events shall include

earthquakes, typhoons, epidemic, flood, fire, war, strikes, riots, acts of governments,

changes in law or the application thereof or any other instances which cannot be

foreseen, prevented or controlled, including instances which are accepted as Force

Majeure in general international commercial practice.

22.2 Consequences of Force Majeure

(a) If an event of Force Majeure occurs, a Party's contractual obligations affected

by such an event under this Contract shall be suspended during the period of

delay caused by the Force Majeure and shall be automatically extended,

without penalty or liability, for a period equal to such suspension.

(b) The Party claiming Force Majeure shall promptly inform the other Parties in

writing and shall furnish within [fifteen (15)] days thereafter sufficient proof of

the occurrence and duration of such Force Majeure. The Party claiming Force

Majeure shall also use all reasonable endeavours to terminate the Force

Majeure.

(c) In the event of Force Majeure, the Parties shall immediately consult with each

other in order to find an equitable solution and shall use all reasonable

endeavours to minimize the consequences of such Force Majeure.

23. SETTLEMENT OF DISPUTES

23.1 Friendly Consultations

In the event of any dispute, controversy or claim arising out of or relating to this

Contract, or the breach, termination or invalidity hereof ("dispute"), the Parties shall

attempt in the first instance to resolve such dispute through friendly consultations.


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23.2 Arbitration

(a) In the event the dispute is not resolved through consultations within [sixty (60)]

days after the date such consultations were first requested in writing by a

Party, then any Party may submit the dispute to Singapore International

Arbitration Centre ("SIAC") for arbitration in Singapore in accordance with the

Arbitration Rules of the SIAC then in force, and as amended by this Article

24.2 ("Arbitration Rules").

(b) The tribunal shall consist of [one] [three] arbitrator(s) to be appointed by the

Chairman of the SIAC.

(c) The language of the arbitration shall be English.]

23.3 Procedural Compliance

The Parties undertake:

(a) to comply strictly with the time limits specified in the Arbitration Rules for the

taking of any step or the performance of any act in or in connection with any

arbitration; and

(b) to comply with and to carry out, in full and without delay, any procedural

orders (including, without limitation to, any interim measures of protection

ordered) or any award (interim or final) made by the arbitral tribunal.

23.4 Enforcement of Award

Each of the Parties irrevocably:

(a) agrees that any arbitral award shall be final and binding;

(b) undertakes that it will execute and perform the arbitral award fully and without

delay. In the event of judicial acceptance and an order of enforcement, each

party expressly waives all rights to object thereto, including any defense of

sovereign immunity and any other defense based on the fact or allegation that

it is an agency or instrumentality of a sovereign state; and

(c) waives any rights which it may have to contest the validity of the arbitration

agreement set forth in this Article or the jurisdiction of the relevant arbitration

institution to hear and to determine any arbitration begun pursuant to this

Article 24.

When any dispute occurs and is the subject of friendly consultations or arbitration, the

Parties shall continue to exercise their remaining respective rights and fulfil their

remaining respective obligations under this Contract, except in respect of those

matters under dispute.

24.5 Injunctive Relief

Notwithstanding the foregoing, the Parties agree that each Party has the right to seek

temporary or permanent injunctive or other similar relief in any court or other authority

of competent jurisdiction in respect of any claims of breach of confidentiality or IPR

infringement or for an order of specific performance or other injunctive relief as

permitted under Applicable Laws.


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24.6 Governing Law

The validity, interpretation and implementation of this Contract shall be governed by

the laws of the People's Republic of China.

24. MISCELLANEOUS PROVISIONS

24.1 Independent Contractor Relationship

Nothing in this Contract shall be construed or implied as:

(a) constituting either of the Parties hereto as the agent of the other Party (except

with the other Party's prior written consent); or

(b) authorizing either Party to incur any expenses or any other form of obligation

on behalf of the other Party (except with the other Party's prior written

consent).

24.2 Binding Effect

This Contract is made for the benefit of the Parties hereto and their respective lawful

successors and assignees and is legally binding on them.

24.3 Amendment

This Contract shall not be changed verbally, but only by a written instrument signed

by the Parties, and, where required under Applicable Laws, on approval by the

relevant Examination and Approval Authority.

