Shanghai Seeks to Simplify Business Deregistration Procedures

Shanghai is seeking to simplify business deregistration procedures to facilitate market exit and improve the ease of doing business in the city. Initiatives include reforming the simplified deregistration procedures, improving digital deregistration services, and allowing companies to suspend operations without fear of reprisals. We explain the efforts to improve procedures for company deregistration in Shanghai.

The Shanghai Municipal Administration for Market Regulation (AMR), the Shanghai Municipal Tax Authority (AT), and other municipal government bureaus jointly released the Opinions on Comprehensively Deepening the Reform to Facilitate the Exit of Business Entities (“the Opinions”), which seek to facilitate business deregistration procedures for companies located in Shanghai.

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The Opinions are the latest effort by Shanghai and other local governments to improve the business environment by reducing administrative burdens on companies. In 2023, the central government launched initiatives to improve the environment for both foreign and private investment in China. These initiatives included efforts to increase the ease of doing business, such as improving cross-border data transfer procedures, optimizing foreign investment services, and providing financial and resource support for private investors, among many others.

In addition to national policies, the city of Shanghai has also released local measures to improve the business environment for foreign investors and other private businesses.

The Opinions will be in force from February 18, 2024, to February 17, 2029.

Measures to facilitate company deregistration in Shanghai

The Opinions propose five key measures to reform the business exit system, which we summarize below.

Reforming the simplified deregistration procedures

The Opinions call for enhancing the simplified deregistration procedures, a system by which eligible companies can choose a streamlined online mechanism for handling deregistration.

Simplified deregistration procedures were first introduced in 2017 to allow certain eligible companies to deregister quicker and more easily. The procedures are conducted through an online government service, meaning procedures do not need to be handled in person, require fewer documents, and omit the steps of establishing a liquidation committee or issuing a newspaper announcement, as required under general business deregistration procedures.

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To be eligible for the simplified registration procedures, companies should not have any outstanding claims and debts, including liquidation fees, employee wages, social insurance fees, statutory compensation, payable taxes (as well as late fees and fines), and so on. Listed joint-stock companies are not eligible for simplified deregistration.

To apply for the simplified deregistration, companies need to sign into Shanghai’s National Enterprise Credit Information Publicity System and publicize information about their intended application for simplified deregistration and commitments from all investors. This information must be publicized for 20 days. In terms of improvements to the simplified deregistration system, the Opinions call for launching a pre-examination service for objections to simplified deregistration. Through the Shanghai Enterprise Registration Online service platform, business entities can initiate pre-examination applications before or during the publicity period for simplified deregistration.

Through this system, tax, human resources, and social security departments can interact with businesses before the deregistration is publicized, thus enabling the businesses to obtain pre-examination results online and take corresponding corrective measures. If there are objections from any of the departments, relevant matters can be handled before the publicity period, reducing the risk of the simplified deregistration being rejected.

Similarly, the Opinions call for establishing a “fault-tolerant“ mechanism for simplified deregistration. This means that if the application is rejected due to situations disqualifying a company from the simplified procedures listed above, the application for the simplified deregistration can be publicized again after the above disqualifying issue is resolved. If a company makes an error when completing commitment letters or forms, the registration authority will accept the re-application for simplified deregistration without the need for the company to publicize the deregistration again after the relevant corrections are made.

Resolving the issue of missing investors or legal representatives and ensuring unobstructed exit channels

The Opinions offer several measures to address problems encountered during the deregistration process, such as difficulty in forming resolutions or inability to sign documents due to the absence of a few investors or legal representatives.

The following measures are proposed:

1. Utilizing public announcement methods to deliver relevant notices: If a limited liability company has shareholders who are unresponsive or cannot be reached to receive notices, announcements can be made in newspapers at or above the provincial level. After the announcements, a shareholder meeting can be convened to form resolutions in accordance with legal and statutory requirements. After this, the company can approach the registration authority to complete the deregistration process after lawful liquidation.
2. Assigning clearing responsibilities to relevant entities to enable deregistration: If documents related to the deregistration of an invested operating entity cannot be signed due to the deregistration of shareholders (contributors and affiliated companies), resolutions can be signed and deregistration can be processed by the legally authorized entity, such as the supervising authority of the deregistered entity and shareholders registered at the time of deregistration.
3. Combining changes in the legal representative with the deregistration process: In cases where the legal representative is unreachable, uncooperative, or deceased and cannot sign the relevant deregistration application materials, the company does not need to change the legal representative. Instead, the liquidation team established by the company’s shareholders can sign the deregistration documents. If the relevant documents require the signature of the legal representative, the appointment and dismissal documents of the legal representative can be used as proof, and the new legal representative can sign the application materials for deregistration.

