(Adopted at the 5th Session of the Standing Committee of the 8th National People's Congress on 29 December 1993; first amendment made by the <Amending the <<PRC, Company Law>> Decision> at the 13th Session of the Standing Committee of the 9th National People's Congress on 25 December 1999; second amendment made by the <Amending the <<PRC, Company Law>> Decision> at the 11th Session of the Standing Committee of the 10th National People's Congress on 28 August 2004; third amendment adopted at the 18th Session of the Standing Committee of the 10th National People's Congress and promulgated on 27 October 2005, and effective as of 1 January 2006. )
PART ONE: GENERAL PROVISIONS
Article 1: This Law is formulated in order to standardize the organization and activities of companies, protect the lawful rights and interests of companies, shareholders and creditors, safeguard the social and economic order and promote the development of the socialist market economy.
Article 2: For the purposes of this Law, the term "companies" shall mean limited liability companies and companies limited by shares established pursuant to this Law in China.
Article 3: A company is an enterprise legal person, has independent legal person properties and enjoys legal person property rights. A company shall be liable for its debts to the extent of all of its property.
A shareholder of a limited liability company shall be liable to the company to the extent of the capital contribution it subscribes. A shareholder of a company limited by shares shall be liable to the company to the extent of the shares it subscribes.
Article 4: The shareholders of a company shall enjoy such rights as earnings from assets, participation in major decision making and selection of management personnel according to law.
Article 5: When engaging in business activities, a company must abide by laws and administrative regulations, observe social morals and business ethics, act in good faith, accept supervision by the government and the public, and bear social responsibilities.
The lawful rights and interests of companies shall be protected by law and shall not be infringed upon.
Article 6: To establish a company, an application for registration of establishment shall be made to the company registry according to law. If the conditions of establishment specified herein are met, the applicant shall be registered by the company registry as a limited liability company or a company limited by shares. If the conditions for establishment specified herein are not met, it may not be registered as a limited liability company or a company limited by shares.
If laws or administrative regulations stipulate that the establishment of a company must be subject to approval, approval procedures must be carried out according to law prior to the company’s registration.
The public may apply to the company registry to inquire the registered matters of a company, and the company registry shall provide inquiry services.
Article 7: A company established according to law shall be issued a company business licence by the company registry. The date of issue of the company business licence shall be the date of establishment of the company.
The company business licence shall specify items such as the name, domicile, registered capital, paid-up capital, scope of business and the name of the legal representative of the company.
If there is a change in an item recorded in the company business licence, the company shall carry out change registration and its business licence shall be replaced by the company registry.
Article 8: A limited liability company established in accordance with this Law must carry the words "limited liability company" or “limited company” in the company name.
A company limited by shares established in accordance with this Law must carry the words "company limited by shares" or “joint stock company” in the company name.
Article 9: If a limited liability company is to be converted into a company limited by shares, it shall meet the conditions for companies limited by shares stipulated herein. If a company limited by shares is to be converted into a limited liability company, it shall meet the conditions for limited liability companies stipulated herein.
If a limited liability company is converted into a company limited by shares, or if a company limited by shares is converted into a limited liability company, the claims and debts of the company prior to the conversion shall be inherited by the company after the conversion.
Article 10: The domicile of a company shall be the place where its main administrative organization is located.
Article 11: To establish a company, the articles of association must be formulated according to law. A company's articles of association shall be binding upon the company, shareholders, directors, supervisors and senior management personnel.
Article 12: The scope of business of a company shall be specified in the articles of association of the company and shall be registered according to law. A company may amend its articles of association and changes the scope of business, but it shall carry out change registration.
Items within the scope of business of a company that are subject to approval according to the stipulations of laws or administrative regulations shall be subject to approval according to law.
Article 13: The office of legal representative of a company shall be served by the chairman of the board, the executive director or the manager of the company as stipulated in the articles of association of the company and shall be registered according to law. If there is a change in the legal representative of the company, change registration shall be carried out.
Article 14: A company may establish branches. To establish a branch, application shall be made to the company registry for registration and a business licence shall be obtained. A branch does not have the status of a legal person and its civil liability shall be borne by the company.
