Special purpose Companies

Special purpose Companies
Chapter IV of the 2006 Regulations includes provisions on special –purpose companies, defined as any overseas company controlled , directly or indirectly , by a domestic company or Chinese natural person inside China for overseas listing of their share interests .
A domestic company wishing to establish a special –purpose company overseas must apply to MOFCOM for examination and approval , submitting the following documents in additional to those normally required for establishing an overseas investment :
The identification certificate of the ultimate controlling person of the ultimate controlling person of the proposed special –purpose company ;
The business plan of the proposed special –purpose company for overseas listing ;
The evaluation report provided by the acquisition consultant regarding the issuing price of the special –purpose company ‘s stocks to be listed overseas.
The total value of stock issuing price for overseas listing of the special –purpose company shall not be lower than the equity value of the acquired domestic company as appraised by the relevant Chinese assets evaluation organ .
If a domestic company targets an overseas company holding any equity shares of a special –purpose company as the main body through which an overseas listing will be made ,the domestic company must submit these application documents;
The incorporation certificate of the transaction arrangements and price conversion assessment and between the special –purpose company and the targeted overseas regarding the equity interests of the domestic company acquired.
The overseas listing revenue of a special purpose company shall be arranged for returning for use within China in accordance with the revenue returning plan submitted to SAFE by:
        Providing a business loan to the domestic company;
        Establishing a new FIE in China;
        Acquisition of the domestic company.
The profits, dividends and foreign exchange income obtained by capital variation received by the domestic company and natural persons from its special-purpose company shall be returned to China within six months of receipt. Profits and dividends can be deposited in a foreign exchange current account or provided for foreign approval, the foreign exchange settlement. Subject to SAFE from capital variation can be maintained in a special account of capital items or provided for settlement.

Conclusion
The law concerning the control of strategic investment in listed companies by foreign investors was promulgated on 31st December 2005 and came into force on 30th January 2006. This law provides the relevant procedures for merger and acquisition of domestic listed companies by foreign investors. However, the relationship between the 2006 Regulations and this law is unclear, and therefore it remains uncertain whether the 2006 Regulations should be applied to a foreign investor merging with or acquiring a Chinese listed company.
The 2006 Regulations increase corporate transparency by requiring parties to a cross-border acquisition to disclose whether or not they are affiliated with each other and , if they are under the purpose of acquisition and whether the appraisal results conform to fair market value. They also make specific and detailed provisions for the use of special-purpose entities overseas by Chinese domestic firms making acquisitions in China-- an important addition in view of the generally unrecorded but widespread practice of  ‘round-tripping’ by Chinese companies seeking to benefit from incentives offered to foreign investors.