China against COVID-19: Business Closure System Comes
On August 24, the State Council published the Administrative Regulations on Market Enterprise Registration (the “New Regulations”) on its official website. The Regulations will come into effect on March 1, 2022, and the Regulations on Administration of Company Registration, the Regulations on Administration of Registration of Enterprise Legal Persons, the Measures for Administration of Partnership Registration, the Regulations on Registration of Farmers’ specialized Cooperatives, and the Regulations on Registration of Legal Representatives of Enterprises (the “Original Provisions”) will be repealed at the same time.
One of the main purposes of the New Regulations is to solve the problems such as the dispersion of commercial registration legislation, the registration rules, standards, procedures and effectiveness of different market enterprises. Therefore, the main content of the New Regulations is to regulate and unify the original provisions. But the New Regulations also have innovations, such as the introduction of the business closure filing system.
It should be noted that the closure of business is not the first time it appears in the laws and regulations of commercial registration. The current effective Regulations on Administration of Registration of Enterprise Legal Persons provide for the closure of enterprises, but the concept and consequences of closure in this provision are completely different from those of the New Regulations.
The business closure in the Regulations on Administration of Registration of Enterprise Legal Persons emphasizes the government’s regulation on the operating state of the enterprise, that is, the passive identification of the state of closure when the enterprise does not operate or ceases to operate for a certain period of time and its corresponding regulatory consequences. According to Article 22 of the Regulations on Administration of Registration of Enterprise Legal Persons, if an enterprise as a legal person fails to carry out business activities for six months or ceases business activities for not more than one year after obtaining a business license, it shall be deemed to be out of business, and the registration authority shall confiscate the business license of the enterprise, collect the official seal, and inform the bank of deposit of the cancellation of the enterprise.
On the other hand, the New Regulations will grant the decision-making power of closure to the enterprises. Article 30 of the New Regulations stipulates that if business difficulties are caused by natural disasters, accident disasters, public health events, social security events and other reasons, the market enterprise may independently decide to go out of business within a certain period of time. If the enterprise decides to close its business, it shall apply to the registration authority for the record before going out of business.
In practice, Youly has encountered many enterprises that do not carry out or stop doing business for various reasons, and these enterprises are often reluctant to deregister. According to the current laws and regulations, such enterprises will face embarrassment in two aspects: on the one hand, market regulatory departments can confiscate their business licenses and official seals at any time and order them to deregister in accordance with the Regulations on Administration of Registration of Enterprise Legal Persons; on the other hand, although enterprises do not operate, they need to maintain and spend costs continuously, such as bookkeeping, tax returns, annual publicity, residence use fees, and so on.
The introduction of the new regulations has opened up a legal and compliant closure path for such enterprises, and the maintenance costs of enterprises will be reduced to a minimum. According to the regulations, during the closure of the market, only the address for the service of legal documents needs to be provided, and there is no need to maintain the residence or the main place of business.
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