A company may establish subsidiaries. A subsidiary has the status of a legal person and independently bears civil liability according to law.
Article 15: A company may invest in other enterprises; however, unless stipulated otherwise by law, it may not become an investor that bears joint and several liability for the debts of the enterprise in which it invests.
Article 16: If a company invests in another enterprise or provides security for another party, a resolution shall be passed by the board of directors or by the shareholders’ meeting or shareholders’ general meeting according to the provisions of the articles of association of the company. If the articles of association of the company stipulate a limit on the total amount of investment or security and the amount of a single investment or security, the stipulated limits may not be exceeded.
If a company provides security for a shareholder or the de facto controlling person of the company, a resolution of the shareholders’ meeting or shareholders’ general meeting must be passed.
A shareholder that falls under the preceding paragraph or that is controlled by a de facto controlling person falling under the preceding paragraph may not participate in the resolution on the matters stipulated in the preceding paragraph. Such resolution shall be adopted by more than half of the voting rights held by the other shareholders present at the meeting.
Article 17: A company must protect the lawful rights and interests of its staff and workers, and sign labour contracts with its staff and workers, participate in social insurance, strengthen labour protection and achieve safe production according to law.
A company shall use various methods to strengthen the vocational education and on-the-job training of its staff and workers so as to improve the quality of the staff and workers.
Article 18: The staff and workers of a company shall organize a labour union and carry out labour union activities in accordance with the PRC, Labour Union Law to protect the lawful rights and interests of the staff and workers. The company shall provide its labour union with the necessary conditions for its activities. The labour union of the company shall sign collective contracts on behalf of the staff and workers with the company on matters such as labour remuneration, working hours, welfare, insurance and labour safety and health of the staff and workers according to law.
A company shall implement democratic management through the staff and workers’ congress or other means in accordance with the provisions of the Constitution and related laws.
When a company studies and decides on restructuring and major issues concerning its business operation or formulates major rules, regulations and systems, it shall listen to the opinions of the labour union of the company, and also the opinions and suggestions of the staff and workers through the staff and workers’ congress or other means.
Article 19: In a company, an organization of the Communist Party of China shall be established to carry out the activities of the party in accordance with the charter of the Communist Party of China. The company shall provide the necessary conditions for the activities of the party organization.
Article 20: The shareholders of a company shall abide by laws, administrative regulations and the articles of association of the company and exercise shareholder’s rights according to law, and may not abuse shareholder’s rights to harm the interests of the company or other shareholders, or abuse the independent status of the company legal person and the limited liability of shareholders to harm the interests of the creditors of the company.
If a shareholder of the company abuses its shareholder’s rights, thereby causing losses to the company or other shareholders, the shareholder shall be liable for compensation according to law.
If a shareholder of the company abuses the independent status of the company legal person and the limited liability of shareholders to evade debts and seriously harms the interests of the creditors of the company, it shall bear joint and several liability for the debts of the company.
Article 21: The controlling shareholder, de facto controlling person, directors, supervisors and senior management personnel of a company may not use their affiliation to harm the interests of the company.
Anyone that violates the provisions of the preceding paragraph and causes losses to the company shall be liable for compensation.
Article 22: A resolution of the shareholders’ meeting or shareholders’ general meeting or the board of directors of a company shall be void if its contents are in violation of laws or administrative regulations.
If the procedure for convening the shareholders’ meeting or shareholders’ general meeting or the meeting of the board of directors, or the method of voting violates laws, administrative regulations or the articles of association of the company, or if the contents of a resolution violate the articles of association of the company, a shareholder may, within 60 days of the adoption of the resolution, petition to a people’s court for cancellation of resolution.
If the shareholder institutes proceedings pursuant to the preceding paragraph, the people’s court may, at the request of the company, require the shareholder to provide a corresponding security.
If the company has carried out change registration in accordance with the resolution of the shareholders’ meeting or shareholders’ general meeting or the board of directors, the company shall apply to the company registry for cancellation of the change registration after the people’s court declares the resolution invalid or cancels the resolution.
