China’s revised Company Law, which was adopted by the National People’s Congress on December 29, 2023, will come into effect on July 1, 2024. The revised law introduces significant changes to company capital rules, corporate governance, shareholder rights, and establishment and liquidation procedures. These changes aim to enhance transparency, accountability, and efficiency in company operations, while also strengthening shareholder protection.

Changes to provisions on company capital

The provisions on company capital have been amended to address issues related to capital subscription and payment. The revised law imposes stricter requirements for capital disclosure and increases penalties for non-compliance. The goal is to prevent shareholders from over-subscribing capital and ensure that subscribed capital is fully paid within a specified time frame. Additionally, the introduction of an authorized capital system for joint-stock companies provides greater flexibility in financing and reduces the virtualization of registered capital.

Changes to corporate governance structures

The revised law also focuses on improving corporate governance structures. It introduces measures such as audit committees, eliminates certain governance requirements for small companies, and expands the scope of legal representatives. These changes aim to promote better corporate governance practices, strengthen oversight mechanisms, and align the roles and responsibilities of different governing bodies within companies.

Changes to provisions on shareholder rights

In terms of shareholder rights, the revised law aims to strengthen shareholder protections and promote shareholder engagement. It expands shareholders’ access to information, enhances their ability to convene meetings and request share buybacks, and provides avenues for legal action against executives and management. The changes also address issues such as defaulting on capital contributions and the abuse of limited liability, protecting the interests of creditors and maintaining a fair business environment.

Changes to company establishment and liquidation procedures

Furthermore, the revised law introduces changes to company establishment and liquidation procedures. It aims to promote entrepreneurship, simplify deregistration procedures, address “zombie companies,” and provide options for continuation after voluntary dissolution. Clarity is also provided regarding the roles and responsibilities in the liquidation process.

The implementation of the new Company Law in China carries significant implications for businesses, including foreign invested enterprises (FIEs) that are either currently operating in or planning to enter the Chinese market. It is crucial for FIEs to diligently comprehend the provisions outlined in the new law and thoroughly assess its impact on their operations. By doing so, businesses can effectively initiate the necessary adjustments to ensure compliance with the updated regulations and optimize their strategic planning.