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China Updates Company Law on 30th Anniversary, introducing Key Changes to Governance and Shareholding

Wed, 05 Jun 2024
Categories: China Legal Trends

On 29 Dec. 2023, the Seventh Session of the Standing Committee of the Fourteenth National People’s Congress (NPC) conducted the second revision to the Company Law and promulgated the revised Company Law.

China’s current Company Law was enacted on 29 Dec. 1993, and has been revised and amended six times since then, namely:

  1. Four amendments were made on 25 Dec. 1999, 28 Aug. 2004, 28 Dec. 2013, and 26 Oct. 2018.
  2. Two revisions were conducted on 27 Oct. 2005, and 29 Dec. 2023.

This revision of the Company Law coincides with the 30th anniversary of the enactment of China’s Company Law.

Highlights of the revised Company Law include:

  1. Companies with 300 or more employees shall have employee representatives on their board of directors.
  2. It introduces an authorized capital system in companies limited by shares. This means that at the time of establishment, a company limited by shares only needs to issue part of its shares. The company’s articles of association or the shareholders’ meeting can authorize the board of directors to decide on the issuance of the remaining shares according to the actual operational needs of the company.
  3. Companies may issue classes of shares with rights distinct from ordinary shares, such as (1) shares with priority or subordination in the distribution of profits or residual assets; (2) shares with voting rights per share more or less than ordinary shares; (3) shares whose transfer is subject to the company’s approval or with other transfer restrictions.
  4. Shareholders who fail to pay their capital contribution in full and on time, and still fail to pay after being demanded by the company within a specified period, will forfeit the equity interests with respect to which they have not paid the capital contribution.
  5. Where a company is unable to pay its debts when due and clearly lacks the ability to pay, the company or creditors shall have the right to demand early contributions from shareholders whose subscribed capital contributions are not yet due for payment.
  6. If the shareholders fail to pay the capital contribution, withdraw the capital contribution, distribute profits or decrease the registered capital in violation of the Company Law, or provide financial assistance to others to acquire the shares of the company in violation of the Company Law, the directors, supervisors and senior officers shall be liable for compensation.
  7. Directors and senior officers will be jointly and severally liable with the company for damages caused to others due to intentional or gross negligence in the performance of their duties.
  8. If the controlling shareholders or the de facto controllers of the company instruct directors or senior officers to engage in any act that is detrimental to the interests of the company or the shareholders by taking advantage of their influence over the company, thereby causing losses to the company or the shareholders, they shall bear joint and several liability with such directors or senior officers.

 

 

Photo by Weichao Deng on Unsplash

Contributors: CJO Staff Contributors Team

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