In recent years, the COVID-19 pandemic has presented a serious challenge to the economic development of China. Some companies, heavily impacted, are temporarily unable to carry out business activities, although they still have strong willingness to resume their operation and the capabilities to do so. In order to reduce the company’s costs to retain its existence, the business suspension system, also commonly known as “dormant company policy” in other jurisdictions, has been established in China in the Regulation of the People’s Republic of China on the Administration of the Registration of Market Entities, by drawing on the relevant foreign systems and the experience of the pilot project in Shenzhen, Guangdong province (for more information, please refer to “New Commercial Registration Rules Provide FDI in Shenzhen With More Facilitation”). As Chinese lawyers with rich experience in foreign-related matters, we will introduce this business suspension system in this article.

1. What kind of market entities can apply for business suspension?

Companies, non-corporate enterprise legal persons, partnership enterprises, sole proprietorship enterprises, individual industrial and commercial households, specialized farmers’ cooperatives and their branch offices among other.

2. Where can you find the main relevant provisions about the business suspension system?

1) Several Provisions on Commercial Registration in Shenzhen Special Economic Zone, coming into force on March 1, 2021, hereinafter as “Provisions on Commercial Registration in Shenzhen”;

2) Regulation of the People’s Republic of China on the Administration of the Registration of Market Entities, coming into force on March 1, 2022, hereinafter as “Regulation on the Registration of Market Entities”;

3) Implementing Rules of the Regulation of the People’s Republic of China on the Administration of the Registration of Market Entities, coming into force on March 1, 2022, hereinafter as “Implementing Rules”.

3. Under what circumstance can a company apply for business suspension?

In case of operational difficulties caused by natural disaster, accident, public health incident, or public security incident, the company may decide to suspend its business for a certain period of time unless the laws and administrative regulations provide otherwise.

4. How can you apply for business suspension?

The company shall apply for business suspension with the relevant registration authority. The registration authority will publicize such information as the period of business suspension and the address for the service of legal documents on the National Enterprise Credit Information Publicity System. During the suspension period, the company may use such address to receive legal documents instead of the registered address or principal place business. Where the company wants to replace the registered address or principal place business with the address for the service of legal documents, such company shall submit a letter of confirmation on the address for the service of legal documents.

5. Are the employers entitled to termination of employment on the grounds of business suspension during the suspension period?

Subject to the Regulation on the Registration of Market Entities, the company shall negotiate the employment relationship with the employees according to law before the suspension. Therefore, business suspension status is not a circumstance where the company is entitled to terminate the employment immediately and unilaterally. Our advice is that companies that plan to apply for business suspension should negotiate with the employees in advance about whether to terminate the employment and how to pay the salaries during the suspension period and other related matters.

As experienced Chinese lawyers in the foreign-related field, we will provide more information about the business suspension system in the following article. In view of the uncertainty about business operation in China caused by the pandemic, foreign-invested companies may consider applying for business suspension or the dormant company status to take a break and return to the market when the economy is back on track. If you are interested in the business suspension system, please contact us via administrator@legalandwise.com.

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