Before 2021, there was no company dormancy system in China. In China, the closure of a company means it is deregistered or revoked. Since the implementation of the Company Law in 1994, it has undergone multiple revisions. In response to the closure of a company, it has always been stipulated that "if a company fails to open for more than six months without justifiable reasons after its establishment, or if it suspends business continuously for more than six months after opening, its business license shall be revoked by the company registration authority." The new Company Law, which came into effect on July 1, 2024 Revise the content to "If a company fails to open for more than six months without justifiable reasons after its establishment, or suspends business continuously for more than six months after opening, the company registration authority may revoke its business license, except for companies that have closed down in accordance with the law." Although only adding a proviso, it acknowledges the closure system established by Shenzhen in 2021 and the Administrative Regulations on the Administration of Market Entity Registration.

According to current laws and regulations, market entities can independently decide to close their businesses, but they should meet the following conditions:

1. It belongs to situations where business difficulties are caused by natural disasters, accidents, public health incidents, social security incidents, and other reasons.

2. The licensee of market access administrative licenses for specific industries directly related to public interests, such as water supply, power supply, gas supply, heating, public transportation, banking, insurance, etc., must obtain approval from the administrative authority that made the administrative license decision before they can suspend business.

3. Market entities should negotiate with employees in accordance with the law regarding the handling of labor relations and other related matters before closure. They can negotiate with employees to terminate or terminate labor contracts in accordance with the current provisions of the Labor Contract Law. They can also negotiate with employees to retain labor relations and pay wages/living expenses according to the agreement. Of course, in places where it is recognized that no labor remuneration can be paid during the termination period of labor contracts (such as Jiangsu), the subject of the closure market can negotiate with employees to maintain labor relations, terminate labor contracts, and do not pay labor remuneration during the closure period.

4. If a market entity decides to close down, it shall file a record with the registration authority before closing down. The registration authority will publicly disclose information such as the deadline for business closure and the address for delivery of legal documents to the public through the National Enterprise Credit Information Publicity System. After the market entity completes the closure filing, if it independently decides to carry out or has actually carried out business activities, it shall publicly announce the termination of closure on the national enterprise credit information disclosure system within 30 days.

The maximum period for market entities to close down shall not exceed 3 years. Upon the expiration of the closure period for market entities, or if the cumulative closure period reaches 3 years, it shall be deemed as an automatic resumption of operations. If it is decided not to continue operations, the cancellation registration shall be processed in a timely manner.

In addition, local regulations in some places specify situations where business closure is not allowed. For example, Article 4 of the Beijing Municipal Measures for the Administration of Market Entity Business Closure Filing (Trial) stipulates that market entities that pose a threat to national security, harm social public interests, and the legitimate rights and interests of trading counterparties are not allowed to close down.

During the period of closure, market entities may not retain their residence/main business premises/business premises, but instead use the legal document delivery address to replace the original registered residence/main business premises/business premises. The change of delivery address does not change the registration jurisdiction of the closed market entity.

It is worth noting that the closure system in China only stipulates the right of market entities to stop conducting business activities, without granting them the right to stop fulfilling their debts. The closure of market entities does not mean that they can evade the debt obligations they should bear in accordance with the law. Market entities still need to file tax returns in accordance with relevant regulations such as the Announcement of the State Administration of Taxation on Simplifying the Handling of Tax Related Matters in the Closing and Cancellation of Market Entities.