PART TWO: ESTABLISHMENT AND ORGANIZATIONAL STRUCTURE OF LIMITED LIABILITY COMPANIES
Section One: Establishment
Article 23: The following conditions shall be fulfilled for the establishment of a limited liability company:
the number of shareholders conforms to the statutory number;
the capital contribution of the shareholders reach the minimum amount of statutory capital;
the shareholders have jointly formulated the company's articles of association;
the company has a name and an organizational structure established in conformity with the requirements for limited liability companies; and
the company has a domicile.
Article 24: A limited liability company shall be invested in and established by no more than 50 shareholders.
Article 25: The articles of association of limited liability companies shall specify the following particulars:
the name and domicile of the company;
the scope of business of the company;
the registered capital of the company;
the names of shareholders;
the method, amount and time of capital contribution by the shareholders;
the organization of the company and its methods of establishment, functions and powers, and rules of procedure;
the legal representative of the company; and
other matters that the shareholders deem necessary to be specified.
Shareholders shall sign and affix their seals to the company’s articles of association.
Article 26: The registered capital of a limited liability company shall be the capital contributions subscribed by all shareholders as registered with the company registry. The amount of the initial capital contribution of all shareholders of the company may not be less than 20% of the registered capital or less than the statutory minimum registered capital, and the rest of the registered capital shall be fully paid by the shareholders within two years of the date of establishment of the company. In the case of an investment company, it may be paid in full within five years.
The minimum registered capital of a limited liability company is Rmb 30,000. Where laws or administrative regulations stipulate a higher amount for the minimum registered capital of a limited liability company, such stipulation shall prevail.
Article 27: Shareholders may make capital contribution in currency or in non-currency property that may be valued in currency and transferable according to law such as physical objects, intellectual property and land use rights, except for property that may not be used as capital contribution according to laws or administrative regulations.
Non-currency property contributed as capital shall be valued and verified, and shall not be over-valued or under-valued. Where laws or administrative regulations have provisions on valuation, such provisions shall prevail.
The amount of capital contribution in currency by all shareholders shall not be less than 30% of the registered capital of the limited liability company.
Article 28: Each shareholder shall make the capital contribution it subscribes as specified in the articles of association of the company on time and in full. If a shareholder makes its capital contribution in currency, it shall deposit the full amount of capital contribution in currency in a bank account opened by the limited liability company with a bank. If capital contribution is made in non-currency property, the transfer procedures for the property rights therein shall be handled according to law.
If a shareholder fails to make capital contribution in accordance with the preceding paragraph, it shall, in addition to making capital contribution in full to the company, be liable for breach of contract to the shareholders that have made their capital contributions on time and in full.
Article 29: After a shareholder has made its capital contribution, such contribution must be verified by a statutory capital verification institution, which shall issue a certificate.
Article 30: After the initial capital contribution of the shareholders have been verified by a legally established capital verification institution, a representative designated by all shareholders or an agent jointly appointed by them shall submit a company registration application and documents such as the company’s articles of association and the capital verification certificate to the company registry to apply for registration of establishment.
Article 31: If, after establishment of a limited liability company, it is discovered that the actual value of the non-currency property contributed as capital for the establishment of the company is markedly lower than the value specified in the articles of association of the company, the shareholder that made such contribution shall make up for the difference. The other shareholders as at the time of the company's establishment shall bear joint and several liability for such difference.
Article 32: A limited liability company shall issue capital contribution certificates to its shareholders after it is established.
The capital contribution certificate shall specify the following particulars:
the name of the company;
the date of establishment of the company;
the registered capital of the company;
the name of the shareholder, the amount of its capital contribution made and the date of capital contribution; and
the serial number and date of issuance of the capital contribution certificate.
The capital contribution certificate shall be affixed with the seal of the company.
Article 33: A limited liability company shall establish a register of shareholders to record the following items:
the names and domiciles of the shareholders;
the amounts of capital contribution of the shareholders; and
the serial numbers of the capital verification certificates.
The shareholders on the register of shareholders may claim and exercise shareholder’s rights on the basis of the register of shareholders.
The company shall register the names of its shareholders and the amounts of their capital contribution with the company registry. If there is a change in the registered items, change registration shall be carried out. Anyone that fails to complete registration or change registration may not resist the claims of a third person.
