With regard to whether the transfer of equity in mining companies should be regarded as a transfer of mining rights, China’s current laws and regulations on mineral resource management do not provide explicit provisions. Neither the Supreme People’s Court nor the Ministry of Natural Resources has yet formed a unified and clear stance on this issue. As a result, in the practical implementation of mineral resource management, significant differences have emerged in the policies and handling approaches adopted by local departments of natural resources. Similarly, in judicial practice, the views of the people’s courts vary widely, and it is not uncommon for different courts to reach divergent rulings in identical cases.

In response to the issues mentioned above, Beijing Yuren Law Firm, with years of experience in providing legal services related to mineral and energy resources, has gained a solid understanding of relevant policies across various regions. Building on this foundation, we are prepared to analyze and interpret this issue from both a legal theoretical perspective and an objective practical standpoint, hoping to contribute our modest legal expertise to the improvement of China’s mineral resource management system!

One, Several Current Views in China on the Relationship Between Equity Transfer and Mineral Rights Transfer

Viewpoint 1: Any change in the shareholders or shareholding ratios of a mining rights holder constitutes a transfer of mining rights (the principle of absolute equivalence).

The representative holding this view is the Shandong Provincial Department of Natural Resources and Planning. 2011 Year 4 Month, the Department of Natural Resources and Land of Shandong Province issued “The Department of Natural Resources and Land of Shandong Province’s Notice on Forwarding...” < Notice of the Ministry of Natural Resources on Further Improving Issues Related to the Registration and Management of Mining Rights > Notice (Lu Land and Resources Letter) [2011]508 Article [Number] stipulates: “If the holder of a mining right engages in activities such as selling the right, contributing it as equity, introducing external capital, technology, management, or other forms of cooperative operation, or undergoing enterprise restructuring and reform—any change in the shareholders or shareholding ratios of the mining right holder shall be deemed a transfer of the mining right and must be subject to the prescribed procedures for transferring the mining right. In cases where the payment for the mining right is made in installments, both the transferor and the transferee must enter into a commitment agreement regarding payment, which shall be explicitly stated in the transfer contract.”

Viewpoint 2: If the controlling shareholder of a mining enterprise changes, it constitutes a transfer of mining rights. If the controlling shareholder remains unchanged, the transaction should be treated as a typical equity transfer (in accordance with the principle of equivalence).

The representative holding this view is the Qinghai Provincial Department of Natural Resources and Territorial Space. 2007 In the year, the Qinghai Provincial Government issued the “Notice of the General Office of the People’s Government of Qinghai Province on the Issuance of the Management Measures for the Transfer of Mineral Rights in Qinghai Province,” Article 5 of which stipulates: If any of the following circumstances for the transfer of mining rights occur, the mining rights holder must submit an application to the original issuing authority. After review and approval, the mining rights transfer approval and change registration procedures shall be carried out. The administration for industry and commerce shall, based on the transfer approval document or the mining rights change registration document issued by the mining rights administration department, handle the corresponding industrial and commercial registration. (1) A change occurs in the legal entity of the enterprise.

(2) The legal entity of the enterprise remains unchanged, but the original controlling shareholder has changed. Article 6 stipulates: If the legal entity of the enterprise, the legal representative, and the original controlling shareholder remain unchanged, yet the equity structure has changed, the mining rights holder shall submit the relevant contract to the original issuing authority for recordation and shall also— 30 Complete the equity change registration at the industrial and commercial administration department in your original place of registration within the day.

Viewpoint 3: If an investor in a mining enterprise transfers all or part of its equity, thereby enabling the transferee to gain control over the enterprise without obtaining prior approval from the land and resources administration department, such transfer constitutes a disguised transfer of mining rights in the form of equity transfer. (The “Enterprise Control” Argument)

The representative holding this view is the Higher People's Court of Heilongjiang Province. 2010 Year 7 In the month, the Higher People's Court of Heilongjiang Province issued the “Guiding Opinions of the Higher People's Court of Heilongjiang Province on Handling Certain Issues in Disputes Involving Coal Mines,” with Article 5 stipulating—   It is stipulated: “If an investor in a coal mining enterprise transfers all or part of its equity to another party, thereby enabling the other party to gain control over the coal mining enterprise, and the transfer is carried out without prior approval from the authority responsible for mining rights approval, with the transferee then organizing mining operations, such conduct may be deemed as a disguised transfer of mining rights through equity transfer.”

