On 29 December 2023, the seventh meeting of the Standing Committee of the 14th National People's Congress (NPC) voted to adopt the newly amended Company Law of the People's Republic of China (PRC), which will come into effect from 1 July 2024 onwards.
Companies are the most important market entities and the Company Law is the fundamental law of the market economy system. The formulation and amendment of the Company Law is closely related to the establishment and improvement of China's market economic system, and has played an important role in establishing and improving the modern enterprise system and promoting the sustainable and healthy development of the socialist market economy.
China's current company law was enacted in 1993. Some articles of the company law were amended in 1999 and 2004, and a comprehensive revision was carried out in 2005, and two revisions were made to the issues related to the company capital system in 2013 and 2018.
What are the highlights of this revision of the Company Law? The person in charge of the Legal Affairs Commission of the Standing Committee of the National People's Congress answered reporters' questions.
What provisions have been made on further improving the company capital system?
"The revised company law improves the registered capital contribution registration system. It stipulates that the period of capital contribution by shareholders of limited liability companies shall not exceed five years." The person in charge of the Legal Affairs Commission of the Standing Committee of the National People's Congress said that a transitional period is set for companies that have been registered and established before the new law comes into force and whose capital contribution period exceeds the period stipulated in this law, requiring them to gradually adjust the capital contribution period to within the period stipulated in this law.
In addition, the Company Law also introduces an authorised capital system for joint-stock companies, allowing the articles of association or the shareholders' meeting to authorise the board of directors to issue shares, and at the same time requiring the promoters to pay the full amount of the shares, which facilitates the establishment of the company, improves fund-raising flexibility, and reduces the problem of defalcation of the registered capital.
How to optimise corporate governance and strengthen democratic management of employees?
The person in charge of the Legal Affairs Committee of the Standing Committee of the National People's Congress said that the revised company law allows companies to set up only the board of directors and not the supervisory board, and if the company only has a board of directors, it should set up an audit committee in the board of directors to exercise the authority of the supervisory board.
At the same time, the company law further simplifies the company's organisational structure. For smaller companies or companies with fewer shareholders, there may be one director without a board of directors and one supervisor without a supervisory board; for smaller limited liability companies or companies with fewer shareholders, there may be no supervisor with the unanimous consent of all shareholders.
On the audit committee of the board of directors of the limited company and the audit committee of the board of directors of the listed company, the amended company law has also made corresponding provisions.
The reporter noted that the revised Company Law also further strengthens the democratic management of employees.
The person in charge of the Legal Affairs Committee of the Standing Committee of the National People's Congress said that, in order to better protect the participation of employees in the democratic management of the company, the revised Company Law stipulates that for companies with more than 300 employees, in addition to the supervisory board established in accordance with the law and the employee representatives of the company, there shall be employee representatives in the board of directors of the company. Employee representatives on the company's board of directors may be members of the audit committee.
How to regulate the responsibilities of controlling shareholders, de facto controllers and directors and supervisors?
"The amendment improves the specific content of the duty of loyalty and diligence, and strengthens the responsibilities of controlling shareholders, actual controllers and directors, supervisors and senior management." The person in charge of the Standing Committee of the National People's Congress Legislative Affairs Commission said that the revised company law strengthens the regulation of directors, supervisors, senior management personnel and the company's related transactions, etc., and increases the reporting obligations and avoidance of voting rules on related transactions, etc. Reinforce the responsibility of directors, supervisors and senior management to maintain the company's capital adequacy. It is stipulated that directors and senior management shall be liable for compensation if they have intentionally or grossly negligently performed their duties and caused damage to others.
In addition, it also stipulates that controlling shareholders and de facto controllers of a company who do not serve as directors of the company but actually execute the affairs of the company shall be liable for the company's duty of loyalty and diligence. It is stipulated that a controlling shareholder or actual controller of a company who instructs a director or senior management personnel to engage in acts detrimental to the interests of the company or the shareholders shall be jointly and severally liable with such director or senior management personnel.
The new chapter will be how to optimise the company establishment, exit system?
The reporter noted that the revised company law also set up a new chapter of the company registration, for the company registration related content has made many changes and improvements.
The person in charge of the Standing Committee of the National People's Congress said that the revised company law newly set up a chapter of company registration, clear company registration, change registration, cancellation of registration matters and procedures; at the same time, the company registration authority is required to optimise the registration process, improve the registration efficiency and facilitation level.
Making full use of the achievements of information technology construction, it clarifies the legal effects of electronic business licences, public notices issued through the National Enterprise Credit Information Publicity System, and the use of electronic communication means to convene meetings and voting.
The revised Company Law further expands the scope of property that can be used as capital contribution, and clarifies that equity and debt can be used as capital contribution. It also relaxes the restrictions on the establishment of one-person limited liability companies and allows the establishment of one-person joint stock companies. It also improves the company liquidation system and clarifies the liquidation obligor and its responsibility. It also adds a simple cancellation and compulsory cancellation system to facilitate the exit of the company.
In addition, the revised Company Law also improves the relevant provisions on state-funded companies and the relevant provisions on corporate bonds.
