Regulations
on Employee Ownership
In
Hainan Special Economic Zone (SEZ)
(Draft Edition)
(November, 2000)
Contents
Section I General Provisions
Section II Creation and Obtainment of Employee
Shares
Section III Trusted Management of Employee Shares
Section IV Rights and Obligations of Employee
Shareholders
Section V
Rights and Obligations of Trustees
Part One: Assignment and Removal of
Trustees
Part Two: Rights and Obligations of
Trustees
Section VI Disposal of Employee Shares
Section VII Legal Liabilities
Section VIII Supplementary Provisions
Section
I General Provisions
Article 1 The
Regulations are promulgated on the basis of supportive legal texts and
documents to promote enterprise reform in Hainan SEZ, facilitate establishment
of a modern enterprise system, increase the binding forces of enterprises,
standardize employee shareholding behaviors and clarify rights and obligations
of stakeholders.
Article 2 Employee
ownership, as specified in the Regulations, refers to the behavior in which
investing employees indirectly hold the shares of the employing enterprise
through trustees in compliance with the Regulations.
Article 3 The Regulations apply to all types of
limited liabilities companies, joint stock companies and shareholding
cooperatives that are legally registered in Hainan SEZ.
For
behaviors relating to employee ownership but are not covered by the
Regulations, other related laws and regulations of the P. R. China will apply.
Article 4 The owner or the
shareholders' meeting and the employee (or their representatives) assembly
of a company has the autonomy to decide whether or not to adopt employee
ownership.
State or
collectively owned enterprises shall adopt employee ownership upon the time
when they are restructured into limited liabilities companies, joint stock
companies or shareholding cooperatives.
Article 5 Competent government authorities
shall take active measures to support the promotion of the employee ownership
programs. With approval from competent government authorities, subsidized
taxation treatment shall be granted to banks and non-banking financial
institutions providing loans to employee ownership trust, enterprises and
companies adopting employee ownership as well as investing employees
themselves.
Article 6
Implementation of employee ownership shall adhere to the principles of rational
design, voluntary participation, non-discriminatory distribution of equity
rights and self-assumed risks.
Section
II Creation and Obtainment of Employee Shares
Article 7 Employee
shares can, upon the approval of the owners or shareholders' meeting of an
enterprise, be created either at the establishment of the enterprise or when
the enterprise increases its equity with new investments or when the equity of
the enterprise is transferred.
The
aggregate amount of employee shares and its proportion as against the total
equity of the enterprise shall be decided by the owners or stockholders’
meeting on the basis of the scale and performance of the enterprise as well as
the investing ability of employees. Employees may own a relatively or
absolutely controlling stake in the enterprise.
The types
of employee shares shall be decided by the enterprise independently. Approved
by the owners or shareholders’ meeting, the enterprise can include preferential
shares in employee shares.
Article 8 The
following staff of the enterprise are entitled to employee shares:
(1) Employees
who are working in the enterprise or its subsidiaries and have signed the
service contract with the enterprise.
(2) Directors
of the board, supervisory board and managers.
(3) Employees
who have signed service contract with the enterprise and are assigned to work in
branch operations or affiliated organizations of the enterprises.
Article 9 The
employees may obtain employee shares through at least one of the following
ways:
(1) Purchase of shares in cash;
(2) Appropriate
conversion of industrial property rights, non-patent technology or other
intellectual property rights into shares;
(3) Appropriate
conversion of human capital of employees into shares, upon the approval by the
owners and shareholders’ meeting of the enterprise;
(4) Withholding
of 15% ~ 25% of the total annual wage payments to individual employees as
personal contributions for obtaining shares, upon the approval by the employee
representatives’ meeting and the employee himself/herself;
(5) Purchase
of shares with loans from banks or non-banking financial institutions with
non-employee shareholders of the enterprise or other legitimate creditworthy
individuals or organizations as the guarantors;
(6) Purchase
of shares with loans from banks and non-banking financial institutions, with
trustees using employee shares as colleteral;
(7) Purchase
of shares with contributions from a certain percentage of accumulated welfare
funds;
(8) Purchase
of shares with contributions from a certain percentage of reserves, upon
approval by the owners or shareholders’ meeting of the enterprise;
(9) Conversion
of a certain amount of state-owned shares into employee shares, upon approval
by the authority responsible for managing state-owned assets;
(10)
Withdrawal of not more than 20% of the net assets of a restructured enterprise
or not more than 20% of the increased net assets of a company for purchasing
employee shares, upon approval by the authority for managing state-owned assets
and other stakeholders;
(11)
Obtainment of employee shares in other legal ways.