24.4 No Publicity

The existence of this Contract, as well as its contents, shall be deemed to fall within

the scope of Confidential Information and shall be subject to Article 22 and shall not

be disclosed in whole or in part to any person or entity, except to (i) Permitted

Disclosure Parties, (ii) to authorized securities regulators or exchanges in accordance

with Applicable Laws or the relevant rules of the securities exchange to which the

Party in question is subject, (iii) to officials in relevant government departments

pursuant to the requirements of Applicable Laws, (iv) in order to fulfil any conditions

precedent to the effectiveness of this Contract, (v) for the purpose of the performance

by a Party of its obligations or exercise of its rights hereunder or relating hereto or (vi)

for the other bona fide purposes of the Company after its establishment.

24.5 Notices

(a) Any notice or written communication provided for in this Contract by either

Party to the other, including but not limited to any and all offers, writings, or

notices to be given hereunder, shall be made in [language] either:

(i) by hand; or

(ii) by courier service delivered letter; or

(iii) by facsimile.

(b) Notices shall be deemed to have been delivered at the following times:

Commented [DQB83]: See related discussion in Chapter 6 of the book, New Era for FDI.

Commented [DQB84]: This clause also will need to be updated to reflect the change from government approvals to record filing in most cases.


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(i) if by hand, on reaching the designated address and subject to return

receipt or other proof of delivery;

(ii) if by courier, the [fifth] Business Day after the date of dispatch; and

(iii) if by fax, upon the next Business Day following the date marked on the

confirmation of transmission report by the sender's fax machine,

indicating completed uninterrupted transmission to the relevant

facsimile number.

(c) During the Term, each Party may change its particulars for receipt of notices

at any time by notice given to the other Party in accordance with this Article

25.5.

Party A:

[mailing address]

People's Republic of China

Facsimile No:

Attention:

Party B:

[mailing address]

Facsimile No:

Attention:

24.6 Severability

The invalidity of any provision of this Contract shall not affect the validity of any other

provision of this Contract.

24.7 Entire Agreement

This Contract and the Schedules and Annexes hereto constitute the entire agreement

between the Parties hereto with respect to the subject matter of this Contract and

supersede all prior discussions, negotiations and agreements between them,

including, the [Memorandum of Understanding between [●] and [●] dated [●]] the

[Letter of Intent between [●] and [●] dated [●]]

24.8 Waiver

Either Party's failure to exercise or delay in exercising any right, power or privilege

under this Contract shall not operate as a waiver thereof, and any single or partial

exercise of any right, power or privilege shall not preclude the exercise of any other

right, power or privilege.

24.9 Further Endeavours

A Party shall, at any time, upon the request of the other Party, execute or procure the

execution of such documents, agreements, contracts or deeds and do or procure the


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doing of such acts and things as may be [reasonably] necessary to give full effect to

the provisions of this Contract.

24.10 Costs

Save as otherwise provided in this Contract, each Party shall bear its own legal and

other professional costs in relation to the preparation, negotiation and entry into of

this Contract.

24.11 Articles of Association

In case of any inconsistency between the Articles of Association and this Contract,

this Contract shall prevail.

24.12 Schedules and Annexes

The Schedules and Annexes hereto are made an integral part of this Contract and

are equally binding with the main body of the Contract. In the event of any conflict

between the terms and provisions of the main body of the Contract and the

Schedules or Annexes, the terms and provisions of the main body of this Contract

shall prevail.

24.13 Language

This Contract is executed in the Chinese language in [●] ([●]) originals and in the

English language in [●] ([●]) originals. Both language versions shall be equally

authentic.

IN WITNESS WHEREOF, each of the Parties hereto has caused this Contract to be

executed by its duly authorized representative on the date first set forth above in [●],

People's Republic of China.

[Party A name] [Party B name]

By: ____________________ By: ____________________

Name: [Party A rep name] Name: [Party B rep name]

(in Chinese [(Chinese name)])

Title: [Party A rep position] Title: [Party B rep position]

Nationality: Chinese Nationality: [Party B rep nationality]

Commented [DQB85]: This was a requirement under the EJV Law but is no longer required under the Company Law. Accordingly, the parties may agree to English be the controlling language in the event of disputes, although it is expected that the position set out in this clause will remain the most common arrangement. See related discussion in Chapter 6 of the book, New Era for FDI.

www.docQbot.com 37

SCHEDULE A - DEFINITIONS AND INTERPRETATION

Part A - Definitions

Unless the terms or context of this Contract otherwise provide, the following terms shall have

the meanings set out below:

“Additional Permits” means all the government approvals, consents, registrations and

licenses listed in Schedule D hereto in respect of the operation of the Company or the

effectiveness or performance of any Ancillary Contract (other than the Pre-Establishment

Permits and the Tax Concessions).

