The actual controller has control over the company, and can decide or substantially influence the company's main business, business policy, appointment and dismissal of the company's management team, and form a control over the company's behavior. In the IPO stage, the regulations require the issuer to have stable control for the last 2-3 years, with the aim of allowing investors to make value judgments and investment decisions under stable expectations. In order to better grasp the review dynamics of the identification of the actual controller, this article will interpret the identification of the actual controller in the IPO review in combination with laws and regulations, various normative documents and actual cases.
1. The concept of actual controller
According to the definition of an actual controller in the Company Law of the People's Republic of China (2018 Amendment) (hereinafter referred to as the "Company Law"), the actual controller is "the person who actually controls the company's behavior", and the form of control can be in the form of equity relationship, agreement or other arrangements, etc., so as to have a decisive influence on the company's operation and management or policies and policies, and has the right to decide on the company's business plan, business policy, financial personnel and other affairs.
2. Laws and regulations related to the actual controller
1) Article 216 of the Company Law: The actual controller refers to a person who is not a shareholder of the company, but can actually control the company's behavior through investment relations, agreements or other arrangements. (2) Opinions on the application of the relevant provisions of Articles 12, 13, 31, 44 and 45 of the Administrative Measures for the Registration of Initial Public Offerings and Article 7 of the Guidelines for the Content and Format of Information Disclosure of Companies Offering to the Public - Prospectus - * Opinions on the Application of Law No. 17:1. The basic requirement is that the actual controller is the entity that has control over the company and can actually control the company's behavior. When confirming the ownership of the company's control, it should be based on the principle of seeking truth from facts, respecting the actual situation of the enterprise, and focusing on the issuer's own determination, which should be confirmed by the issuer's shareholders. If the equity of the issuer is relatively dispersed but there is a situation where the control ratio of a single shareholder reaches 30%, in the absence of evidence to the contrary, the shareholder should be identified as the controlling shareholder or actual controller in principle. If the actual controller is a single natural person or multiple natural persons with family relations, and the death of the actual controller results in a change in equity, and the transferee of the shares is the heir, it is generally not regarded as a change in the control of the company. If one of the actual controllers dies, the sponsor institution and the issuer's lawyer shall comprehensively determine whether there is a change in the company's control based on factors such as the shareholding structure, the role of the deceased natural person in the decision-making of the shareholders' meeting or the board of directors, and the impact on the issuer's continuing operations. 2. If the issuer of the joint actual controller claims that multiple people jointly own the control of the company, the following conditions shall be met:(1) Each person must directly hold the voting rights of the company's shares or indirectly control the company's shares; (2) the issuer's corporate governance structure is sound and well-run, and the fact that multiple people jointly own the control of the company does not affect the issuer's standardized operation; (3) The situation where multiple persons jointly own the control of the company shall generally be clarified through the articles of association, agreement or other arrangements. The articles of association, agreements or other arrangements must be legal and valid, with clear rights and obligations, clear responsibilities, and arrangements for the resolution mechanism in the event of differences of opinion or disputes. The situation has been stable and effective in the last 36 months (Main Board) or 24 months (STAR Market and ChiNext Board) and within the foreseeable period after the initial offering, and there has been no major change in the number of people who jointly own the control of the company; (4) Other conditions that the issuer should meet based on the specific circumstances of the issuer. The concerted action relationship formed by law or agreement does not necessarily result in multiple persons jointly owning the control of the company, and the issuer and the intermediary should not make a determination contrary to the facts in order to expand the scope of entities performing the obligations of the actual controller or to meet the issuance condition 2. 3. If there is no actual controller, the issuer does not have an entity with control over the company or the ownership of the control of the company is difficult to determine, and if the following circumstances are met, it can be deemed that the control of the company has not changed(1) There have been no significant changes in the issuer's shareholding and control structure, management and business in charge within 36 months (Main Board) or 24 months (STAR Market and ChiNext Board) prior to the IPO; (2) the issuer's equity and control structure do not affect the effectiveness of corporate governance; and (3) the issuer and its sponsors and lawyers can provide sufficient evidence to prove that there has been no change in the control of the company. If the relevant shareholders take measures that are conducive to the stability of the company's equity and control structure, such circumstances may be taken as an important factor in judging that there has been no change in the company's control. (3) The Listing Rules of the Shanghai **Stock Exchange (Revised in August 2023): Actual controller: refers to a natural person, legal person or other organization that can actually control the company's behavior through investment relationships, agreements or other arrangements. (4) Shenzhen **Stock Exchange Listing Rules (Revised in August 2023): Actual controller: refers to a natural person, legal person or other organization that can actually control the company's behavior through investment relationships, agreements or other arrangements. (5) Rules for the Listing of the Science and Technology Innovation Board of the Shanghai ** Stock Exchange (Revised in August 2023): Listed companies shall objectively and prudently determine the ownership of control based on their shareholding structure, nomination, appointment and removal of directors and senior management, and other internal governance conditions. In any of the following circumstances, it constitutes control: 1. Holding more than 50% of the shares of the listed company, except where there is evidence to the contrary; 2. The voting rights of the shares of the listed company are more than 30%; 3. The appointment and dismissal of more than half of the members of the board of directors can be determined by actually controlling the voting rights of the shares of the listed company; 4. The voting rights of the shares of the listed company at its actual disposal are sufficient to have a significant impact on the resolution of the company's general meeting of shareholders; 5. Can actually control or decide on major business decisions, important personnel appointments and other matters of listed companies; 6. Other circumstances identified by the China Securities Regulatory Commission and the Firm. (6) Rules for the Listing of the Growth Enterprise Market of the Shenzhen Stock Exchange (Revised in August 2023): 1. Actual controller: refers to a person who can actually control the company's behavior through investment relationships, agreements or other arrangements. 2. Under any of the following circumstances, it is deemed to have control of a listed company: (1) it is a controlling shareholder of more than 50% of the shares of a listed company; (2) can actually control more than 30% of the voting rights of the shares of the listed company; (3) The election of more than half of the members of the board of directors of the company can be determined by actually controlling the voting rights of the shares of the listed company; 4. The voting rights of the shares of the listed company at its actual disposal are sufficient to have a significant impact on the resolution of the company's general meeting of shareholders; (5) Other circumstances as determined by the China Securities Regulatory Commission and the Exchange. (7) Measures for the Administration of the Acquisition of Listed Companies (2020 Amendment), Article 84: In any of the following circumstances, the investor shall have control over the listed company: 1. The investor is the controlling shareholder of the listed company holding more than 50% of the shares; 2. Investors can actually control more than 30% of the voting rights of the shares of listed companies; 3. Investors can decide the election of more than half of the members of the board of directors of the company through the actual control of the voting rights of the shares of the listed company; 4. The voting rights of the shares of the listed company at the investor's actual disposal are sufficient to have a significant impact on the resolution of the company's general meeting of shareholders; 5. Other circumstances recognized by the China Securities Regulatory Commission.