Category Archives: Operation

Advantages and Disadvantages of Incentive Shares Held Directly and Indirectly

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(By Bai Lituan) Over recent years increasingly more businesses have used incentive shares to retain key employees. They may hold shares in the subject company directly (hereinafter referred to as “holding shares directly”) or indirectly through a limited partnership i.e., a platform for employees to hold shares (hereinafter referred to as “holding shares indirectly”). What are the advantages and disadvantages of holding shares directly or indirectly? This article deals with this issue in the areas of business control and tax burden.

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Has Luckin Inc. Violated Chinese Criminal Law?

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(By Zhao Sen)There is a widespread concern about the news that Luckin Coffee, a famous Chinese company listed on the US stock market underwent an over 80% slump in share price because of the allegation of financial information falsification. According to documents provided by Luckin Coffee to SEC, Tencent Securities reported, CEO of Luckin Coffee and some of employees who reported to him did improper activities, including false deals since the second quarter of 2019. According to the US Securities Law 1934 and the Sarbanes-Oxley Act, in addition to a large sum of fines, a person who has committed securities related fraud may face an imprisonment of up to 25 years. Is falsification by Luckin Coffee a crime in Chinese law? This is a good question.

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New Changes in Export Control Rules of China

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（By Wang Haichuan）The new Export Control Law of China (the “Draft”) was published for public comments on December 28, 2019. This is the first law on export control in China. Export control means measures taken to prohibit or restrict the export of certain items such as nuclear, biological products or weapons in order to fulfill international obligations such as non-proliferation obligation, national security and development interests, etc. Currently, there are administrative regulations of export control on chemicals, general nuclear items, nuclear items used for multi-purpose, missiles, military products, biological products (the “Current Regulations”). Compared with the Current Regulations, the Draft makes no change in the current regulatory mechanism and allocation of responsibility and duties, appropriately improves the system and measures and fills blanks in laws. This article will focus on the changes in export control and their possible impact on companies doing business in China.

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The Effect of GDPR on Chinese Businesses

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(By Lisa Li)The EU General Data Protection Regulation (“GDPR”) affects a broad range of people outside the EU. Certain Chinese businesses are very likely to be bound by GDPR. This article briefly discusses how GDPR affects Chinese businesses and what Chinese businesses should do to comply with GDPR.

1.The Application of GDPR to Chinese Businesses

This is a matter of applicability. GDPR applies to the following people.

(a) People established in the EU who control or process data and process personal data while doing business regardless of where these data are processed.

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Key Points on Early Dissolution and Liquidation of WFOEs

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(By Lisa Li)In accordance with the PRC Company Law (hereinafter referred to as the “Company Law”), the Regulations of PRC on Administration of Company Registration (hereinafter referred to as “Company Registration Administration Regulations”) as well as the Law of PRC on Foreign Invested Enterprises (hereinafter referred to as “Foreign Invested Enterprises Law”) etc and based on the author’s prior experience in handling cases of early dissolution and liquidation of companies, we summarized key points and practical experience regarding the early dissolution and liquidation process of wholly foreign invested companies, including foreign invested enterprises owned by one sole foreign investor and those jointly owned by foreign investors (hereinafter collectively referred to as the “WFOE”) prior to expiration of the registered operation term.

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A Brief Overview on the Foreigner’s Work Permit in China

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(By Lisa Li) As of April 2017, the Circular on Fully Implementing the Work Permit System for Foreigners to Work in China jointly issued by the State Administration of Foreign Expert Affairs, the Ministry of Human Resources and Social Security, the Ministry of Foreign Affairs and the Ministry of Public Security (the “Circular”) has been implemented in China to integrate previous foreigner’s employment permit and foreign expert work permit as the foreigner’s work permit, aiming to simplify the foreigner’s work permit application procedures and to facilitate the introduction of foreign talents. In accordance with the relevant laws, regulations and policies regarding the foreigner’s work permit and from our recent experience, we summarized the following main points and some best practices regarding the foreigner’s work permit in order to provide a brief overview on the foreigner’s work permit system in China.

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Does MOC’s Prohibition on Item Sweepstakes Decrease the Profits for Game Companies in China?

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(By You Yunting) Recently, the Ministry of Culture has issued the Notice of Ministry of Culture on Regulating Online Game Operation and Strengthening Interim and Ex Post Supervision (Referred to as “Notice”), which will be put into effect as of May, 2017. The Notice contains lots of specific policies, including the restrictive policy on providing virtual props and value-added services of an online game by sweepstakes (Referred to as “Item Sweepstakes”), which are the significant sources of profits for game companies. In this article, we’ll discuss whether this policy would affect the incomes of these game companies or not.

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How to Determine Joint Liabilities of shareholder for IPR Infringement in China?

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(By Wang Ting and You Yunting)The limited liability of the shareholders means that the liability of the shareholder to the company are limited to its capital contribution, and the independent personality of corporation means that the Company shall fulfill its external liabilities by all of its properties. Therefore, the shareholders usually do not take personal responsibility in IPR infringement cases even when the long-term business of the company is infringement of the intellectual property rights (“IPR”) in most cases. However, today we will introduce a recent case, in which the shareholders were determined to take such joint liabilities for the IPR infringements.