"Affiliate" means any company which, directly or indirectly, is controlled by, under common

control with, or in control of, a party; the term "control" being used in the sense of power to

elect or appoint a majority of directors or to direct the management of a company.

"Affiliate Assignee" has the meaning as defined in Article 5.6 (d).

"aggrieved Party" has the meaning as defined in Article 21.1.

“Ancillary Contracts” means the contracts listed in Schedule B hereto.

"Ancillary Documents" means documents required by the relevant PRC government

authorities for approval and registration of the Company.

"Applicable Laws" means the laws, regulations, rules, notices, and other legislative,

executive or judicial decisions or pronouncements binding on either Party, the Company or in

relation to the subject matter of this Contract.

“Approval Certificate” means the certificate issued by the Examination and Approval

Authority approving the establishment of the Company and this Contract and the Articles of

Association.

"Approval Document" has the meaning as defined in Article 5.4(d).

"Approval Letter" means the approval reply issued by the Examination and Approval

Authority approving the establishment of the Company and this Contract and the Articles of

Association of the Company.

"Arbitration Rules" has the meaning as defined in Article 24.2(a).

"Articles of Association" means the Articles of Association of the Company executed by the

Parties in [city and province], China on the date hereof.

"Assigning Party" has the meaning as defined in Article 5.6 (b).

"Board" means the board of directors of the Company, as constituted from time to time.

"breaching Party" has the meaning as defined in Article 21.1.

"Business" means the business undertaken by the Company from time to time in

accordance with the Business Plan.

"Business Day" means:

(a) in respect of any action to be taken in the PRC, any day on which companies in the

PRC are generally open for business in the PRC, including a Saturday or Sunday

which the PRC government temporarily declares to be a working day ("Working Rest

Commented [DQB86]: Certain defined terms will need to be revised consistent with the principles outlined in various comments above. Some (but not all) of the affected defined terms are highlighted below.

www.docQbot.com 38

Day"), but excluding a statutory holiday, or a Saturday or Sunday other than a

Working Rest Day; and

(b) in respect of any action to be taken in [Foreign Party Home Country], any day on

which companies in [Foreign Party Home Country] are generally open for business in

[Foreign Party Home Country].

"Business License" means the first business license of the Company issued by the SAIC.

"Business License Issuance Date" means the date the Business License is issued to the

Company by the SAIC.

"Business Plan" means the business plan for the Company as approved by the Board from

time to time.

"Buy-out Price" has the meaning as defined in Article 20.3 (b).

"Chairman" has the meaning as defined in Article 8.1 (d).

"Changes in FIE Equity Interests Provisions" has the meaning as defined in Article 5.6(a).

"Chief Financial Officer" means the Chief Financial Officer or Chief Accountant of the

Company.

“China” and “PRC” mean the mainland of the People’s Republic of China.

"Company" means the Sino-foreign Equity Joint Venture Company to be established by the

Parties pursuant to this Contract and the Articles of Association.

"Confidential Information" means any business, marketing, technical, scientific or other

information disclosed by any Party (or its Affiliates) which, at the time of disclosure, is

designated as confidential (or like designation), is disclosed in circumstances of confidence,

or would be understood by the Parties, exercising reasonable business judgement, to be

confidential.

"Contract" shall have the meaning set out in the preamble.

"Cure Period" shall have the meaning set out in Article 21.1(a).

"Deadlock Matter" means any matter required to be decided by the Board in accordance

with Article 8.2 which either:

(a) the Board fails to reach an agreement on so as to enable it to pass the relevant

resolution in the manner required under Article 8.2(b) or (c) (as the case may be)

within [twenty (20)] Business Days after the date of the Board meeting at which the

matter is first tabled for discussion or the date on which a written resolution in relation

to the matter is first circulated to the directors;

(b) cannot be discussed and agreed by the Board due to [two (2)] successive meetings

convened to discuss such matter being inquorate as a result of one Party's appointed

directors failing to attend both such meetings either in person or by proxy; or

(c) cannot be discussed and agreed by the Board due to the failure to convene a Board

meeting or circulate a written resolution in accordance with the requirements of Article

8.3 and such failure is not remedied for a period of [ninety (90) days] from the latest

date such Board meeting should have been scheduled or such written resolution

should have been circulated under the provisions of Article 8.3.