Viewpoint 4: If a share transfer results in a change of the controlling shareholder, it may affect the mining rights holder’s business strategy. Therefore, such share transfer agreements should be filed with the original registration authority for mining rights. (Filing Requirement)

Mr. Wei Tiejun from the School of Earth and Space Sciences at Peking University holds this view. Teacher Wei believes: If a transfer of equity results in a change in the controlling shareholder, this could affect the mining rights holder’s business strategy. Such equity transfer agreements must be filed with the original registration authority for mining rights. During the filing review, if it is found that the equity change adversely affects the rational utilization of the mining rights, the authority shall issue recommendations for corrective action and urge the mining enterprise to make the necessary adjustments. In cases where the impact is severe, the authority shall submit appropriate regulatory recommendations to the securities regulatory authorities. Failure to file as required will result in the mining rights not passing the annual inspection or not being renewed.

Viewpoint 5: Equity transfer and mineral rights transfer are fundamentally different. The subjects of these two types of rights are distinct. If they are treated as equivalent, it would negate the legal personality of the company and constitute a fundamental violation of the superior law—the Company Law. (A clear-cut distinction.)

Those who hold this view are predominantly legal professionals, including professors, scholars, and lawyers. It can be said that this viewpoint is derived from purely legal theoretical perspectives; it is the conclusion reached through analyzing the legal attributes of equity and mining rights and employing legal concepts such as the “theory of rights holders” and the “corporate legal person theory” for argumentation.  

The above represents five mainstream views in China regarding the definition of relationships pertaining to the transfer of mining shares. Among these views are the opinions of both the land and resources administration authorities and the courts, as well as the perspectives of experts and legal professionals. It can be said that, in terms of scope, these views comprehensively cover and accurately reflect the current state of this issue in China.

II. Yuren’s Evaluation and Interpretation of the Above-mentioned Viewpoint

1. Regarding the “principle of absolute equivalence” and the “principle of relative equivalence,” our assessment is as follows: If these two perspectives were adopted, from a theoretical legal standpoint, it would fundamentally violate the “one object, one right” doctrine enshrined in the Property Law and the “legal person theory” stipulated in the Company Law. From an objective practical standpoint, this approach would hinder mining companies from carrying out mergers and restructuring, and would also fail to address the issue of “disguised resale of mining rights.” At the same time, it would create significant obstacles to the division of powers and coordinated operations between the land and resources administration authorities and other regulatory bodies (such as the securities regulatory authority and the tax authorities). The specific analysis is as follows:

From a legal theory perspective:

( 1 The right holder of mining rights has exclusive rights (the “one thing, one right” principle).

Article 6 of the Mineral Resources Law stipulates: “ After a prospecting rights holder has fulfilled the prescribed minimum exploration investment and obtained legal approval, it may transfer its prospecting rights to another party. ”， This provision also stipulates: “Mining enterprises that have already obtained mining rights may, upon lawful approval, transfer their mining rights to others if the need arises due to corporate mergers or divisions, joint ventures or cooperative operations with other entities, the sale of corporate assets, or other circumstances involving changes in the ownership of corporate assets. Based on this provision, we conclude that the Mineral Resources Law has initially established the change in the subject of mining rights as the defining criterion for the transfer of such rights.”

From this perspective, equating the equity held by shareholders with mining rights held by mining companies represents a fundamental misperception of the nature of mining rights and constitutes a blatant violation of the “one thing, one right” principle. The underlying cause of this phenomenon, however, may also stem from a lack of clarity in society’s understanding of the legal nature of corporations. This, in turn, leads us to our next question that requires interpretation.

( 2 ) The legal personality of the company

Before analyzing the company’s legal nature, let’s first take a look at a provision. 2006 In the year, the Department of Natural Resources of Guizhou Province issued the “ Notice of the Guizhou Provincial Department of Natural Resources and Land on Regulating the Transfer of Mineral Rights (Qian Tu Di Zi Fa) [2006]46 No.), which stipulates that “the holders of prospecting rights and mining rights refer to entities and individuals who, in accordance with the law, enjoy the rights to possess, use, benefit from, and dispose of such rights, and who also bear corresponding legal obligations,” “with” Limited Liability Company The limited liability company that nominally applies to the land and resources department for prospecting rights and mining rights... All shareholders are the entities holding exploration rights and mining rights. “Regarding the review of whether the entity holding the prospecting rights or mining rights has changed, the determination shall be based on the business license submitted to the land and resources authority by the entity holding the prospecting or mining rights at the time of application for such rights.”

According to the Company Law ( 2013 (Revised in [Year]) Article 3 stipulates: A company is a corporate legal person, possessing independent corporate property and enjoying corporate property rights. The company bears responsibility for its debts with all of its assets. This is the determination made by China’s Company Law regarding the legal nature of companies: namely, that a company is a corporate legal person.