For each
employee shareholder, shares obtained through ways of (1), (4), (5), (6) and
(7) shall not be less than 50% of his or her total shareholding while shares
obtained through ways of (2), (3), (8), (9) and (10) shall not be over 50% of
his or her total shareholding.
Banks and
non-banking financial institutions shall be encouraged to provide loans for
financing the creation of employee ownership by enterprises and the purchase of
employee shares by employees or trustees on preferential terms.
Article 10 A reasonable ratio shall be maintained between
the contributions from Chairman of the board or general manager and those from
ordinary employees. In principle, contributions from Chairman of the Board or
general manager shall not be less than 5 times as much as average contributions
from individual employee.
The
enterprise may also adopt the stock option plan for the management and
employees.
Article 11 While designing employee ownership plans,
the owners or shareholders' meeting and employee assembly shall set aside 10%
of the employee shares for future subscription by newly-added eligible
employees or for adopting the stock option plan.
Purchase
of preserved shares by newly-added eligible employees shall be governed by the
Regulations. The purchase price shall be decided on the basis of the book value
per share at the end of the last year or according to the current market price.
Article 12 Trustees shall pay back the principal and
interests of loans mainly through the following ways:
(1) Dividends
from undistributed employee shares that have been purchased with loans;
(2) Dividends
from preserved employee shares;
(3) Contributions
from new employees for purchasing preserved employee shares;
(4) Funds
from other legal sources.
Employee
shares acquired by trustees through loans shall be gradually distributed to
employees according to the progress in loan repayment.
Section
III Trusted Management of Employee Shares
Article 13 The
trusted management of employee shares, as specified in the Regulations, refers
to the behavior through which investing employees entrust their legal assets or
shares of the employing enterprise into the hands of trustees for management or
disposal. The trustees shall under their own names work towards the
maximization of the interests of investing employees.
Article 14 Investing
employees shall enter into trusteeship with trustees and acquire, manage or
dispose of their shares through trustees.
The
assets for trusted management must be assets legitimately owned by investing
employees or to which investing employees have disposal rights.
Article 15 Assets for
trusted management shall be strictly separated from other assets of employees
and the personal assets of trustees.
Trustees'
creditor rights acquired from managing trusted employee shares shall not be
used to offset their personal debts.
In the
event of termination of trusteeship due to death, dismissal, removal and
bankruptcy of trustees, the trusted assets shall not be used for heritage or
liquidation purposes.
Article 16 The trusteeship between investing employees
and trustees shall be established in the form of a written contract. In the
event that establishment of trusteeship is otherwise stipulated in state laws
or regulations, the latter shall prevail.
The
written contract of trusteeship shall be drafted by all investing employees or
their agents and trustees through consultation. The said contract comes into
force from the day when assets are transferred to trustees for trusted
management. The contract has binding forces on both investing employees and
trustees.
The contract
shall contain the following items:
(1) Purpose
of establishing trusteeship;
(2) Names of
investing employees and trustees;
(3) Types and
scope of trusted assets and term of trusteeship, including structure, total
amount and types of employee shares;
(4) The way
in which trusted assets (including employee contributions, equity and
reservations) shall be transferred and managed, including the procedures for
purchasing employee shares and form and contents of employee contributions
certificate and roster of contributors;
(5) Rights
and obligations of investing employees during the term of trusteeship.