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"Declining Party" has the meaning as defined in Article 5.8 (b).

"Deputy General Manager" means the Deputy General Manager of the Company.

"disclosing Party" has the meaning as defined in Article 22.1.

"dispute" shall have the meaning set out in Article 24.1.

"Effective Date" means the effective date of this Contract, being the date on which this

Contract has been approved by the Examination and Approval Authority.

"EJV Implementing Regulations" means the Regulations for the Implementation of the Law

of the PRC on Equity Joint Ventures promulgated on 20 September 1983.

"EJV Law" means the Law of the PRC on Sino-Foreign Equity Joint Ventures passed on 1

July, 1979.

"Encumbrance" means any claim, deposit, charge, mortgage, security, pledge, lien, option,

equity, power of sale or hypothecation or other third party right, retention of title arrangement,

right of pre-emption, right of first refusal or security interest of any kind.

"Enterprise Accounting System" means the general Accounting System for Enterprises

promulgated by the MOF on 29 December 2000 to replace the Accounting System for

Foreign Investment Enterprises promulgated on 24 June 1992, which was applicable to

foreign investment enterprises as of 1 January 2002.

"Examination and Approval Authority" means the MOFCOM or other authority entrusted

by it to approve this Contract and the establishment of the Company.

["Final Capital Contribution Date" means the date falling [●] months after the Business

License Issuance Date.]

["First Capital Contribution Date" means the date on which the first capital contribution is

due to be made by each Party, being the date falling no later than ninety (90) days after the

date of the Business License Issuance Date.]

"Force Majeure" has the meaning as defined in Article 23.1.

"General Manager" means the General Manager of the Company.

“Independent Appraiser” means an independent and competent appraiser registered in

China and authorized to perform appraisals of state-owned and other assets selected by the

Company’s Independent Auditor at the request of either Party.

“Independent Auditor” means the internationally recognized independent and competent

accountant registered in China.

“Industry Valuation Method” means the valuation method selected by the Independent

Appraiser in consultation with the Parties, which shall be a valuation method commonly used

in international practice in valuing enterprises in the Company’s industry on a going concern

basis, but, where the assets or equity interests in question constitute State-owned assets

under Applicable Laws, it shall refer to a valuation method which complies with, and satisfies

the requirements of Applicable Laws relating to State-owned assets.

"Intellectual Property Rights" or "IPR" means any and all rights in any invention, discovery,

improvement, utility, model, copyrightable work, industrial design or mask work, algorithm,

data structure, trade secrets or know-how, Confidential Information, or any idea having

commercial value. IPR shall include any trademark, trade dress, trade name, domain name,

Commented [DQB87]: To be deleted and replaced with references to the Company Law.

Commented [DQB88]: To be replaced with references to the Accounting Standards for Business Enterprises – Basic Standards.

www.docQbot.com 40

or other marks that serve to identify and distinguish goods or services as coming from, or

falling under the control of, a single source. IPR shall include all rights of whatsoever nature

in computer software and data, all intangible rights or privileges of a nature similar to any of

the foregoing in every case in any part of the world and whether or not registered, and all

rights in any applications and granted registrations for any of the foregoing rights.

"Investment Certificate" means a certificate issued by the Company to any person in

accordance with the provisions of Article 5.5, in respect of any capital contribution made by

that person to the Company.

"Labour Union" means the labour union of the Company established in accordance with the

PRC Labour Union Law, the EJV Law and other relevant applicable laws and regulations of

the PRC.

"Licence Agreement[s]" means the [Party A Licence Agreement] [and the] [Party B Licence

Agreement].

"Management Personnel" means the Company's General Manager, Deputy General

Manager, Chief Financial Officer and other personnel designated as such by the Board.

“Material Modification” means a modification (whether by means of the imposition of

additional terms and conditions or otherwise) by the relevant government departments to, as

the case may be, this Contract, the Articles of Association or the intended business scope of

the Company or scope and nature of any of the Ancillary Contracts, the Additional Permits or

Tax Concessions as agreed or anticipated by the Parties, which in the opinion of either Party,

will have a material adverse effect on the ability of Parties to achieve through the Company,

their respective economic and operational objectives.

“MOFCOM” means the Ministry of Commerce of China or any of its predecessors.

"MOF" means the Ministry of Finance of China.

"negotiation period" has the meaning as defined in Article 20.3 (a)(i).