Why does the corporate legal entity system endow companies—these commercial entities—with such strong vitality?

The reason is that, Once a legal entity is established, it immediately acquires a personality and status independent of its founders, promoters, investors, or shareholders. The property and rights it acquires, as well as the obligations and responsibilities it bears, are all independent of those of its investors.

Under China’s current corporate legal system, any entity that qualifies as a legal person is necessarily an independent legal subject—or, in other words, a subject capable of independently assuming civil liability. In many of our current laws, regulations, and rules, we often encounter expressions such as “independent legal person” or “corporate legal person with the qualification to independently assume civil liability.” In fact, these phrases are redundant and unnecessary. Consider this: Is there really such a thing as a legal person that is “not independent” or “incapable of independently assuming civil liability”?

For a legal entity, investors bear liability only to the extent of their capital contributions. This is precisely why corporations are referred to as “limited liability companies” or “joint-stock companies.” It’s crucial not to interpret the terms “limited liability company” or “joint-stock company” literally, assuming that the company itself bears only “limited liability.” In fact, regarding the company’s debts, the company is liable with all of its assets—this type of liability is, in essence, unlimited. It is not the company but rather the shareholders who enjoy the benefit of “limited liability.”

Between the investors in a legal entity and its creditors, the legal entity acts like a firewall, severing the legal connection between investors and creditors. This prevents the debt crises arising from the entity’s production and business operations from spreading to the investors, thus freeing them from the lingering worry that “when the city gate catches fire, even the fish in the pond get burned.” Even if the legal entity later accumulates massive debts—or even becomes insolvent—investors need not fear being financially ruined by being “caught in the crossfire.” After the legal entity fails and goes bankrupt, investors will suffer no additional losses or bear any extra burdens beyond the capital they initially invested in the entity.

The above is the mainstream theoretical framework of the corporate legal system within the legal community. This institutional design significantly reduces investors’ risks, stimulates and encourages investment and trading activities, and thereby promotes the overall socio-economic development, prosperity, and wealth accumulation.

Therefore, once we have explained what the legal person system is, we will be able to more clearly distinguish the relationship between mining rights and equity interests. As for the regulation issued by the Guizhou Provincial Department of Natural Resources mentioned above, we believe it is inappropriate and fundamentally incompatible with the modern corporate legal system.

In a nutshell, the criterion for determining whether a mining right has been transferred should be the change in the mining enterprise—the sole entity holding the mining right. As for the equity held by shareholders, it cannot be equated with the mining right itself, nor can the subject of rights under the mining right be extended to individual shareholders.

From an objective practical perspective:

( 1 ) Treating the transfer of equity in mining companies as a transfer of mining rights is detrimental to the mergers and reorganizations of mining companies.

Crowd As is well known, equity acquisitions are an important means of corporate mergers and restructuring, as well as a significant form of capital flow. Equity changes based on equal and mutually agreed-upon negotiations reflect market forces, a principle that has been explicitly affirmed by central government policies. The “Opinions of the State Council on Promoting Corporate Mergers and Restructuring” (Guofa [ 2010 ] 27 No.) pointed out: “In recent years, enterprises across various industries and sectors have actively engaged in integration through diverse forms such as mergers and acquisitions of equity and assets, accelerating the pace of mergers and restructuring, continuously optimizing industrial organizational structures, and achieving remarkable results.” The “Notice from the General Office of the State Council Forwarding the NDRC’s Opinions on Accelerating the Promotion of Mergers and Reorganizations of Coal Mining Enterprises” (Guobanfa [ 2010 ] 46 No.) “Support qualified merger and reorganization entities in going public for financing and refinancing, and encourage these entities to raise development funds through financing methods such as bond issuance and equity transfers.” Moreover, local governments have enriched their implementation of the central government’s policies aimed at encouraging corporate mergers and reorganizations. For instance, the “Notice from the General Office of the People’s Government of Liaoning Province Forwarding the Provincial Coal Administration’s Work Plan on Accelerating the Merger and Reorganization of Coal Mining Enterprises” (Liao Zheng Ban Fa [ 2012 ] 29 No.) stipulates: “The merging and restructuring entity and the entity being merged shall, in accordance with the relevant provisions of the Contract Law of the People’s Republic of China and the Company Law of the People’s Republic of China, sign a merger and restructuring agreement that clearly defines the rights and obligations of both parties as well as the handling of claims and debts, and shall formulate or amend the articles of association of the company.” The “Notice of the General Office of the Jiangxi Provincial Government on Issuing the Work Plan for Promoting the Merger and Restructuring of Coal Mining Enterprises in Jiangxi Province” (Ganfu Tingzi) [2012]50 Article [Number] stipulates: “The joint-stock system shall serve as the primary form for the merger and restructuring of coal mining enterprises, with mergers and restructuring carried out through various means such as enterprise acquisitions, transfers, joint ventures, and controlling interests.”

