The Securities Law defines private placement to mean the offer of securities to less than 100 “investors” not including professional investors and not utilizing mass media or the internet. Private placement of shares in a private joint stock company must be registered with the licensing authority and be subject to certain requirements. The term “investors” could include existing shareholders in a private joint stock company. Therefore, theoretically, a private company offering new shares to each of its existing shareholders in proportion to its current shareholding could still be subject to the procedures and requirements of private placement of shares under the Securities Law.

Realising the difficulty and unnecessity for a private company conducting a right issue to follow private placement rules, in March 2013, the Ministry of Planning and Investment has issued an official correspondence confirming that a private company conducting a right issue only needs to comply with the procedures under the Enterprise Law but not the private placement rules under the Securities Law. It is not clear if the Ministry of Finance which is the draftsman of the Securities Law agree with the Ministry of Planning and Investment’s interpretation of the Securities Law. However, in practice, it is unlikely that the Ministry of Finance could do anything given that private companies are mostly regulated by the Ministry of Planning and Investment.