New company law in China: What businesses need to know

Chinese corporate law is changing on a large scale. The changes include new rules for equity investments, legal representatives or corporations. The law will come into force on 1 July 2024. The Ecovis experts explain the most important changes in the law.

The new Chinese company law will be 266 articles long. This is effectively a full make-over of the current 218-article version, with over 70 articles being added or substantially revised.

The most important changes to company law

1. Capital participation and capital contributions
Unless otherwise stated, shareholders of a WFOE/Ltd. must make their full capital contribution within five years of the company’s establishment (counted from the day the company is established)(Art. 47). For companies registered and established prior to the implementation of the revised law, and whose capital contribution period exceeds the period stipulated in this law, there will be a transition period. This rule also applies to capital increases.

In the event of insolvency before the capital contributions’ due date, the company or its creditors can demand early payment.

In addition, LLCs are now required to publish both the subscribed capital and its paid-in amount in the National Enterprise Credit Information Publicity System (Art. 40).

2. Legal representative
Any director who manages the company’s business, or the general manager, can now act as legal representative (Art. 10), giving companies more flexibility in choosing their main representatives. Previously, only the company’s general manager or the chairperson of the board of directors had this power.

3. Shareholders’ meeting and management board
The duties and powers of the shareholders’ meeting and the management board have been optimised. The shareholders’ meeting remains the highest authority in the company.

The Ecovis consultants in Germany and China will support you in implementing the new Chinese corporate law.

Richard Hoffmann, Lawyer, ECOVIS Rechtsanwaltskanzlei Richard Hoffmann, Heidelberg, Germany

4. Supervisory board/supervisor

• Greater flexibility for small companies: Small companies can now operate with only one director who assumes the functions of the supervisory board/supervisor.
• Exemptions from the supervisory board/supervisor obligation: Under certain conditions, the establishment of a supervisory board/supervisor can be waived.
• Monitoring function: The supervisory board/supervisor continues to monitor the activities of the management board and senior executives.

5. Public limited companies
Various rules applying to public limited companies have been relaxed. For example, the rule that founders may not sell their shares within one year of founding the company has been dropped.

6. Multiple classes of company shares
Public limited companies are now allowed to issue different classes of company shares.

7. Financial assistance
For the first time, the new law introduces clear rules for financial assistance. Companies may now provide financial assistance under certain conditions.

These changes to Chinese company law mark a significant step towards greater transparency, accountability and flexibility in corporate governance and structure. They have far-reaching implications for domestic and foreign companies in China.

For further information please contact:

Richard Hoffmann, Lawyer, ECOVIS Rechtsanwaltskanzlei Richard Hoffmann, Heidelberg, Germany
Email: richard.hoffmann@ecovis.com