It is worth noting that Wang Zhongming, Chief Judge of the Second Civil Division of the Heilongjiang Provincial Higher People's Court, interpreted the... Guiding Opinions of the Higher People's Court of Heilongjiang Province on Handling Cases Involving Coal Mine Disputes The scope of application of Article 5 was restricted in the revision. The Company Law of the People’s Republic of China permits shareholders to transfer their equity interests in accordance with the law. If the parties to a contract have only agreed upon a portion of the shares, without involving the transfer of property and related certificates pertaining to the coal mining enterprise, and if, in actual operations, there has been no change in the holder of the mining rights or the corresponding management personnel, with the transferee or shareholder merely sharing investment dividends according to their equity proportion and partnership share, then—given that the court cannot determine that the transaction constitutes a disguised transfer of mining rights through the transfer of equity or partnership interests—the contract may be deemed valid.

If the transfer of equity in a normal mining company is linked to changes in its management and operational leadership as well as to the change of custodians for warrant documents, this will artificially expand the power of certain departments, leading to reduced transaction efficiency, higher transaction costs, increased transaction risks, more complicated approval procedures, and greater opportunities for rent-seeking. All these factors will pose a serious challenge to the company’s institutional framework and make it extremely difficult to realize the vision of using equity acquisitions to achieve mergers and restructuring within the mining industry.

( 2 Treating the transfer of equity in mining companies as a transfer of mining rights does not necessarily effectively address the issue of “disguised reselling of exploration and mining rights.”

Article 6, paragraph 3 of the Mineral Resources Law stipulates: “The resale of prospecting rights and mining rights for profit is prohibited.” Article 42, paragraph 2 provides: “Anyone who violates the provisions of Article 6 of this Law by reselling prospecting rights and mining rights for profit shall have their exploration licenses and mining licenses revoked, their illegal gains confiscated, and be fined.” It is worth noting that, in accordance with the provisions of Article 6, paragraph 2, the State Council has promulgated the “Administrative Measures for the Transfer of Prospecting Rights and Mining Rights.” Article 3 of this administrative regulation literally reproduces Article 6, paragraph 1 of the Mineral Resources Law; however, it neither reiterates the prohibition against reselling prospecting rights and mining rights for profit nor provides further detailed regulations on this point. How should we interpret the concept of reselling prospecting rights and mining rights? Given that Article 6, paragraph 3 was enacted under the premise that prospecting rights and mining rights meeting statutory conditions may be transferred—provided they comply with the law—it follows that, in the author’s view, So-called reselling Exploration rights, The mining right is unfulfilled. The unauthorized transfer of prospecting rights carried out in violation of the conditions stipulated in Article 5 and Article 6 of the “Administrative Measures for the Transfer of Prospecting Rights and Mining Rights” Mining rights — Actions not approved by the competent approval authority. It is prohibited to resell exploration rights and mining rights for profit. This regulation is aimed at Mining rights The mandatory provisions imposed by humans primarily target the transferor. Article 8 of the “Administrative Measures for the Transfer of Prospecting Rights and Mining Rights” requires that the holder of a prospecting right or mining right submit “proof that the transferor meets the transfer conditions stipulated in Article 5 or Article 6 of these Measures.” This proof also clarifies that the transfer of property rights under a mining rights entity by the mining rights holder is a different transaction model from the transfer of equity interests in the mining rights holder by its shareholders.

In practice, some mining companies have highly complex equity structures that include not only apparent shareholders but also hidden shareholders. Moreover, relationships among shareholders go beyond mere nominee arrangements to encompass entrusted management agreements. In some cases, shareholders may even entrust management to individuals who are not themselves shareholders. Under such circumstances, rather than expending considerable effort on managing investors whose capital contributions frequently change hands, it would be more effective to step up regulatory oversight of the mining right holders themselves. This should involve conducting law-based enforcement inspections of their qualifications, registered capital, personnel and equipment, minimum investment requirements, land reclamation efforts, and the three key ratios related to mineral resources. The results of these inspections should be linked to the annual inspections, renewals, and modifications of exploration and mining licenses.