Article 34: Shareholders shall have the right to examine and reproduce the articles of association of the company, the minutes of the shareholders' meetings, the resolutions of the meetings of the board of directors, the resolutions of the meetings of the supervisory board and the financial and accounting reports.
Shareholders may request to examine the account books of the company. If a shareholder requests to examine the account books of the company, it shall make a written request to the company stating the purpose thereof. If the company has reasonable basis to believe that the purpose of the examination of the account books by the shareholder is improper and that such examination may harm the lawful rights and interests of the company, the company may refuse to provide the books for examination, and shall reply to the shareholder in writing and state the reason for the refusal within 15 days of the written request of the shareholder. If the company refuses to provide the account books for examination, the shareholder may petition to the people’s court to request the company to provide the account books for examination.
Article 35: A shareholder shall receive dividends in proportion to its paid-up capital contribution. When the company increases its capital, the shareholder shall have the priority right to subscribe for capital contribution in proportion to its paid-up capital contribution, except where all shareholders agree not to receive dividends in proportion to the paid-up capital contribution or not to exercise priority right to subscribe for capital contribution in proportion to the paid-up capital contribution.
Article 36: After a company is established, its shareholders may not withdraw their capital contribution.
Section Two: Organizational Structure
Article 37: The shareholders’ meeting of a limited liability company shall be composed of all the shareholders. The shareholders' meeting shall be the organ of authority of the company and shall exercise its functions and powers pursuant to this Law.
Article 38: The shareholders’ meeting shall exercise the following functions and powers:
to decide on the business policies and investment plans of the company;
to elect and replace directors and supervisors that are not appointed from representatives of staff and workers, and to decide on matters concerning the remuneration of directors and supervisors;
to consider and approve reports of the board of directors;
to consider and approve reports of the supervisory board or supervisors;
to consider and approve the company's proposed annual financial budgets and final accounts;
to consider and approve the company's profit distribution plans and plans for making up losses;
to pass resolutions on the increase or reduction of the company's registered capital;
to pass resolutions on the issuance of corporate bonds;
to pass resolutions on matters such as the merger, division, dissolution, liquidation or change of the corporate form of the company;
to amend the articles of association of the company; and
other functions and powers specified in the articles of association of the company.
If the shareholders unanimously express consent to a matter set out in the preceding paragraph in writing, the shareholders’ meeting is not required to be convened, and the decision may be made directly with a document of the decision signed and affixed with the seals of all shareholders.
Article 39: The first shareholders' meeting shall be convened and presided over by the shareholder that made the largest capital contribution, and shall exercise its functions and powers pursuant to the provisions hereof.
Article 40: Shareholders' meetings shall be divided into regular meetings and extraordinary meetings.
Regular meetings shall be convened on time in accordance with the articles of association of the company. An extraordinary meeting shall be convened if it is proposed by shareholders representing one-tenth or more of the voting rights, or by one-third or more of the directors or the supervisory board or, in the case of a company without a supervisory board, the supervisor(s).
Article 41: If a limited liability company has established a board of directors, the shareholders' meeting shall be convened by the board of directors and presided over by the chairman of the board. If the chairman of the board is unable to or does not perform his duty, the meeting shall be presided over by the vice-chairman of the board. If the vice-chairman of the board is unable to or does not perform his duty, the meeting shall be presided over by a director designated jointly by more than half of the directors.
If a limited liability company has no board of directors, the shareholders’ meeting shall be convened and presided over by the executive director(s).
If the board of directors or the executive director(s) cannot or do not perform the duty of convening the shareholders’ meeting, the meeting shall be convened and presided over by the supervisory board or, in the case of a company without a supervisory board, the supervisor(s). If the supervisory board or the supervisors do not convene and preside over the meeting, the meeting may be convened and presided by the shareholders representing one-tenth or more of the voting rights.
Article 42: If a shareholders’ meeting is to be convened, all shareholders shall be notified 15 days before the meeting is held, unless otherwise stipulated in the articles of association of the company or agreed by all shareholders.
The shareholders' meeting shall keep minutes of the decisions on the matters under its consideration. The shareholders present at the meeting shall sign the minutes of the meeting.
