The difficulty of enterprise listing is the status quo of enterprise IPO for a long time in the past. Under the former securities issuance approval system, many enterprises take risks to obtain issuance approval through a series of ways such as forging financial accounting documents before reaching the issuance conditions. After the subsequent illegal operation was disclosed, it was severely punished by the administrative supervision organ.

In 2020, the introduction of the new "Securities Law" will transition the enterprise stock issuance from the approval system to the registration system, essentially reshaping the relationship between the government and the market, and also cutting the market and supervision in legislation, returning the decision-making power to the market, making the concept of market under market and supervision under supervision clear. At the same time, the new "Securities Law" has relaxed the conditions for enterprises to issue securities, in a disguised way to encourage capable enterprises to actively enter the capital market. However, under the "leniency" there will be "strict management", the administrative organs have never relaxed the investigation and punishment of enterprise fraudulent issuance, this paper focuses on explaining the violation risk of securities issuance for enterprises, and the corresponding way to avoid.

Conditions for an enterprise's initial public offering of securities

1. Documents required for the initial public offering of securities

According to Article 11 of the new Securities Law, to establish a joint stock limited company to publicly issue shares, the enterprise shall submit an application for share offering and the following documents to the securities regulatory body under The State Council: Sponsor agreement; The name of the initiator, the number of shares subscribed by the initiator, the type of contribution and the capital verification certificate; Prospectus; The name and address of the collecting bank; Name of underwriting institution and related agreement. If the sponsor is hired, it shall also submit the issuance sponsor letter issued by the sponsor. If laws and administrative regulations stipulate that the establishment of a company must be reported for approval, the corresponding approval documents shall also be submitted.

2. The main requirements for an enterprise's initial public offering of securities

Have a sound and well-run organization. The organizational structure here mainly refers to the decision-making organs of enterprises listed in the second section of Chapter II of this book. That is, the general meeting of shareholders, the board of directors and the Board of supervisors with perfect functions, complete personnel, checks and balances of powers, and normal operation. A good organization is the basis for the development of enterprises, which can ensure the sustainable development of enterprises and ensure that listed entities abide by the law in the subsequent operation. The stability of the structure of senior executives of the board of directors and supervisors, core technology and core business personnel is the premise to ensure the sound and good operation of the organization, is an important reference basis to judge whether the enterprise has a good operation, and is also the main point that administrative organs focus on.

Ability to go as a going concern. Compared with the requirements of the old Securities Law, the regulatory authorities under the registration system pay more attention to whether the enterprise has the profitability. This in effect reduces the requirement for an issuer's existing financial position. For the understanding of the ability of sustainable operation, the author believes that enterprises can focus on the external environment and internal small environment of enterprises to consider the two aspects. The external environment considers: whether the enterprise is greatly affected by national policies; Whether the market competition in the same industry is fierce; Whether the supply and demand relationship between upstream and downstream of the industry is stable; Whether the technology of the industry involved in the enterprise changes rapidly. The internal small environment considers: whether the enterprise product process technology is outdated; Whether there is a continuous decline in market share of the dilemma; Whether there is a deterioration trend in business data and finances; Whether the business operation of the enterprise has been significantly hindered; Whether intellectual property rights such as proprietary technology used as production tools are significant and litigious; Whether there is a deadlock within the company.

The financial accounting reports of the last three years have been issued without qualified opinion audit reports. Compared with the old "Securities Law", the new "Securities Law" in this condition, the original requirement of no false records in the financial accounting documents of the last three years is amended to the audit report of the financial accounting report issued without qualified opinion. The requirements of the market on the operation, finance and internal control of the enterprise are judged by the professional securities service institution - the accounting firm, and the standard of judging the financial accounting standards of the enterprise is whether the audit report with standard and unqualified opinion is issued. On the one hand, this avoids the occurrence of misjudgment involving strong subjective factors by regulators on whether the financial condition of enterprises is good and whether there is false statement, and solves the problems of fuzzy judgment standards and large power rent-seeking space. On the other hand, it also turns subjective into objective, which provides more clear direction for enterprises to prepare securities issuance materials.

