Do you have clients with interests in China? Member firm Acclime China provides details of new Company Law
If you have clients with investments in China, it is important that you keep up with all the upcoming changes to the country’s corporate law and the implications for LLCs. MGI Worldwide member firm Acclime China has published an article discussing the significant amendments and revisions introduced in China's new Company Law, set to be enforced from July 1, 2024.
The new legislation comprises 15 chapters and 260 articles, with substantial changes compared to the existing law, including modifications to the paid-in capital system, shareholder disqualification, legal representative system, supervisory system, duty of loyalty of directors, and the liquidation system.
The article highlights key amendments that specifically impact limited liability companies (LLCs) – some of which include:
Paid-in Capital System:
- Introduction of a five-year maximum period for LLC shareholders to make capital contributions.
- Standardized accelerated expiration of shareholders' capital injections.
Deprivation of Shares and Shareholder Responsibilities:
- Board of directors responsible for calling capital contributions and authorized to deprive non-compliant shareholders of shares.
- Mutual oversight responsibilities among shareholders, holding them jointly and severally liable for insufficient capital contributions.
- Liabilities for front and rear shareholders and transferees for timely payment of capital contributions.
Legal Representatives' Resignation:
- Expanded scope, allowing any appointed director to be a legal representative.
- Emphasis on legal consequences of civil activities conducted by the legal representative.
Corporate Supervisory System:
- Possibility of not appointing a supervisor if an audit committee is in place.
- Flexibility for small LLCs to have no supervisory board or a single supervisor.
Obligations of Company Directors, Supervisors, and Senior Management:
- Enhanced regulations on related transactions and increased liability for causing damage.
Corporate Dissolution & Liquidation:
- Establishment of liquidation obligors (directors) and clarification of their liability.
- Introduction of simplified procedures for debt-free companies with committed shareholders.
- Forced deregistration for companies suspended or revoked for three years without applying for cancellation.
In summary, the new Company Law in China introduces several reforms aimed at streamlining corporate governance, enhancing shareholder responsibilities, optimizing supervisory systems, and providing more efficient deregistration procedures. While these changes are designed to improve the overall business environment, potential challenges and impacts on investment enthusiasm, entrepreneurship, and company stability are also acknowledged.