"Notifying Party" has the meaning as defined in Article 20.1(c).

"Parties" shall have the meaning set out in the preamble.

"Party" shall have the meaning set out in the preamble.

"Party A" shall have the meaning set out in the preamble.

["Party A Licence Agreement" means [●].]

"Party B" shall have the meaning set out in the preamble.

["Party B Licence Agreement" means [●].]

"Permits" means all Additional Permits, Pre-Establishment Permits and Tax Concessions,

and a "Permit" means any of them.

"Permitted Disclosure Parties" shall have the meaning set out in Article 22.1(c).

"Pre-Establishment Permits" means any licence, permit, registration, certificate, consent,

approval and/or authorisation needed for the establishment of the Company as a legal

person with limited liability in accordance with Applicable Laws, including the Approval Letter,

the Approval Certificate and the Business License.

Commented [DQB89]: As noted above, this can be deleted or at least be made optional.

www.docQbot.com 41

"PRC Company Law" means the Company Law of the People's Republic of China

promulgated with effect from 1 July 1994.

["Products" means the products manufactured by the Company from time to time, including

[●] and [●].]

"receiving Party" has the meaning as defined in Article 22.1.

"Renminbi" or "RMB" means the lawful currency of China from time to time.

"SAFE" means the State Administration of Foreign Exchange or its local branch.

"SAIC" means the State Administration of Industry and Commerce of China or the relevant

local Administration for Industry and Commerce.

"SASAC" means the State-owned Assets Supervision and Administration Commission of the

PRC or its relevant local organs.

["Services" means the services provided by the Company from time to time, including [●].]

["SIAC" has the meaning as defined in Article 24.2(a).]

"Site" means the site to be used by the Company for its operations, as further described in

the [Land/Building Lease Contract].

"Taxes" means any and all applicable tax and taxes (including, but not limited to any value

added tax or sales tax, stamp or other duty, levy, impost, charge, fee, deduction, or

withholding of any nature and howsoever called or described) by whomsoever and

wheresoever imposed, levied, collected or assessed.

“Tax Concessions” means the favorable tax treatment listed in Schedule E that the Parties

anticipate the Company will be entitled to receive upon proper application to the relevant

government authorities.

“Term” means the joint venture term of the Company as set out in Article 19.1.

B"United States Dollars" or "US$" means the lawful currency of the United States of

America.

"Vice Chairman" means the Vice Chairman of the Board of Directors of the Company.

"Working Personnel" means all employees and staff of the Company other than the

Management Personnel and the members of the Board.

Part B - Interpretation

1. A reference to any Applicable Laws or to any legislation, or to any provision of

Applicable Laws or of any legislation includes a reference to such Applicable Laws or

legislation as amended or modified from time to time.

2. A reference to a "person" includes any individual or entity (including any company,

business or other enterprise or entity, joint venture, institution, state or government

department), as the context permits.

3. References in this Contract to contracts, agreements or other documents, shall mean

the same as amended from time to time.

Commented [DQB90]: To be updated to refer to the SAMR.

Commented [DQB91]: To be deleted if an indefinite term is adopted.

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4. A reference to any PRC government authority or department includes such authority

or department at State, provincial, municipal and other levels.

5. References in this Contract to government ministries, bureaux, departments,

commissions, agencies, etc. shall include all successor entities thereto.

6. In this Contract, the masculine form includes the feminine form and the singular form

includes the plural form, and vice versa.

7. Headings are for convenience of reference only and shall not affect the construction

or interpretation of this Contract.

8. A reference to any Party to this Contract or to any other party to any contract,

agreement or document includes a reference to that party's successors and permitted

assigns.

9. A reference to a director, the Chairman, the Vice Chairman, the General Manager,

the Deputy General Manager, the Chief Operating Officer or the Chief Financial

Officer or similar positions means a person appointed in accordance with this

Contract holding such position in the Company from time to time.

10. The words "includes" or "including" mean "includes without limitation" and

"including without limitation" respectively.

Commented [DQB92]: It is permissible to rely on this savings clause as an alternative to updating the references to the various government departments, but the better practice would be to bring the post-conversion JVA or SHA up to date for ease of reference.

Commented [DQB93]: May be deleted as per prior comments above.

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SCHEDULE B - ANCILLARY CONTRACTS

[Instructions: List each Ancillary Contract in the following format:

1. [Name of Ancillary Contract] to be entered into by and [between] [among] the

Company and [name(s) of Party, Affiliate and/or third party] promptly following

the Business License Issuance Date substantially in the form attached as

Appendix [●] hereto.]