(6) Rights
and obligations of trustees during the term of trusteeship;
(7) Forms and
ways through which investing employees receive benefits from the trusteeship;
(8) Rules
governing transfer and buyback of employee shares;
(9) Ways of
appointing and removing trustees;
(10)
Procedures for altering or terminating the contract of
trusteeship;
(11)
Other contents which investing employees and trustees deem
as necessary.
Article 17 Investing employees shall reach
an agreement in writing for the trusted management of collective assets. The
agreement shall be signed by investing employees prior to the signing of the
trusteeship contract.
The said
agreement shall indicate the voluntary nature of the decision for trusted
management of the contributions made collectively by all investing employees.
In addition, the names of trustees, scope of assets for management as well as
way of transferring the assets shall be specified in the agreement.
The said
agreement comes into legal force upon the signature by all investing employees.
Article 18 Trusted management of employee
shares shall proceed according to the following procedures:
(1) Owners or
the shareholders' meeting and employee assembly of the enterprise finalize the
overall design of the employee ownership plan;
(2) Investing
employees sign the agreement for trusted management of collective assets;
(3) Investing
employees issue the signed agreement to trustees;
(4) Trustees
review the eligibility, shareholding quotas, contributions and ways of making
contributions of investing employees;
(5) Trustees
and investing employees sign the contract of trusteeship;
(6) Investing
employees transfer the assets for trusted management to trustees according to
the signed agreement;
(7) Trustees invest
in the enterprise under their own names;
(8) Trustees
issue the certificate of contributions to investing employees;
(9) Trustees
prepare and keep the roster of investing employees.
Employees
who have already held shares of the enterprise can directly sign the contract
of trusteeship with trustees after the signing of the agreement by investing
employees.
Article 19 The certificate of contributions shall
include the following:
(1) The
investing employee's name, ID number and number of the certificate of contributions;
(2) The
amount of contributions and number of shares held by the investing employee;
(3) Date of
certificate issuance and points for attention;
(4) The
signature of trustees.
Article 20 The
roster of employee shareholders shall include the following:
(1) The investing
employee’s name, ID number, residence information and the number of the
certificate of contributions;
(2) The
amount of contributions and number of shares held by the investing employee;
(3) Changes
of the number of shares held by investing employees;
(4) Signature
of the trustees, employee shareholders and the roster keeper.
Article 21 The
certificate of contributions and the contract of trusteeship are written
documents for employee shareholders to check and verify the amount of their
contributions and clarify their rights and obligations. The roster of employee
shareholders and the contract of trusteeship serve as the basis for trusted
management of employee shares by trustees.
Any
changes with the contributions from employee shareholders shall be reflected in
the contract of trusteeship, certificate of contributions and roster of
employee shareholders.
The
certificate of contributions, roster of employee shareholders and contract of
trusteeship shall be in consistency with each other. In the event of conflicting
information, the roster of employee shareholders shall prevail.
Section IV Rights and Obligations of Employee Shareholders
Article 22 Employee shareholders have equal legal status.
Board directors and managers
shall treat all employee shareholders without any discrimination and shall not
act against the interests of employ shareholders and trustees.
Employees with the majority
shares shall not harm the interests of other employees by taking advantage of
their dominant position.
Article 23 Employee shareholders shall
indirectly exercise their rights as well as undertake their obligations as
shareholders through trustees in correspondence with their contributions.
Employee shareholders may
reserve partial rights for themselves in managing and disposing of the trusted
assets by making statements in the contract of trusteeship.
Article 24 Employee shareholders shall be entitled to the right to assigning and
removing trustees and setting the standards of their payments.
Article 25 Employee shareholders shall
have the right to serve on the board of directors as well as the supervisory
board of the enterprise in the capacity of employee representatives.