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In What Ways Can Startups Obtain Competitive Advantages from Intellectual Property?

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(By You Yunting) Large number of business opportunities have arisen from the rapid development of wireless and mobile technologies. As a result, new startups appear one after another, scrambling for these opportunities. However, the faster a market grows, the fiercer competition it involves. The process of Entrepreneurship is a race with other outstanding entrepreneurs, in which they use reasonable efforts to gain competitive advantages and win their rivals. If properly used, intellectual property rights can be very helpful in creating advantages. Here, let’s talk about what advantages can startups create by using intellectual property.

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What Should Startup Entrepreneurs Know to Negotiate with Outside Investors and Handle Equity issues?

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(By You Yunting) The other day I had a conversation with a lawyer of a foreign law firm. That lawyer, who specializes in handling legal affairs of VIE financing on behalf of the investment side, told me that many startups would sign investment agreements proposed by investors directly without any argument. To be honest, I can hardly understand nor agree with this kind of practice. I think investors may actually feel ambivalence in face of such situation, too. On one hand, they can get more control over the invested business as well as other extra benefits. With probably unfair terms being included in an investment agreement, investors may be happy to have a favorable position in the relationships with startups. On the other hand, the investors are expecting to gain lucrative profits, so they may doubt whether the startups will be able to win fierce competitions of the market as they behaved so obediently when making investment agreements. This article talks about common points of financing negotiation between startups and investors as well as startups’ internal equity allocation issues.

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Directors’ Liability in China

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(By Yu Zhiyuan) Directors’ liability in China is an attractive matter to foreigners who act or intend to act as directors in China. Today, we would like to introduce directors’ liability in China to the below questions.

1. What are the key areas of liability that directors in China need to be aware of?

Directors shall abide by laws, administrative regulations and articles of association of the company and shall have the fiduciary and diligent duties to the company.

Directors may not abuse their authorities by accepting bribes or generating other illegal income, and may not convert company property.

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Litigation in China–A Long and Rocky Road

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(By Dr. Wenbao Qiao) For foreign companies doing business in China, dispute and litigation may sometimes be inevitable. Once a dispute cannot be resolved out of court, there is a long and rocky road to the final success, with several important points to be considered for planning and handling of litigation in China:

Documents and Evidence

The first step of each procedure is to collect and prepare all necessary documents and evidence. According to Chinese law, documents and evidence from another country (such as excerpts from the commercial register or powers of attorney) have to be first notarized in their country of origin and then certified by the Chinese Embassy or Consulate in the respective country. Only notarized and certified documents and evidence will be accepted by Chinese courts. While preparing the documents and evidence, attention should be paid to the timeline required for the notarization and certification. There are several important statutory deadlines shown below. Failure to meet these deadlines can lead to the loss of a case. Notarization and certification in Germany usually takes two to three weeks, which in turn may play a critical role for the time schedule of trial preparation.

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Why Uber China Takes Legal Risks to Mega Millionaire Marketing Promotion?

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(By You Yunting) Recently, Uber Shanghai carries out a marketing activity called Call for one hundred million by one button of Uber cooperated with 1qiaobao, an App owned by PINGAN INSURANCE GRP. According to the Uber’s official Weibo, users can use the Uber App to call the securicar provided by both Uber and 1qianbao, and anyone who is the winner of the caller can obtain all the financing earnings of one hundred million yuan, which is about ten thousand yuan. I think this activity has huge legal risks, therefore hereunder are the risks and its reason.

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What Startups Need to Know to Protect Their IPR in China

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 (By You Yunting) I was once asked by a journalist what the foundation of intellectual property  courts and the ratification of the Opinions on Quicker Development of the Globally Influential Scientific and Technological Innovation Center matter to small and medium-sized startups, and replied the outcome of those two events were the same, both of which ultimately aimed to enhance the awareness of intellectual property throughout our society and guide small and medium-sized enterprises to establish a competition barrier and a management philosopher on how to avoid infringing others’ intellectual property rights. As governmental authorities define and set official instructions and policies, each startup should take full use of its intellectual property during daily operation, trying to become positioned to succeed, just like a well-known Chinese aphorism says that even the pig can fly when the typhoon comes. Combined with my experiences, this article mainly deals with the issue of how small and medium-sized startups seek intellectual property protection both internally and externally.

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Does Unauthorized Use of Screenshots in Game Guide Constitute Infringement?

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(By You Yunting) A game guide, also known as game strategy guide, is an essential reference for players. Generally, a game guide may quote pictures and screens from the game itself. But if without authorization, it triggers questions whether this quotation causes copyright infringement. In the following, a similar case will be introduced.

Introduction to the Case:

Plaintiff: Shanghai Aurogon Information and Technology Co., Ltd (the “Aurogon”)

1st Defendant: China Zhongdian Media Co., Ltd (the “ZD Media”)

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