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Introduction to New Rules for Management of Foundations in China

At 2004, The State Council of China has revised its Regulation for Management of Foundations, the
basic rules about foundations in China. The re vision had been promulgated by an order issued by the
Premier Wen, Jiaobo on March 8th, 2004, and had came into effect since June 1st, 2004. The new rules
was titled as Administrative Rules for Management of Foundations (thereafter “this or the Regulation”).

This new regulation contains seven chapters and totally 48 articles, governing all aspects of
supervision and regulation of foundations in the People’s Republic of China. It also applies to foreign
branches or representative offices established by foreign or overseas foundations in China.

What follows is a short brief of the main provisions of this Regulation:

Chapter One covers general provisions about foundations, including the purpose and goal of the
regulation; Legal definition and the nature of a foundation and its major categories; General principles
and requirements over activities of a foundation; Regulatory agencies and the conference of regulatory
power and its allocation between regulatory agen cies at different government level.

Purpose and Goals : First article indicates that this Regul ation is intended to regulate formation and
operation of foundations, and to prot ect their rights and interests, their donators and beneficiaries, and
to encourage social support for causes of general public welfare.

Regulatory Agency and its powers : The Ministry of Civil Affairs of the State Council and local
Departments of Civil Affairs of a provincial government or that of a government at equivalent level
(Autonomous Regions and municipalities) are r egulatory agencies which have supervisory and
regulatory powers over the formation and operation of foundations in China.
They may issue warnings, order corrections or organizational changes or even suspend or revoke
registration certificate for misconducts of foundations.

Legal Definition of a Foundation : A foundation by this Regulation is defined as a not-for-profit legal
person who is formed in accordance with the ru les set by this Regulation and financially based on
assets endowed by individuals, legal persons or other organizations and operates with the sole
intention of engaging in public welfare causes.

Categories of Foundations : The Regulation divides foundations into two major categories:
1) Openly-soliciting Foundations: foundations t hat are authorized to raise money from general public.
Based on territorial scope where they are allowe d to raise money, openly-soliciting foundations can be
further divided into national openly-soliciting foundation and local openly-soliciting foundations.
2) Non-openly-soliciting Foundations: foundations that are not allowed to raise money from general
public and receive donations only within cert ain private individuals or organizations.

Requirements of formation : A national openly-soliciting foundation can not be formed with an

amount of initial capital funds lower than 8 million Yuan (Renmingbi), which is equivalent to an amount
of $966000; For a local open foundation, this limit of amount is 4 million Yuan; And for a close
foundation, it is 2 million Yuan. Also, the Regulat ion requires that a foundation must have adequate
staff and a stable office as its legal residency. The last requirement is that a foundation must be able to
bear its civil responsibilities independently 

Registration: A foundation comes into being when it is issued a registration certificate (or charter) by
a regulatory agency. To be registered, applicants must submit the regulatory agency documentations
as follows:

1) with the purpose to advance public welfare;
2)application;
3) draft of the bylaw;
4) Proof of contribution of initial capital funds and proof of registered office.
5) List of names of directors and their identific ations; Curriculum Vitae of would-be chairman,
vice-chairman and Secretary General of the board of directors.
6) preliminary approval from its professi onal leading unit (yewu zhuguan danwei in
Chinese)* prior to submission of application to regulatory agency

In no more than 60 days post receiving application and all required documentations, the regulatory
agency shall make a decision of either appr oval or denial of the application.

The foundation shall also, post its receipt of charte r, register at local Taxation Bureau for the taxation
purpose.

Organizational Structure of a Foundation : The board of directors is the supreme authority within a
foundation, which has the right to decide on all fundamental matters that have to do with the tasks of the
foundation. The board of directors shall cons ist of at least 5 and up to 25 members.

The term of a director shall be set by the bylaw of the foundation but shall not be more than 5 years. A
director can be reelected without term limit.

Mandatory Subject matters of a bylaw:
Such subject matters shall be specified by the bylaw of a foundation as:
1)Name and domicile of the foundation;
2)tasks and fields of its business;
3)Amount of initial capital funds;
4)Organization, powers and rules of procedure of the board of directors; membership, selection
procedure and term of a director;
5)duties of the chairman as the l egal representative of a foundation;
6)Duties, qualification, selection and term of the monitor;
7)Compilation and approval of accounting documentations;
8)Management and use of foundation resources;
9)terms, procedure of the te rmination of a foundation and di sposal of foundation assets.