Commented [DQB94]: This listing of ancillary contracts is designed to ensure that all agreed ancillary contracts are signed following issuance of the joint venture company’s business license and as a condition to funding. Accordingly, in the context of a post-conversion JVA or SHA, this can be omitted.

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SCHEDULE C - CAPITAL CONTRIBUTION SCHEDULE

1. Party A’s Registered Capital Contributions

Party A’s total contribution to the registered capital of the Company

representing a [Party A's percentage of registered capital]% share in the

registered capital of the Company shall be the amount of [Party A registered

capital contribution]. It shall be made in the form of [RMB] [United States

Dollars] cash in the amount of [Party A cash contribution] [and in-kind

contribution of the following assets:

[list in-kind assets by item and value]]

Party A shall make its contributions to the registered capital of the Company in

accordance with the following schedule (subject to the provisions of Article

5.4(c)):

Initial instalment in the amount of [●] [being not less than fifteen percent (15%)

of Party A’s total registered capital contribution] to be made by Party A on or

before the First Capital Contribution Date.

[Subsequent instalments to be made in accordance with the Company’s

operational requirements as determined by the Board, provided that in any

event the full amount of Party A’s registered capital contributions shall be

made in full no later than the Final Capital Contribution Date.]

2. Party B’s Registered Capital Contributions

Party B’s total contribution to the registered capital of the Company

representing a [Party B's percentage of registered capital]% share in the

registered capital of the Company shall be the amount of [Party B registered

capital contribution]. It shall be made in the form of [United States Dollars]

cash in the amount of [Party B cash contribution] [and in-kind contribution of

the following assets:

[list in-kind assets by item and value]]

Party B shall make its contributions to the registered capital of the Company in

accordance with the following schedule (subject to the provisions of Article

5.4(c)):

Initial instalment in the amount of [●] [being not less than fifteen percent (15%)

of Party B’s total registered capital contribution] to be made by Party B on or

before the First Capital Contribution Date.

[Subsequent instalments to be made in accordance with the Company’s

operational requirements as determined by the Board, provided that in any

event the full amount of Party B’s registered capital contributions shall be

made in full no later than the Final Capital Contribution Date.]

3. Miscellaneous

3.1 To the extent practicable, each Party shall make each of its initial and

subsequent registered capital contribution instalments at the same time as the

corresponding instalment to be made by the other Party.

Commented [DQB95]: As discussed in connection with the comments to Article 5 above, this annex can be deleted in the context of a post-conversion JVA or SHA, provided that if one or more parties has not yet fully funded its share of the registered capital, then further assessment should be undertaken and corresponding changes made to the JV contract as appropriate.

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3.2 With respect to the in-kind registered capital contributions (each an “In-kind

Contribution Asset”) to be made by a Party (“Contributing Party”)

hereunder, such Contributing Party hereby represents and warrants to the

other Party that as of the date of the signing of this Contract, the Effective

Date, the Business License Issuance Date and the date of contribution of each

such In-kind Contribution Asset:

(a) the Contributing Party possesses all rights, title and interest in and to

each such In-kind Contribution Asset; and

(b) no In-kind Contribution Asset is jointly owned by or subject to any

Encumbrance in favour of or claim of any third party]

[add other representations and warranties as appropriate, adapted to

the type of asset in question e.g. for land, the duration of the assigned

granted land use rights, compliance by the Contributing Party with the

terms of the underlying land grant contract, whether the land grant

premium and land price have been paid in full, whether the land has

any contamination or other environmental issues etc.]

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SCHEDULE D - ADDITIONAL PERMITS

[List: e.g., any operating permits, manufacturing licenses, land use rights transfer

approvals/registrations, lease registrations, technology/trademark/tradename license

registrations, etc. necessary or desirable for the Company's operations]

Commented [DQB96]: Again, this annex is usually included in greenfield JV contracts as a condition to funding and may be deleted in the context of a post-conversion JVA or SHA.

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SCHEDULE E - TAX CONCESSIONS

[List: e.g., manufacturing FIE 2+3 tax holiday treatment, local government/zone tax

concessions, high technology or software development enterprise tax concessions,

etc.]

Commented [DQB97]: See comment to Schedule D above

Commented [DQB98]: These tax incentives were phased out as part of the overhaul of the tax system in 2008.

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