In Chinese law governing economic security, the person with ultimate control is any individual or entity that fully manages or controls another entity or company. Such control may be exercised by a company’s statutory representative, a major stakeholder, or any other individual who plays a decisive role in major company decisions. Ultimate control is a key element in determining if an individual is the beneficial owner of an entity.
Updated Chinese legislation mandates those in ultimate control of a company be listed in, and can therefore be identified through, the company’s articles of incorporation, financial statements, or any other official documents covering the company’s ownership and shareholding structures. Additionally, media reports, industry reports, market intelligence, and other external references can also be used to determine who is in ultimate control of a company.
China is concerned about the issue because those with ultimate control have a decisive influence over company operations and can directly influence its governance and strategic initiatives, such as investment strategies, financial policies, and strategic market positioning. Moreover, the persons with ultimate control determine the appointment of a company’s executives and upper management.
Their business experience and overall reputation, capabilities, and past conduct are major factors in assessing the stability and sustainability of a public company. Furthermore, their expertise, ethical standards, and past experiences can significantly impact their company’s operational conditions and future prospects.
Nevertheless, accurately identifying and disclosing who is in ultimate control of a company continues to remain challenging. For instance, the persons with ultimate control of a company often have reasons for deliberately maintaining anonymity, thereby making it harder to obtain information on them. In addition, information on who ultimately controls a company may not always be fully transparent, leading to ambiguities that can mislead potential investors. To this end, it’s vital that investors, particularly in joint ventures, have effective capabilities to identifying who is in ultimate control of an entity and perform thorough professional due diligence to effectively overcome the complexities associated with identifying who has ultimate control.
Comparative Law
According to the Chinese legislative history, the concept of ultimate control was based on, and was added in response to, the United States CFIUS rules found at 73 FR 70702. Many law firm in China talk about the concept of an “ultimate controller,” which is a non-existent legal concept that is introduced through attempts to translate difficult Chinese semantics.
Relevant Laws
Foreign Investment Act of China (& Administrative Regulations)
Reporting Procedures for Foreign Investments
Further Reading
See our comprehensive resources on China’s Foreign Investment Law. and an overview of FDI regulation in our Foreign Investment Law FAQ.
Translation Guide
实际控制人