Article 26 Employee shareholders shall
have the right to be sufficiently informed of the management, revenues and
expenditure of the trusted assets. They are also entitled to the right of
checking, copying or duplicating accounting books related to their trusted
assets.
Employee shareholders have
the right to request negligent trustees to perform their obligations and
question or make suggestions on the management affairs concerning the trusted
assets.
Article 27 Employee shareholders have
pre-voting rights on issues to be decided at the shareholders' meeting. The
contract of trusteeship may specify issues that will require pre-voting. The
preferential shares held by employees, however, do not represent voting rights.
Trustees shall, prior to the
shareholders' meeting, solicit employee shareholders' opinions on issues that
require pre-voting and then organize the pre-voting by employee shareholders.
Trustees shall inform all
employee shareholders of the issues for pre-voting 15 days prior to the
pre-voting. Results of the pre-voting may be borne out through forms of
entrusted voting or written voting, etc.
Article 28 Employee shareholders exercise
their pre-voting rights in proportion with their contributions, unless it is
otherwise stipulated in laws and regulations governing shareholding
cooperatives.
Decisions must be approved
by employee shareholders representing not less than two thirds of the total
amount of employee shares on the following issues:
(1)
Alteration
in any form of the contract of trusteeship;
(2)
Election
and replacement of employee representatives on the board of directors and the supervisory
board;
(3)
Increase
or reduction of the total amount of employee shares.
Decisions other than the
above must be approved by employee shareholders representing not less than 1/2
of the total amount of employee shares
Article 29 When exercising
their pre-voting rights, employee shareholders may vote in favor of or against
a proposal or abstain from voting. The results of the pre-voting shall be
recorded faithfully.
When representing employee
shareholders to vote at the shareholders' meeting, trustees shall vote
according to the recorded results from the pre-voting.
For interim proposals
submitted to the shareholders' meeting, trustees may vote on behalf of employee
shareholders to the maximization of the interests of employee shareholders.
Article 30 Employee shareholders have the right to
benefit from the management of trusted assets according to their respective
amounts of contributions.
An enterprise with employee
ownership shall allocate its profits to trustees according to the percentage that
employee shares represent in all shares of the enterprise. Discriminatory
treatment of employee shares in any forms shall be strictly prohibited.
Trustees shall redistribute the profits to individual employee shareholders
according to the dividends they receive for each share and the contributions
from individual employee shareholders.
With the approval by the
shareholders’ meeting, employee shareholders may reinvest the allocated
dividends in the enterprise. With the approval by competent government authorities,
profits from the reinvestment in the enterprise by employee shareholders can be
entitled to tax deduction.
Article 31 In the event that the management of trusted assets does not support
achieving the purpose of trusted management or does not guarantee the
maximization of the welfare of employee shareholders due to reasons
unforeseeable at the signing of the trusteeship contract, employee shareholders
have the right to revise the trusteeship contract and request for readjustment
of management by trustees.
In the event that trustees
fail to readjust the management of trusted assets according to the request of
employee shareholders, employee shareholders have the right to ask for
mandatory correction from the People's Court.
Article 32 Employee shareholders shall perform the following obligations:
(1)
Transfer
their contributions to trustees according to the agreed time, amounts and
manner as specified in the agreement of entrustment;
(2)
Pay
trustees according to the trusteeship contract;
(3)
Keep
their contributions for trusted management until the trusteeship contract
expires, except for situations that are otherwise stipulated by the
Regulations;
(4)
Refrain
from using their employee shares as colleteral;
(5)
Other
obligations stipulated in the Regulations and the trusteeship contract
Article 33 Employee shareholders who have been granted shares on the basis of
their human capital value are obliged to make actual contributions equal to
that value in the event that the enterprise dismisses, goes bankrupt or terminates
because of other reasons.
Section
V Rights and Obligations of Trustees
Part
1 Assignment and Removal of Trustees
Article 34 Trustees shall consist of 3-7 natural and/or legal persons.