Article 43: Shareholders shall exercise voting rights at shareholders' meetings in proportion to their capital contribution, unless otherwise stipulated in the articles of association of the company.
Article 44: The method of deliberation and voting procedures of the shareholders' meeting shall be specified in the articles of association of the company, except where stipulated herein.
Resolutions of the shareholders’ meeting on the amendment of the articles of association of the company, increase or reduction of the registered capital, and merger, division, dissolution or change of corporate form must be adopted by shareholders representing two-thirds or more of the voting rights.
Article 45: A limited liability company shall have a board of directors of three to 13 members, unless otherwise stipulated in Article 51 hereof.
In a limited liability company invested in and established by two or more State-owned enterprises or two or more other State-owned investment entities, the members of the board of directors shall include representatives of the staff and workers of the company. In other limited liability companies, the members of the board of directors may include representatives of the staff and workers of the company. Representatives of staff and workers on the board of directors shall be democratically elected by the staff and workers of the company through the staff and workers’ congress, the staff and workers’ general meeting or other means.
A board of directors shall have one chairman of the board and may have vice-chairmen of the board. The method of appointment of the chairman and vice-chairman (or vice-chairmen) of the board shall be specified in the articles of association of the company.
Article 46: The term of office of directors shall be specified in the articles of association of the company but each term may not exceed three years. If re-elected upon expiration of his term of office, a director may serve consecutive terms.
If no new director is elected in time upon expiration of the term of office of a director, or if a director resigns during his term of office, resulting in the number of members of the board of directors falling below the statutory number, the original director shall perform his duties as director according to the provisions of laws, administrative regulations and the articles of association of the company before a newly elected director takes office.
Article 47: The board of directors shall be accountable to the shareholders' meeting, and shall exercise the following functions and powers:
to convene the shareholders' meeting and to report on its work to the shareholders' meeting;
to implement the resolutions of the shareholders' meeting;
to decide on the business plans and investment plans of the company;
to formulate the company's proposed annual financial budgets and final accounts;
to formulate the company’s profit distribution plans and plans for making up losses;
to formulate plans for the company’s increase or reduction of the registered capital or for the issuance of corporate bonds;
to formulate plans for the merger, division, dissolution or change of corporate form of the company;
to decide on the establishment of the company's internal management organization;
to decide on the employment or dismissal of the manager of the company and his remuneration, and to decide on the employment or dismissal of the deputy manager(s) and person(s) in charge of financial affairs of the company according to the recommendations of the manager and on their remuneration;
to formulate the basic management system of the company; and
other functions and powers specified in the articles of association of the company.
Article 48: Meetings of the board of directors shall be convened and presided over by the chairman of the board. If the chairman of the board is unable to or does not perform his duty, the meeting shall be convened and presided over by the vice-chairman of the board. If the vice-chairman of the board is unable to or does not perform his duty, the meeting shall be convened and presided over by a director designated jointly by more than half of the directors.
Article 49: The method of deliberation and voting procedures of the board of directors shall be specified in the articles of association of the company, except where stipulated herein.
The board of directors shall keep minutes of its decisions on the matters under its consideration. The directors present at the meeting shall sign the minutes of the meeting.
When voting on a resolution of the board of directors, each member shall have one vote.
Article 50: A limited liability company may have a manager, who shall be employed or dismissed by the board of directors. The manager shall be accountable to the board of directors and shall exercise the following functions and powers:
to be in charge of the production, operation and management of the company, and to organize the implementation of the resolutions of the board of directors;
to organize the implementation of the annual business plans and investment plans of the company;
to draft the plan for the establishment of the company's internal management organization;
to draft the basic management system of the company;
to formulate the specific rules and regulations of the company;
to request the employment or dismissal of the deputy manager(s) and person(s) in charge of financial affairs of the company;
to decide on the employment or dismissal of management personnel other than those to be employed or dismissed by the board of directors; and
other functions and powers delegated by the board of directors.
Where the articles of association of the company have other provisions on the functions and powers of the manager, such provisions shall prevail.
The manager shall attend meetings of the board of directors as a non-voting attendee.
Article 51: A limited liability company with comparatively few shareholders or comparatively small in scale may have one executive director instead of a board of directors. The executive director may concurrently serve as the manager of the company.