The issuer and its controlling shareholders and actual controllers have not committed any criminal crimes of embezzlement, bribery, embezzlement, misappropriation of property or undermining the order of the socialist market economy in the recent three years. The new Securities Law clearly defines no other major illegal acts as stipulated in Article 13, paragraph 3, of the old Securities Law. Specifically, the original borderless scope of compliance audit has been reduced to some specific criminal categories, and a clear definition of compliance standards has been provided. However, under the new securities law, the scope of the subject of compliance audit has changed, which is worth the attention of the majority of enterprises. Under the new securities law, the requirement to prohibit the existence of certain types of criminal offenses has been expanded from the issuer in the past to the controlling shareholder and actual controller of the issuer. This undoubtedly adds pressure and warning to major companies with listing needs from another perspective (expanded scrutiny).

2. The components and consequences of illegal issuance and fraudulent issuance of securities by enterprises

According to the provisions of Articles 180 and 181 of the new Securities Law, for enterprises that publicly issue securities without authorization or in disguised form, the administrative organ will order them to stop issuing securities, return the funds raised and add the interest on the deposit in the bank for the same period, and impose a fine of not less than 5 percent but not more than 50 percent of the amount of funds illegally raised; Companies established by publicly issuing securities without authorization or in disguised form shall be banned by the organs or departments performing supervision and administration functions according to law jointly with the local people's governments at or above the county level. The persons in charge directly responsible and other persons directly responsible shall be given a warning, and a fine of not less than 500,000 yuan but not more than 5 million yuan shall be imposed.

Where the issuer conceals important facts or fabricates major false contents in the securities issuance documents announced by it and has not yet issued securities, a fine of not less than 2 million yuan but not more than 20 million yuan shall be imposed; Where securities have been issued, a fine of not less than 10% but not more than twice the amount of funds illegally raised shall be imposed. A fine of not less than one million yuan but not more than 10 million yuan shall be imposed on the persons in charge directly responsible and other persons directly responsible. Where the controlling shareholder or actual controller of the issuer organizes or instigated the illegal acts mentioned in the preceding paragraph, the illegal gains shall be confiscated and a fine of not less than 10 percent but not more than one time of the illegal gains shall be imposed; If there are no illegal gains or the illegal gains are less than 20 million yuan, a fine of not less than 2 million yuan but not more than 20 million yuan shall be imposed. A fine of not less than one million yuan but not more than 10 million yuan shall be imposed on the persons in charge directly responsible and other persons directly responsible.

According to the above provisions, it is not difficult to find that for the public issuance of securities by enterprises, the main two kinds of violation risks exist in the issuance stage are illegal issuance and fraudulent issuance. Among them, illegal issuance means that the issuer raises funds privately and publicly issues securities without the permission of the administrative organ and without going through the relevant procedures for registration and issuance. Such violations are punishable not only by fines from the administrative authorities, but also by outright cracking down on companies set up to issue securities to the public without authorization. At the same time, due to the illegal issuance of securities, without the permission of the relevant authorities, to some extent, it is suspected of illegally absorbing public deposits. In order to ensure the safety of enterprises and their shareholders and executives and avoid criminal liability, enterprises should not take risks for short-term interests.

Fraudulent issuance refers to the fact that the issuer conceals the truth and fabricates facts in the application and issuance documents submitted to the administrative organ. The purpose of such fabricating behavior is to enable enterprises that do not meet the conditions for issuing securities to successfully pass the audit, or to make the securities that could have passed the audit obtain higher commercial value. This kind of violation is more hidden than the illegal issuance, so the punishment is also greater, and the regulatory means are more stringent. Regardless of whether the enterprise carrying out the fictitious act has met the conditions for issuing securities before not carrying out the act, as long as there is a fictitious act, it constitutes a fraudulent issuance.