Tax Benefit: A foundation, its donators and beneficiary are entitled to tax benefit in accordance with
the law and administrative rules.

Obligation of publicity of openly-soliciting foundations : When it has received donations, an
openly-soliciting foundation shall publish the activities and programs the foundation is going to sponsor
with the donations and the specific financial plan.

Obligation of Compliance to Bylaw and Endowment Agreement : The use of foundation assets and
resources shall accord with the purpose and tasks set by the bylaw, and shall also be subject to
provisions of the endowment agreement if any.

Limitation of Expenditure : For an openly-soliciting foundation, annual expenditure for by-law
specified public welfare causes shall account for no less than 70% of total income received in the last
fiscal year. For a non-openly-soliciting foundation, this amount shall be above 8% of total sum of remain
funds of last fiscal year. No more than 10% of annual total expenditure can account for wage and
benefit of foundation staff and administrative expenses.

Supervision and Regulation : Power and duties of regulatory agencies: Such powers are conferred to
regulatory agencies as:
1) examine foundations and foreign representative offices of overseas foundations annually;
2) supervise day-to-day business and activities of foundations to enforce the compliance to the
Regulation and the by-laws.
3) prosecute violations committed by foundations and representative offices of overseas foundations.
Also the Regulation confer the supervisory powers and duties as follo ws are granted to professional
leading unit:
1)instruct and oversee foundations and representative offices of overseas to perform public welfare
activities on the basis of laws and bylaws;
2) conduct preliminary examination prior to annul examination made by the regulatory agencies;
3)collaborate with regulatory agencies and other la w enforcement authority in prosecuting violations
committed by foundations and representative offices of overseas foundations.

Obligation of Submission of Annual Report: Foundat ions and representative offices of overseas
foundations shall submit annual report to regulat ory agency no later than March 31 on each year. Prior
to the submission, the report shall first obtain approval from a foundation’s professional leading unit.
The Annual Report shall cover accountancy report, au diting report of a certified public accountant and
information about money-raising, donation-receiving and support-providing activities and information
about personnel change in the last year.
When its annual report has been approved by the re gulatory agency, a foundation shall publish the
report in a pubic media designated by regulatory agency, making it accessible to the public, who has
the right to make criticism or remarks on it.

Monitor from Tax Bureau and Inland Revenue Department: Foundations shall be subject to
supervision and oversight from the Tax Bureau and Inland Revenue Department for taxation purpose
and accounting purpose respectively.

Formation and Sample of fundamental documentation : Formats of application for registration and
foundation Annual Report and by-law shall be made by the Ministry of Civil Affairs.

Main Violations and penalties: This Regulation also lists main violations or misconduct with
corresponding penalties the regulatory agencies may set, including but not limited as:

1) conduct activities in the name of a f oundation without registration certificate;
2) Diverting from original intended objectives;
3) Acting without permission in establishing branches or representative units;
4) Engaging in for-profit activities;
5) Misuse of funds;
6) Refuse to perform obligation of publicity.
7) Refuse to accept the annual examination conducted by regulatory agency.

*(According to current rules relating to Not-for-profit organization (or social organizations) in China, a
non-profit organization, a foundation, for example, is required to find an organizational sponsor (in
Chinese slang, a popo or mother-in-law), which is usually a government agency carrying out work in a
similar subject matter area. An environmental NGO, for example, might seek sponsorship from the
State Environmental Protection Administration or a local Environmental Protection Bureau. In the
language of the law, this organizational sponsor is called the professional leading unit.(yewu zhuguan
danwei) Professional leading unit has the power to oversee and monitor the activities of a non-profit
organizations and perform some supervisory function. It supervision, along with the regulation and
supervision performed by the regulatory agencies, namely the Ministry of Civil Affair and local
Departments of Civil Affairs, cons titutes the so-called dual regulation of social organizations in China,
which has long been employed as a means to achiev e a heightened control of the freedom of private
association in China). Accordingly, there are “two ma sters” for not-for-profit organizations in China.

Translated by Hongxi n Shi
Email:hxshi2003@yahoo.com