The functions and powers of the executive director shall be specified in the articles of association of the company.
Article 52: A limited liability company shall have a supervisory board, which shall have no fewer than three members. A limited liability company with comparatively few shareholders and comparatively small in scale may have one to two supervisors instead of a supervisory board.
The supervisory board shall include the representatives of the shareholders and an appropriate ratio of representatives of the company's staff and workers, in which the ratio of the staff and workers’ representatives shall not be lower than one-third. The specific ratio shall be specified in the articles of association of the company. The staff and workers' representatives on the supervisory board shall be democratically elected through the staff and workers’ congress, the staff and workers’ general meeting or other means.
The supervisory board shall have a chairman that shall be elected by more than half of all supervisors. The chairman of the supervisory board shall convene and preside over the meeting of the supervisory board. If the chairman of the supervisory board is unable to or does not perform his duty, the meeting of the supervisory board shall be convened and presided over by a supervisor designated jointly by more than half of the supervisors.
Directors and senior management personnel may not concurrently serve as supervisors.
Article 53: The term of office of a supervisor shall be three years. If re-elected upon expiration of his term of office, a supervisor may serve consecutive terms.
If no new supervisor is elected in time upon expiration of the term of office of a supervisor, or if a supervisor resigns during his term of office, resulting in the number of members of the supervisory board falling below the statutory number, the original supervisor shall perform his duties as supervisor according to the provisions of laws, administrative regulations and the articles of association of the company before a newly elected supervisor takes office.
Article 54: The supervisory board or, in the case of a company without a supervisory board, the supervisor shall exercise the following functions and powers:
to examine the company's financial affairs;
to supervise the execution of company duties by the directors and the senior management personnel and to recommend the removal of directors and senior management personnel that violate laws, administrative regulations, the articles of association of the company or the resolutions of the shareholders’ meeting;
when an act of a director or senior management personnel is harmful to the company's interests, to require the director or senior management personnel to rectify such act;
to propose the convening of extraordinary shareholders’ meetings and to convene and preside over the shareholders’ meeting when the board of directors fails to perform the duties of convening and presiding over the shareholders’ meeting as stipulated herein;
to give proposals to the shareholders’ meeting;
to institute proceedings against the directors and senior management personnel according to Article 152 hereof; and
other functions and powers specified in the articles of association of the company.
Article 55: Supervisors may attend meetings of the board of directors as non-voting attendees and may make inquiries or suggestions to the matters to be resolved by the board of directors.
If the supervisory board or, in the case of a company without a supervisory board, a supervisor discovers irregularities in the operation of the company, it may conduct investigation. If necessary, an accounting firm may be engaged to assist in its or his work. The fees shall be borne by the company.
Article 56: The supervisory board shall convene at least one meeting each year. Supervisors may propose to convene an extraordinary meeting of the supervisory board.
The method of deliberation and voting procedures of the supervisory board shall be specified in the articles of association of the company, except where stipulated herein.
Resolutions of the supervisory board shall be adopted by more than half of the supervisors.
The supervisory board shall keep minutes of its decisions on the matters under its consideration. The supervisors present at the meeting shall sign the minutes of the meeting.
Article 57: The costs and expenses necessary for the supervisory board or, in the case of a company without a supervisory board, the supervisor to exercise their functions and powers shall be borne by the company.
Section Three: Special Provisions on One-person Limited Liability Companies
Article 58: The provisions of this Section shall apply to the establishment and the organizational structure of one-person limited liability companies. Where a matter is not provided for in this Section, the provisions of Section One and Section Two of this Part shall apply.
For the purposes of this Law, the term “one-person limited liability company” shall mean a limited liability company that has only one natural person shareholder or one legal person shareholder.
Article 59: The minimum registered capital of a one-person limited liability company is Rmb 100,000. Shareholders shall pay the amount of capital contribution specified in the articles of association of the company in full in one lump sum.
A natural person may invest in and establish only one one-person limited liability company. Such one-person limited liability company may not invest in and establish a new one-person limited liability company.
Article 60: A one-person limited liability company shall indicate whether it is wholly owned by a natural person or wholly owned by a legal person in the company registration, and specify the same in the business licence of the company.
