Preface

There are three basic organizational forms of enterprises in China: sole proprietorships, partnerships, and companies. Companies and partnerships are the main organizational forms in modern enterprises. This article specifically introduces one of the methods of re-transfer, namely contribution, from the perspective of companies and partnerships.

Article 27 of the "Company Law" regarding the contribution methods of limited liability companies and Article 82 regarding the contribution methods of joint-stock limited companies both stipulate that shareholders and promoters may use land use rights and other non-monetary properties that can be valued in currency and legally transferred as capital contributions. Non-monetary properties shall be evaluated and priced, and the properties shall be verified. Overvaluation or undervaluation is not allowed. Articles 16 and 64 of the "Partnership Enterprise Law" stipulate that general partners and limited partners of general partnership enterprises and limited partnership enterprises may use land use rights as capital contributions. If valuation is required, it may be determined through negotiation by all partners or entrusted to a statutory valuation agency for evaluation. In conjunction with the new provisions of the "Land Administration Law" and the "Implementing Regulations of the Land Administration Law", and with reference to Article 353 of the "Civil Code": "The construction land use right holder has the right to transfer, exchange, contribute, donate or mortgage the construction land use right, unless otherwise provided by law.", Article 2 of the "Guiding Opinions on Improving the Secondary Market for the Transfer, Lease and Mortgage of Construction Land Use Rights" stipulates: "All acts that lead to the transfer of construction land use rights are regarded as the transfer of construction land use rights, including sales, exchanges, donations, contributions, as well as the transfer of construction land use rights involved in judicial disposal, asset disposal, merger or division of legal persons or other organizations.", the contribution in re-transfer mainly refers to the transfer of the collective commercial construction land use right by the collective commercial construction land use right holder to companies, partnership enterprises and other enterprises as consideration, and obtaining shares or equity or property shares to become shareholders or partners.

The "Company Law" and the "Partnership Enterprise Law" both stipulate that the price of land use rights as capital contribution shall be determined by evaluation and pricing. If the collective commercial construction land use right holder contributes with the collective commercial construction land use right, the price shall also be determined by evaluation and pricing.

Referring to Article 2 of the "Guiding Opinions on Improving the Secondary Market for the Transfer, Lease and Mortgage of Construction Land Use Rights": "The transfer of construction land use rights obtained through capital contribution or shareholding shall refer to the relevant provisions on the transfer of construction land use rights obtained through transfer.", the special article "Special Topic 5 on the Legal Issues of Collective Commercial Construction Land Entering the Market - Understanding of Relevant Fee Issues" mentions that "to achieve the same price for collective commercial construction land as state-owned construction land, the method for determining its land price should be consistent with that of state-owned construction land.", the author suggests that when the collective commercial construction land use right holder contributes with the collective commercial construction land use right for re-transfer, the evaluation and pricing of the contributed property should refer to the price and determination method of state-owned construction land.

(1) Analysis of Practical Issues of Contribution Methods

Articles 28 and 83 of the "Company Law" both stipulate that shareholders and promoters shall fully pay the subscribed capital contribution. If non-monetary property is used as capital contribution, the transfer procedures of its property rights shall be handled in accordance with the law. If the capital contribution is not paid in accordance with the regulations, the liability for breach of contract shall be borne. If the collective commercial construction land use right holder invests in the company with the collective commercial construction land use right but fails to go through the property rights transfer procedures, it shall be deemed as failure to pay the capital contribution and shall bear the liability for breach of contract. The author suggests that the collective commercial construction land use right holder should go through the transfer procedures of the collective commercial construction land use right on time after the evaluation and pricing.

In combination with the current revision spirit of the "Company Law", regarding the issue of shareholders failing to pay the capital contribution in full on time, in addition to bearing the liability for breach of contract, Article 46 of the draft revision sets new rules: 1. If the actual price of the non-monetary property contributed is significantly lower than the subscribed capital contribution, the company shall issue a written payment notice; 2. If the capital contribution is still not paid after the payment grace period, the company may issue a written notice of forfeiture; 3. After the written notice of forfeiture is issued, the shareholder loses the equity of its unpaid capital contribution. It can be seen that if the new regulations take effect, the shareholder's obligation to contribute capital will be stricter. If the actual price of the collective commercial construction land use right contributed is significantly lower than the subscribed capital contribution, the collective commercial construction land use right holder may risk losing equity. The author suggests that the collective commercial construction land use right holder should strictly refer to the price and determination method of state-owned construction land when evaluating and pricing the collective commercial construction land use right, and the subscribed capital contribution should not be significantly lower than the actual price of the collective commercial construction land use right.

(2) Analysis of Practical Issues of Cooperation Models

According to Article 38 of the "Implementing Regulations of the Land Administration Law": "Collective commercial construction land that has been determined as industrial, commercial and other commercial uses in the territorial space plan and has been legally registered for land ownership, the land owner may transfer, lease, etc. to units or individuals for compensated use within a certain number of years.", re-transfer cannot change the planning conditions of the land and can only be used for industrial, commercial and other commercial purposes. According to China's land management system, land ownership is divided into two categories: state-owned land and rural collective land. Rural collective construction land includes rural residential land, rural public service and infrastructure land, village-run and township enterprise land, etc. After the collective commercial construction land use right holder obtains the collective commercial construction land use right, a large amount of funds is required for development and construction, and industrial projects and commercial projects require specialized enterprises to operate. The state encourages key rural industries and projects to use collective commercial construction land. Cooperation between the collective commercial construction land use right holder and specialized enterprises for development and construction is a mutually beneficial and win-win model.

Through methods such as establishing new project enterprises and increasing capital to specialized enterprises, the collective commercial construction land use right holder contributes with the collective commercial construction land use right and obtains equity or shares or property shares of the same value as the contribution price of the collective commercial construction land use right, and the enterprise obtains the land use right. This model reduces the financial pressure on both the collective commercial construction land use right holder and the specialized enterprise, especially for large-scale industrial projects and commercial projects. The integration of land, capital, and professional resources helps to stimulate the vitality of enterprises in operating projects and increase development momentum.

However, once entering the cooperation level, the due diligence of the potential partners on each other's strength before the investment is particularly important, and whether there are explicitly prohibited legal risks is the primary consideration; after determining the cooperation, it is inevitable to consider how to design the control and management rights of the enterprise, how to deal with taxes, and how to enjoy policy dividends. These types of problems more or less affect the success of the project and involve more professional legal knowledge, which urgently needs to be solved!

About the Author

Xu Xiaoye Lawyer