On September 1, 2013, the new law on Private Run Schools entered in force. The new law, by repealing the 1997 regulation, sets the main characteristics for both investors in education field and how the private – run school shall be organized.

However, as often happens in China, together with a general law, there are various local regulations and policy that may be considerably different from area to area and that can impose more stringent obligations and requirements than the national law.

In any case, we believe inportant to highlight and summarize the content of this new national law.

It appears that in China private schools can be established by both Chinese individuals and legal persons; private schools will have characters similar of the ones of a legal person and their status will be the same as of the PRC public schools. The private schools shall, similarly to a corporation, have a decision – making body (such as board of directors or school council), a principal (with powers similar to the ones of a company’s General Manager) and teachers.  From the moment of acceptance of the application, the investor shall have a maximum of three years to complete the works and activities (such as the construction of the premises, the appointment of teachers, etc.) required by relevant laws and regulations for applying for the incorporation certificate, and once obtain such certificate and in the normal course of operation, the private school shall not only comply with all laws and regulation governing school programs and guidelines as fixed for public schools, but shall also comply with PRC accounting principle and fiscal laws and regulations.

Beside the establishment procedure and the organizational structure of the private schools, it would be important to highlight two provisions of interest to investors: 1) private schools, beside their social development and academic scope, shall be also considered as a profit organization and their investor(s) may, at certain conditions, obtain dividends; and 2) private schools may enjoy tax incentives.

Finally, the law also sets the conditions and procedures for liquidation of private schools, and the penalties in case of breach of laws and regulations, that ranges from fines to revocation of the private school’s license, up to criminal liabilities for serious circumstances.

To summarize, in order to invest in education fields, a foreign investor shall first establish a legal entity in China that shall promote the establishment of the private school, and obtain relevant approval certificates from local authorities. Before starting the investment, then, it would be important to relate and liaise with local authorities so to verify of special requirements in connection to the investment.

Alternatively, if an investor does not intend to carry out all the establishment procedure as above listed, it my be possible, at certain conditions, to cooperate with existing schools by setting up specific departments within the private school. This solution will be entirely based on a specific agreement, that shall be carefully drafted so to minimize issues between the parties.

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