【 Case Study 】

In November 2011, Xintai Electric submitted an IPO application to the China Securities Regulatory Commission and passed the audit of the GEM Issuance Review Committee on July 3, 2012. On January 3, 2014, Xintai Electric obtained the "Reply on Approval of Dandong Xintai Electric Co., LTD. 's Initial Public Offering and listing on GEM" from the China Securities Regulatory Commission. In order to realize the purpose of listing and solve the problem of excessive balance of receivables of Xintai Electric, Liu Mingsheng, the chief accountant of Xintai Electric, suggested to Wen Deyi, the chairman and actual controller of Xintai Electric, to reduce receivables with external loans at the end of the accounting period, and repay them again at the beginning of the next period. After discussion between the two, Wen Deyi agreed and confirmed with Liu Mingsheng that the reduction was mainly in the form of bank draft endorsement transfer. From December 2011 to June 2013, Xintai Electric fabricated the recovery of accounts receivable by means of external borrowing, using its own funds or forging bank documents, and wrote down the receivables at the end of the accounting period such as the end of the year and the end of the half year (most of them were charged back at the beginning of the next accounting period). As a result, there were false records of relevant financial data in the IPO application documents submitted to the China Securities Regulatory Commission. In this case, the China Securities Regulatory Commission determined that Xintai Electric met the requirements for fraudulent issuance of securities as stipulated in the first paragraph of Article 189 of the Securities Law. Xintai Electric insists that if its financial data is adjusted retrospectively, the substantive conditions are in line with the requirements for public issuance of securities.

The court held that according to the first paragraph of Article 189 of the Securities Law, when the issuer has issued securities, there are two main components of securities fraudulent issuance, namely, "the issuer does not meet the conditions for issuance" and "fraudulently obtaining issuance approval." As for the identification criteria of "the issuer does not meet the issuance conditions", the first paragraph of Article 13 of the Securities Law clearly stipulates a series of statutory conditions. For the understanding of "obtaining issuance approval by deception", the issuer may obtain issuance approval by materially failing to meet the conditions of issuance, or may obtain a better issue price in order to raise more capital in order to meet the conditions of issuance, regardless of which of the two circumstances, as long as there is a material false record or statement in the specific issuance document, All of them belong to the category of "obtaining issuance approval by deception", and there is no necessary relationship between whether the issuer still meets the issuance conditions after removing the false record content.

According to the provisions of Article 13, paragraph 1, paragraph 3 of the Securities Law, the company's public issuance of new shares shall meet the conditions of "no false records in the financial accounting documents of the last three years and no other major illegal acts." This means that under the legal framework of the approval system, if the company applies for public issuance of new shares, if there are false records in the financial accounting documents within the last three years at the time of application approval, the company should be identified as not meeting the conditions for issuance. Combined with the above analysis of the components of securities fraudulent issuance, there are significant false records in the financial data of Xintai Electric IPO application documents, which is enough to identify it as "not meeting the issuance conditions", and its practice of submitting IPO application documents containing false financial data to the China Securities Regulatory Commission for securities issuance approval is an act of "fraudulently obtaining issuance approval". In this case, the China Securities Regulatory Commission determined that Xintai Electric meets the requirements of the first paragraph of Article 189 of the Securities Law for fraudulent issuance of securities and is not improper.

Xintai Electric insists that if the financial data of Xintai Electric is adjusted retrospectively, the substantive conditions are in line with the requirements for public issuance of securities. The court of second instance held that as long as there are significant false records in the financial data in the IPO application documents, it can be determined that the issuance conditions stipulated in Article 13 of the Securities Law are not met, and even if the financial indicators of the issuer after excluding the false records meet the legal requirements for the issuance of new shares, it cannot be considered that the issuer substantially meets the issuance conditions.

Before the new "Securities Law" was implemented, due to the approval system for securities issuance, IPO of listed companies became an extremely difficult road. At the same time, the related conditions of listed companies' initial public offering securities are relatively strict, which makes the IPO road of listed companies even more difficult. Finally, before the introduction of the new "Securities Law", some enterprises in order to seek listing, adopted the means of illegal operations to obtain issuance. This case is a typical case, Dandong Xintai Electric Co., Ltd. through financial data fraud to obtain the issuance qualification, a serious violation of the principle of "honesty and credit", even if the company's substantial conditions are in line with the requirements of public issuance of securities, it is not prevented from being identified as constituting a fraudulent issuance. Of course, due to the promulgation of the new "Securities Law", China's securities market gradually ushered in a new era of "wide entry", but enterprises must still understand that if enterprises choose to go public, willing to meet the convenience of raising funds brought by listing, enhance the company's corporate image and other dividends, they must strictly comply with the provisions of laws and regulations, perform the relevant obligations. Notice: Behind the "wide entry" will be "strict management".