Revised draft company law in China: paving a significant chapter in corporate law

The Revised Draft of the Company Law of the People’s Republic of China (“Revised Draft”) marks a significant chapter for corporate law. Promulgated on 20 December 2021 by the Standing Committee of the 13th National People’s Congress, the Revised Draft amends 70 articles.

Enacted in 1993, the Company Law has been revised several times with the latest adoption in 2018. In the amendment, long standings provisions are changed to simultaneously increase protection for bona fide parties and further regulate unethical practices. Major alterations are outlined below.  

Share classes

Joint stock limited companies are permitted to issue other types of shares. Other than ordinary shares, shareholders may issue preferred shares and deferred shares, shares with a different number of voting rights, and determine corresponding rights protection for such shareholders.

Simplified procedures 

Provisions to simplify administrative procedures improve the facilitation of company operations. Specifically, capital reduction and simplified deregistration procedures under specific conditions are simplified. 

Registration Rules

A company registration chapter is added to enhance the administration procedure. Such addition elevates the Administrative Regulations of the People’s Republic of China on the Registration of Market Entities (effective on March 1, 2022) to the rule of law. In the chapter, further clarification is provided on matters and procedures related to the company’s establishment registration, alteration registration, and cancellation registration, and the company registration authority is instructed to optimise the registration process and improve the efficiency and convenience of registration. 

Powers and duties of directors, supervisors, and senior management 

The duties of loyalty and diligence of the directors, supervisors, and senior management are further stressed to protect stakeholder interests. Joint and respective liable are provisioned for those who cause damage to others in an intentional act or gross negligence whilst performing duties. 

Shareholders’ right to know

Another addition is the right for shareholders to consult the register of shareholders and accounting vouchers. Shareholders can entrust agencies to access information, enable professionals of agencies to collate and analyze information and define reasonable decisions based on such insights.

The Revised Draft is envisioned to be adopted in 2023. For companies, the revisions advance the corporate legal framework in China and provide a greater legal basis for courts to handle disputes. 

Furthermore, we foresee forthcoming corporate legislation supplementing the Revised Draft (once adopted) and arising from needs of social development, such as the latest series of laws, regulations, and standards related to information and data protection and security. 

If you have concerns related to corporate law in China, please contact Horizons at talktous@horizons-advisory.com to schedule a consultation session.