In fact, if there is a change in the shareholders of a prospecting right holder or a mining right holder—particularly when such a change affects matters such as the company’s name or registered address—the relevant alteration procedures must be carried out in accordance with the law. According to Article 22 of the “Administrative Measures for the Registration of Mineral Resource Exploration Blocks” and Article 15 of the “Administrative Measures for the Registration of Mineral Resource Exploitation,” the mineral rights holder shall, in compliance with the law, complete the corresponding registration of changes. However, these two administrative regulations do not stipulate that a change in the controlling shareholder of a prospecting right holder or a mining right holder necessitates the completion of alteration registration procedures.

( 3 Treating the transfer of equity in mining companies as a transfer of mining rights will pose significant challenges for the authorities responsible for land and resource management.

The main challenges faced are as follows: First, the transfer of exploration rights and mining rights by mining companies requires approval from the land and resources authorities vested with approval powers. Moreover, the transfer of equity in mining companies also necessitates approval from these same authorities. This poses a significant test to the efficiency and integrity of the approval personnel at the land and resources authorities. Second, it is challenging for the land and resources authorities to coordinate the approval process for equity transfers with the change-of-registration procedures handled by the company registration authorities. Third, mining companies listed on the stock exchange have a large number of shareholders, and given the approval processes involved in equity transfers among state-owned mining enterprises, the land and resources authorities will face difficulties in coordinating with both the state-owned asset management departments and the securities regulatory authorities, as well as in defining the division of powers among these entities—issues that do not seem likely to be resolved through departmental normative documents alone. Fourth, if the equity transfer of a mining company is deemed to constitute a transfer of mining rights, it could lead to conflicts in tax enforcement. If the tax authorities were to treat such equity transfers as transfers of mining rights as determined by the land and resources authorities and impose business tax on them, this would conflict with... Notice from the Ministry of Finance and the State Administration of Taxation on Issues Concerning Business Tax Related to Equity Transfers (Cai Shui) [2002]191 Number) “Self 2003 Year 1 Moon 1 This contradicts the provision that “share transfers are not subject to business tax” effective from the date of implementation. If the tax authorities were to impose taxes on share transfers, This implies the imposition of personal income tax, which creates a conflict with the type of tax that, according to the competent authority for land and resources, is required for the transfer of mining rights.

2. Regarding the “corporate control theory,” our assessment is as follows: The concept of corporate control originates in economics, and the legal community has never offered a legal definition or generalization of it within the realm of law. Consequently, this viewpoint itself suffers from conceptual ambiguity. A detailed interpretation is provided below:

( 1 ) There is no legal definition of corporate control, so its delineation is vague.

1932 In that year, Berle and Means published their seminal work, “The Modern Corporation and Private Property.” In this book, the authors introduced what is known as the “Berle-Means Thesis”: the development of modern corporations has led to a shift in control—from owner control to manager control—resulting in a separation between ownership and control within corporations. This phenomenon came to be referred to as the “managerial revolution,” and with it emerged corporate governance.

Therefore, the economic definition of corporate control is: With the emergence of the modern joint-stock company’s dispersed equity structure and the separation of ownership from control, the actual control of the company has effectively fallen into the hands of its management. That is, the holders of corporate control are the company’s managers, which clearly has absolutely no connection whatsoever to equity or mining rights in legal theory.

( 2 If corporate control is understood as the concept of a controlling shareholder, then it is essentially no different from the “principle of relative equivalence.”

To put it another way, if we draw a parallel between the economic concept of corporate control and the legal concept of controlling shareholder, and conclude that the two are roughly equivalent, we’ll find that this line of reasoning does not introduce any substantive new insights beyond what is already implied by the “principle of relative equivalence.” Therefore, we will not dwell further on this point here.  

3. Regarding the “filing-based approach,” our assessment is that this viewpoint is still worth learning from and referencing. The specific interpretation is as follows:

( 1 The terms “equity” and “mining rights” were distinguished.

This view fails to address the identity between equity transfer and mineral rights transfer, thereby removing an obstacle from the perspective of legal theory interpretation. However, this view does distinguish between changes and continuance of the controlling shareholder: If the controlling shareholder changes, such a change could significantly affect the company’s business strategy and thus would require filing with the original mineral rights registration authority; conversely, if the controlling shareholder remains unchanged, only the standard equity transfer procedures need to be followed. The difference between this view and the “principle of relative equivalence” lies in the substitution of “treated as a mineral rights transfer” with “filing.” Although both are administrative actions, the ingenuity of this administrative act lies precisely in its successful avoidance of the issue of the relationship between mineral rights transfers and equity transfers.

( 2 How to further refine the filing system and ensure it truly plays a role in regulating the transfer of mining rights still requires efforts at the level of institutional design.