Major revision in China’s Company Law and possible impact on foreign invested companies
China’s legislature passed an important amendment to the current Company Law at the end of 2023, which shall come into force as of July 1, 2024. This amendment involves important aspects such as the time limit for shareholders’ contribution, the company’s internal organization, corporate governance and so on.
As the Company Law is the superior law of the Foreign Investment Law, this revision will have an impact on all foreign-invested enterprises. Here are three changes that are most likely to have an impact:
(1) Maximum term for capital injection
The amended Company Law has newly stipulated a maximum term for capital injection, according to which the registered capital of a company shall be fully paid by its shareholder(s) within five years upon the company’s establishment. This shall also apply to those companies that were set up before the amendment comes into effect. That means companies that have a longer period of contribution will have to pay their registered capital in full in advance. However, it is currently not very clear how to define the deadline. We will keep an eye on the follow-up interpretation from the government.
(2) Exemption from set-up of supervisor
According to the current Company Law, a company should set up a board of supervisors, and small companies can set up 1-2 supervisors instead of a board of supervisors. The aforesaid amendment will release small companies from such duties. If all the shareholders of a small company reach a consensus, the company does not have to set up any supervisor. Therefore, if the company wants to cancel the supervisor, it can change it after the new Company Law comes into effect.
(3) No more “executive director”
In addition to supervisor, the amendment has also changed the stipulations on director. According to the current Company Law, a small company may set up an executive director instead of board of directors. The amendment has replaced the “executive director” with a simpler expression of “director”. So, if a company has an “executive director”, it shall accordingly change into “director”.
At present, the detailed rules for the implementation of the amendment have not yet been issued. We suggest that after the introduction of the implementation rules, enterprises should conduct a comprehensive review of the articles of association, and on this basis, make necessary changes and even restate the articles of association.
Useful tools:
Leave a Reply