Trustees may consist of
natural persons only. With approval of competent government authorities or with
support of existing laws and regulations, eligible legal persons may serve as
trustees alone or jointly with natural persons. For legal persons acting as
trustees, the legal representative of the legal person shall perform the role
of the trustee.
Article 35 Trustees are assigned to
their posts by the common entrustment of employee shareholders.
To achieve common
entrustment of employee shareholders, there must be approval from employee
shareholders representing not less than 2/3 of the total amount of employee
shares.
The specific ways of
assigning trustees shall be decided by employee shareholders through
consultation, unless it is otherwise stipulated in rules other than the
Regulations.
Article 36 Persons who fit one of the following descriptions shall not qualify
for the role of trustees:
(1)
Those
without or with hampered ability to handle civil affairs;
(2)
Those
who have been penalized or imprisoned for crimes related to embezzlement,
taking bribes, misappropriation or disruption of social and economic order and
the end of the penalty is less than five years ago; or those who have been
deprived of political rights due to crimes and the end of penalty is less than
five years ago;
(3)
Those
who have acted as president, director or manager of a liquidated company and
personally assume responsibility for the liquidation and the liquidation of the
company is less than three years ago;
(4)
Those
who have acted as legal representative of a company whose business license has
been suspended due to illegal
operations and the suspension is less than three years ago;
(5)
Those
who have failed to repay debts of considerable amounts in due time.
In the event that the
above-mentioned people are assigned as trustees, the assignment is invalid.
However, the trusteeship shall not be invalid as a result of the invalidity of
the assignment. The management of trusted assets shall remain in force, unless
related parties are informed of the invalidity of the assignment.
Article 37 A trustee terminates his/her role when one of the following events
occur:
(1)
Resignation
from the duty with approval from employee shareholders;
(2)
Death
or legal declaration of death;
(3)
Legally
declared as a person without or with hampered ability to handle civil affairs;
(4)
Legally
declared bankrupt or dismissed from the post;
(5)
Other
events that lead to the deprivation of his/her legal rights.
Article 38 Trustees who breach the
trusteeship contract in managing the trusted assets or neglect their managerial
duties or incur great losses out of their own fault may be removed with the
approval of employee shareholders representing not less than 2/3 of the total
amount of trusted assets.
Article 39 Employee shareholders shall
identify new trustees according to the Regulations and the clauses in the
trusteeship contract to replace trustees whose duties have been terminated. The
new trustees shall assume the rights and obligations of their predecessors.
Trustees who resign from their posts shall continue to perform their duties until
their successors are identified and assigned to the posts.
Article 40 Trustees whose duties have been terminated due to situations described
in Item (1), (4) or (5) in Article 36 shall prepare a report on the managerial
issues concerning the trusted assets and complete procedures required for
transferring the management of trusted assets to their successors.
The replaced trustees shall
be disengaged from all the obligations related to the issues listed in the said
report under the condition that the report is approved by the employee
shareholders representing not less than 2/3 of the total amount of employee
shares. However, trustees shall be held responsible for misconduct as specified
in the Regulations.
Article 41 In the event that
one of the collectively assigned trustees terminates his/her role, the trusted
assets shall be managed by the rest of the trustees.
In the event that the
collectively assigned trustees terminate their roles together, the management
of trusted assets shall be transferred in line with stipulations made in
Articles 38 and 39.
Part
Two Rights and Obligations of Trustees
Article 42 Trustees invest in the enterprise in their own names on behalf of the
employee shareholders according to the Regulations and the trusteeship contract.
They perform the rights and obligations of shareholders in a concentrated way
and assume limited liabilities of the enterprise with the total amount of
contributions from employee shareholders.
Trustees are entitled to
equal rights and assume equal obligations with other shareholders of the
enterprise.
Article 43 Trustees are entitled to the right to manage the trusted assets
according to the Regulations and the trusteeship contract.
Collectively assigned
trustees have the right to handle managerial affairs in a collective manner.