Facilitating the use of judicial procedures in the exit mechanism

The Opinions emphasize strengthening coordination between government and judiciary to facilitate the use of judicial procedures in the exit mechanism.

This includes:

1. Implementing compulsory liquidation procedures: If an obligated party fails to fulfill liquidation duties or struggles to establish a liquidation team, shareholders or creditors can apply to the People’s Court for compulsory liquidation. After completion, the liquidation team submits materials such as the court’s termination decree for compulsory liquidation to the registration authority to apply for deregistration.
2. Streamlining the deregistration process and documents for bankrupt enterprises: The administrator, holding documents such as the court’s decree ending bankruptcy proceedings, decision on appointed administrator, and application for deregistration, directly handles the deregistration of bankrupt enterprises and their branches. This process eliminates the need for submitting tax clearance certificates and bypasses the deregistration announcement procedure. If it’s not possible to return all business licenses, the administrator can provide a relevant explanation, and the registration authority can announce the invalidation of the business license through the National Enterprise Credit Information Disclosure System.
3. Using administrators’ seals and signatures for the deregistration application: If the deregistration application requires the seal of the bankrupt enterprise, the administrator’s seal can be used instead. Similarly, if the signature of the legal representative of the bankrupt enterprise is needed, it can be substituted with the signature of the administrator’s person in charge.

Improving the digital service platform to facilitate online processing

The Opinions call for optimizing the digital service platform for deregistration in order to facilitate online processing.

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They propose expanding the scope of online service platform departments, which will involve broadening the range of departments that can collaboratively handle deregistration tasks through Shanghai’s online business portal (一网通办).

In addition, they call for accelerating the digitization of processes for company deregistration in Shanghai. By enhancing the functionality of the Shanghai Enterprise Registration Online service platform, features such as digital signatures and delivery and return of business licenses will be added to enable complete electronic registration for business deregistration. Additionally, the Opinions call for exploring the synchronization of business license cancellation with tax deregistration procedures to reduce the number of procedures required for business deregistration.

Supporting business entities to temporarily suspend operations

The final section of the Opinions proposes to help businesses that are facing temporary difficulties by allowing them to temporarily suspend operations, thereby reducing their operational costs.

Key measures include implementing a streamlined process for suspending operations. This will allow businesses to submit applications for temporary suspension of operations through the “Shanghai Enterprise Registration Online” service platform. The market supervision department will synchronize this information with tax, human resources, social security, provident fund, and medical insurance departments so that businesses don’t need to suspend obligations with each of these departments individually.

Meanwhile, the regulatory authorities will adopt a differentiated approach for businesses during the suspension period. Under this approach, the registration authority will:

• Not determine that a suspended business entity has “failed to open business for more than six months without justifiable reasons after its establishment, or has voluntarily ceased business for six consecutive months after opening”, as is normally the case;
• Not include the company in the scope of the work to clean up long-term closed and unoperated enterprises;
• Not regard the company as “unable to contact through the registered residence or business place”; and
• Not include the company in the directory of abnormal business operations or marked as a state of abnormal business operations.

A business entity that has gone out of business can apply to the registration authority to replace its residence with the address for delivery of legal documents. If the rental relationship of the original residence has been terminated, other business entities that have settled in can be registered.

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In addition, the government will standardize the responsibilities and regulatory measures for suspended businesses to ensure clarity and ease of compliance. The Opinions thus far only state that suspended businesses must still fulfill certain obligations, including timely publication of annual reports. However, they generally won’t be subject to various inspections unless there are specific complaints or reports.

Finally, the government will also facilitate the process for businesses to resume or cease operations after suspension. Businesses resuming operations after suspension will be required to publish this information on the National Enterprise Credit Information Disclosure System, while those ceasing operations after suspension can proceed with deregistration after completing the necessary liquidation procedures, without the need for further public announcements.

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