A New Company Law For China

On December 29, 2023, the 14th National People's Congress Standing Committee concluded its seventh meeting with the approval of the newly revised "Company Law", which will be effective from July 1, 2024. The updated "Company Law" refines the subscription registration system for limited liability companies, stating that all shareholders must complete their capital contribution within five years from the company's establishment date as per the company's articles of association.

The newly revised law also addresses companies registered before its enactment. If the capital contribution period exceeds the stipulations of this law, it should be adjusted gradually unless other laws, administrative regulations, or the State Council provide otherwise. In cases where the capital contribution period and amount are noticeably irregular, the company registration authority may demand timely adjustments in accordance with the law. The State Council will separately outline the specific implementation measures.

The revised Company Law introduces seven significant provisions:

1. Bettering the Registered Capital Subscription Registration System: The revised law mandates that a limited liability company's shareholders should not take over five years to make their capital contributions.

2. Incorporation of an Authorized Capital System: The new law allows the company's articles of association or shareholders' meeting to empower the board of directors to issue shares. This provision requires promoters to pay the full share capital, thereby facilitating company establishment, enhancing financing flexibility, and reducing fluctuations of registered capital.

3. Issuance of Various Types of Shares: The revised law permits a joint-stock company to issue preferred shares, inferior shares, special voting shares, and transfer-restricted shares.

4. Choice of Par Value Shares or Non-Par Value Shares: The new law enables companies to decide between par value shares or non-par value shares as per their articles of association.

5. Usage of Capital Reserve Funds: The revised law allows companies to use capital reserve funds to offset losses according to regulations.

6. Simplified Capital Reduction System: The new law introduces a simplified capital reduction system that permits companies to offset losses by reducing registered capital according to regulations. However, it cannot be distributed to shareholders, nor can it exempt shareholders from their obligations to pay capital contributions or stock payments.

7. System for Loss of Rights: The revised law includes a system for the loss of rights for shareholders who do not make timely capital contributions and stipulates the responsibilities of the transferor and transferee following an equity transfer.

The revised "Company Law" signifies a new era of corporate governance in China, with its emphasis on transparency, flexibility, and accountability. Navigating these changes may seem daunting, but you don't have to do it alone.

At Ubuntu Consulting, we offer expert guidance to help businesses adapt to the evolving legal landscape. If you need assistance understanding these changes and how they may impact your business, don't hesitate to reach out to us.

Remember, staying informed and compliant is crucial for your company's success, and we're here to help you every step of the way. Contact Ubuntu Consulting today, and let us guide you through the intricacies of China's revised "Company Law".