The opinions of a third person conveyed to one of the collectively assigned
trustees are assumed to be conveyed to all collectively assigned trustees.
When collectively assigned
trustees have differences in opinions, the trusteeship contract shall be the
basis for dispute settlement. For issues that are not covered by the
trusteeship contract, the employee shareholders shall make decisions.
Article 44 Trustees are
entitled to the right to vote on behalf of employee shareholders at the
shareholders' meeting according to the will of employee shareholders.
Trustees are entitled to the
right to question and make suggestions on the management of the enterprise at
the shareholders' meeting.
Article 45 Trustees are entitled to the right to share in the after-tax profits
of the enterprise according to the number of shares they hold on behalf of
employee shareholders.
Trustees are entitled to the
right to claim the residual property of the enterprise according to the number
of shares they hold on behalf of employee shareholders in the event that the
enterprise is dismissed, liquidated or declared bankrupt.
Article 46 Trustees are entitled to the
right to claim payments from employee shareholders according to the trusteeship
contract, unless it is otherwise stipulated in the trusteeship contract.
The payments to trustees are
subject to increase or reduction from the amount agreed in the trusteeship
contract through the consultation between employee shareholders and trustees.
Article 47 Trustees have the right to ask
for compensation from employee shareholders for prepaid necessary expenses and
losses through no fault of their own in managing the trusted assets. The
compensation can be made through withholding an equivalent amount of proceeds
from managing the trusted assets.
Trustees shall repay with
their personal assets the debts to the third party incurred through their
misconduct, neglect of duties or mishandling of affairs in managing the trusted
assets.
Article 48 Trustees shall comply with the
rules in the trusteeship contract and shall not seek personal gains by taking
advantage of their position and power as trustees.
Trustees have the obligation
of treating the trusted assets as cautiously as their personal assets and shall
work towards the maximization of the benefits of employee shareholders.
Article 49 The trusted assets only
represent employee shares of the employing enterprise and trustees are
prohibited from investing the trusted assets in companies and institutions
other than the employing enterprise, unless it is otherwise agreed upon between
employee shareholders and trustees.
Article 50 Trustees must separate the trusted assets from employee shareholders
from their personal assets and trusted assets from other sources. In the event
that the trusted assets are in the form of capital, separate accounts shall be
kept.
Trustees are prohibited from
transferring the trusted assets into their personal accounts or get into
business transactions with the mixture of the trusted assets and their personal
assets.
Article 51 Trustees are prohibited from seeking personal benefits other than the
agreed payments as specified in the trusteeship contract by using the trusted
assets.
Trustees are prohibited from
misappropriating the trusted assets or illegally using the trusted assets as
loans or bank savings or being engaged in any activity that may undermine the
interests of employee shareholders.
Article 52 Trustees shall appropriately and completely keep accounts of the
management of the trusted assets and handling of related affairs.
Trustees shall make annual
reports regularly to employee shareholders on the management, proceeds and
expenditures of the trusted assets according to the trusteeship contract.
Article 53 Trustees shall transfer the proceeds to employee shareholders in a
timely manner according to the Regulations and the trusteeship contract.
Article 54 Trustees shall handle affairs related to the management of the trusted
assets in person, unless it is otherwise stipulated in the trusteeship contract
or there are well-justified reasons for not doing so. Trustees who entrust the
management of the trusted assets to their agents shall bear as much
responsibility of the consequences of the management as their agents.
Article 55 Collectively assigned
trustees shall be jointly responsible for the management of the trusted assets.
The joint responsibilities to be taken up by collectively assigned trustees
shall be confined to the obligations of trustees as stipulated in the
Regulations and the trusteeship contract.
Section
VI Disposal of Employee Shares
Article 56 Expect for situations stipulated in this regulation, employee shares shall not be withdrawn, transferred or inherited.
Article 57 The shares held by an employee shareholder, upon his/her retirement, can either be kept by himself/herself, or be transferred in accordance with stipulations of Article 38 and the trusteeship contract or be bought-back by trustees as reserved employee shares in accordance with Article 59.