Article 61: The articles of association of a one-person limited liability company shall be formulated by the shareholder.
Article 62: A one-person limited liability company shall not have a shareholders’ meeting. When the shareholder makes a decision that falls under Paragraph One of Article 38 hereof, it shall be in writing and be kept in the company after it is signed by the shareholder.
Article 63: A one-person limited liability company shall prepare, at the end of each fiscal year, a financial and accounting report that is audited by an accounting firm.
Article 64: If the shareholder of a one-person limited liability company is unable to prove that the property of the company is independent of the shareholder's own property, the shareholder shall bear joint and several liability for the debts of the company.
Section Four: Special Provisions on Wholly State-owned Companies
Article 65: The provisions of this Section shall apply to the establishment and the organizational structure of wholly State-owned companies. Where a matter is not provided for in this Section, the provisions of Section One and Section Two of this Part shall apply.
For the purposes of this Law, the term "wholly State-owned company" shall mean a limited liability company of which the State is the sole investor and the State Council or a local people’s government authorizes a State-owned assets supervision and administration authority of the people’s government at the same level to perform the responsibilities of the investor.
Article 66: The articles of association of a wholly State-owned company shall be formulated by the State-owned assets supervision and administration authority or drafted by the board of directors and submitted to the State-owned assets supervision and administration authority for approval.
Article 67: A wholly State-owned company shall not have a shareholders' meeting. The functions and powers of the shareholders’ meeting shall be exercised by the State-owned assets supervision and administration authority. The State-owned assets supervision and administration authority may authorize the company's board of directors to exercise part of the functions and powers of the shareholders' meeting and to decide on the major matters of the company. However, merger, division, dissolution, increase or reduction of registered capital and issuance of corporate bonds of the company must be decided by the State-owned assets supervision and administration authority. Merger, division, dissolution or bankruptcy application of important wholly State-owned companies shall, after examination and verification by the State-owned assets supervision and administration authority, be reported to the people’s government at the same level for approval.
The “important wholly State-owned companies” referred to in the preceding paragraph shall be determined in accordance with the provisions of the State Council.
Article 68: A wholly State-owned company shall have a board of directors, which shall exercise functions and powers in accordance with Articles 47 and 67 hereof. The term of office of directors shall not exceed three years. The members of the board of directors shall include representatives of the staff and workers. The members of the board of directors shall be appointed by the State-owned assets supervision and administration authority. However, the representatives of the staff and workers among the members of the board of directors shall be elected by the staff and workers’ congress of the company. The board of directors shall have one chairman of the board, and may have a vice-chairman of the board. The chairman of the board and vice-chairman of the board shall be designated by the State-owned assets supervision and administration authority from among the members of the board of directors.
Article 69: A wholly State-owned company shall have a manager, who shall be engaged or dismissed by the board of directors. The manager shall exercise functions and powers in accordance with Article 50 hereof.
Subject to approval by the State-owned assets supervision and administration authority, a member of the board of directors may serve concurrently as manager.
Article 70: The chairman of the board, vice-chairman of the board, directors or senior management personnel of a wholly State-owned company may not concurrently serve in another limited liability company, company limited by shares or other business organization without the approval of the State-owned assets supervision and administration authority.
Article 71: The supervisory board of a wholly State-owned company shall have no fewer than five members, among which the ratio of representatives of staff and workers shall not be lower than one-third. The specific ratio shall be specified in the articles of association of the company.
The members of the supervisory board shall be appointed by the State-owned assets supervision and administration authority. However, the representatives of the staff and workers amongst the members of the supervisory board shall be elected by the staff and workers’ congress of the company. The chairman of the supervisory board shall be designated by the State-owned assets supervision and administration authority from among the members of the supervisory board.
The supervisory board shall exercise the functions and powers stipulated in Items (1) to (3) of Article 54 hereof and other functions and powers stipulated by the State Council.
PART THREE: TRANSFER OF EQUITY INTERESTS IN LIMITED LIABILITY COMPANIES
Article 72: The shareholders of a limited liability company may transfer all or part of their equity interests among them.
