Shenzhen to Release New Rules on Venture Capital Investment

The Standing Committee of Shenzhen People's Congress is currently reviewing the draft Regulations on Venture Capital Investment of the Shenzhen Special Economic Zone ("Draft Regulations") recently submitted by the Shenzhen Government.

The Draft Regulations are formulated based on the Tentative Rules of Venture Capital Investment in High and New Technology Industry in Shenzhen issued in October 2000. After two years of its implementation, the Tentative Rules have, in some respects, lagged behind the demand of the accelerating development in venture capital investment in Shenzhen. The Draft Regulations will represent a significant step forward in the legal regime for regulating venture capital investment in Shenzhen once they are issued.

The Draft Regulations aim to regulate two types of venture capital investors, i.e. venture capital investment firms (VCIF) and venture capital management firms. In so far as VCIFs are concerned, the Draft Regulations allow such firms to take the form of limited liability companies, companies limited by shares or limited partnerships. Limited partners in VCIFs must contribute capital of no less than RMB30 million (equivalent to approximately US$3.8 million). This applies to both domestic and foreign investors. The Draft Regulations limit the investment by VCIFs in a particular investee, to the maximum of 20 per cent of the total registered capital of the VCIF. If VCIF wish to invest more than 20 per cent of its registered capital, a resolution passed by no less than two thirds of its members having voting rights will be required.

The Draft Regulations also set out provisions specifically governing the management agreement, restriction on entrusted capital and the disclosure of information and other aspects relating to venture capital management firms.

For more information, please contact:

Chris Southorn on [email protected] or + 852 2846 9137

Luke Filei on [email protected] or + 86 21 628 96363