When employee shareholder leaves the enterprise for dying, moving out, resigning and being dismissed by the enterprise, the shares that he/she holds shall be transferred in accordance with Article 58 and the trusteeship contract or be bought back by trustees as reserved employee shares in accordance with Article 59.
Under equal conditions, trustees have the right to buy back the transferred shares from employee shareholders prior to others. When exercising their rights in purchasing back the employee shares, trustees shall follow the principle of maximizing the profits of employee shareholders.
Article 58 The transfer of employee shares must be conducted according to the following requirements:
(1) As long as the employee shares can be transferred to employees with the share-holding qualification within the enterprise, they shall not be transferred to others outside the enterprise.
(2) Only shares that have been held for three years and above can be transferred.
(3) Board directors, members of the supervisory board, managers and trustees shall not transfer their employee shares during their service term and within six months after the termination of their service term.
(4) The transferring price shall be determined in accordance with the net value of each share or the market price at the end of last year.
(5) The two parties involved in the transfer shall complete procedures for altering ownership of employee shares in a timely manner with the trustees.
Article 59 The buy-back of employee shares must be conducted according to the following requirements:
(1) When an employee shareholder dies and retires, his/her employee shares shall be bought back by trustees within one year as reserved employee shares. The compensation for the repurchased employee shares shall be paid to the employee or his/her heir.
(2) When an employee shareholder leaves the enterprise for other reasons, his/her employee shares shall be bought back by trustees on a piecemeal basis within three years as reserved employee shares. The compensation for the repurchased employee shares shall be paid to the employee.
(3) When a board director, members of the supervisory board or manager leave the enterprise, the employee shares that he/she holds shall be bought back by trustees as reserved employee shares on a piecemeal basis within five years after the disengagement auditing. The compensation for the repurchased employee shares shall be paid to the employee or his/her heir.
(4) The buy-back price shall be determined in accordance with the net value of each share or the market price at the end of last year.
(5) Employees whose shares have been bought back shall submit their certificate of contributions to trustees for cancellation.
Article 60 Trustees shall set up a reservation fund according to the employment plan of the enterprise for the purpose of buying back employee shares.
The reservation fund shall be raised from the dividends of reserved employee shares, contributions from new employees for share subscription, loans borrowed by trustees by using their personal assets as colleteral and other legal sources.
The reservation fund shall be used only for the specific purpose as stipulated in the trusteeship contract. Trustees shall publicize regularly every year the proceeds and expenditures of the reservation fund to employee shareholders.
Section
VII Legal Liabilities
Article 61 In the event that trustees violate the Regulations and the trusteeship contract by investing the trusted assets in companies and institutions other than the employing enterprise for commercial purposes, the investment is deemed as invalid. Returns from such investments shall be retained as proceeds of the trusted assets whereas losses from such investments shall be compensated by trustees.
Article 62 In the event that trustees violate the Regulations and the trusteeship contract by granting shares to ineligible employees, the ineligible employee shareholder shall return all the employee shares. Trustees shall compensate for losses of other employee shareholders thus incurred.
Article 63 In the event that an employee shareholder fails to transfer contributions in full to trustees in time, he/she shall assume the responsibility of breaching the agreement.
The use of employee shares as colleteral is invalid. Employee shareholders who use their employee shares as colleteral shall compensate for all the losses to other employee shareholders thus incurred.
Article 64 In the event that board directors, members of the supervisory board or managers treat employee shareholders in a discriminatory way; or the employee shareholders with majority control harm the interests of other employee shareholders, they shall be held responsible for making compensations. Board directors, members of the supervisory board or managers who breach the Regulations in the above-mentioned manner shall also be subject to administrative penalties within the enterprise.
Article 65 Trustees who violate the Regulations by distorting the pre-voting results from employee shareholders shall stand the losses thus incurre