Where a shareholder transfers its equity interests to a person other than a shareholder, it shall obtain the consent of more than half of the other shareholders. The shareholder shall notify the other shareholders in writing of the transfer of equity interests and seek their consent. Where the other shareholders do not reply within 30 days of receipt of the written notice, they shall be deemed to consent to the transfer. If more than half of the other shareholders do not consent to the transfer, the dissenting shareholders shall purchase the equity interests to be transferred. If they do not purchase the equity interests, they shall be deemed to consent to the transfer.
Provided all conditions are equal, the other shareholders shall have the priority purchase right for the equity interests the transfer of which has been consented by the shareholders. If two or more shareholders exercise the priority purchase right, they shall determine their respective purchase ratio upon consultation. If consultation fails, they shall exercise the priority purchase right in proportion to their respective ratio of capital contribution at the time of the transfer.
Where the articles of association of the company have other provisions on transfer of equity interests, such provisions shall prevail.
Article 73: When a people’s court transfers the equity interests of a shareholder pursuant to the enforcement procedures stipulated in law, it shall notify the company and all shareholders, and the other shareholders shall have the priority purchase right under equal conditions. Where the other shareholders fail to exercise the priority purchase right within 20 days of the date of notice of the people’s court, they shall be deemed to waive their priority purchase right.
Article 74: After an equity interest is transferred pursuant to Article 72 or Article 73 hereof, the company shall cancel the capital contribution certificate of the original shareholder, issue a capital contribution certificate to the new shareholder and amend the records of the relevant shareholder and its capital contribution in the articles of association and the register of shareholders of the company. Such amendment to the articles of association of the company does not require a resolution by the shareholders’ meeting.
Article 75: In any of the following circumstances, a shareholder that votes against the resolution of the shareholders’ meeting may request the company to purchase its equity interests at a reasonable price:
the company has not distributed its profits to the shareholders for five consecutive years, while the company has been profitable for five consecutive years and meets the conditions for distribution of profit stipulated herein;
the company is merged or divided, or transfers its major property; or
the term of operation specified in the articles of association of the company expires or any other reason for dissolution specified in the articles of association arises, and the shareholders’ meeting has adopted a resolution to amend the articles of association to allow the continual existence of the company.
If the shareholder and the company fail to reach an agreement on the purchase of equity interests within 60 days of the adoption of the resolution of the shareholders’ meeting, the shareholder may institute proceedings in a people’s court within 90 days of the adoption of the resolution of the shareholders’ meeting.
Article 76: After a natural person shareholder dies, his legal heir may inherit his shareholder status, except where the articles of association of the company stipulate otherwise.
PART FOUR: ESTABLISHMENT AND ORGANIZATIONAL STRUCTURE OF COMPANIES LIMITED BY SHARES
Section One: Establishment
Article 77: The following conditions must be fulfilled for the establishment of a company limited by shares:
the number of promoters conforms to the statutory number;
the share capital subscribed for by the promoters and raised reaches the minimum amount of statutory capital;
the share issue and preparation matters conform to laws and regulations;
the company's articles of association have been formulated by the promoters; in the case of establishment by means of share offer, the articles of association shall have been adopted at the inaugural meeting;
the company has a name, and an organizational structure established in accordance with the requirements for companies limited by shares; and
the company has a domicile.
Article 78: Companies limited by shares may be established by means of promotion or by means of share offer.
The term “establishment by means of promotion” means establishment of a company by means of subscription by the promoters for all the shares to be issued by the company.
The term “establishment by means of share offer” means establishment of a company by means of subscription by the promoters for a portion of the shares to be issued by the company, and offer of the balance to the public or to specified targets.
Article 79: For the establishment of a company limited by shares, there shall be more than two and less than 200 promoters, of which more than half shall have their domicile in the PRC.
Article 80: The promoters of a company limited by shares shall undertake the matters concerning preparation of the establishment of the company.
They shall conclude a promoters’ agreement that stipulates the rights and obligations of each party during the process of establishment of the company.
Article 81: Where a company limited by shares is established by means of promotion, the registered capital shall be the total share capital subscribed for by all promoters as registered with the company registry. The amount of the first capital contribution of all promoters of the company shall not be less than 20% of the registered capital, and the balance shall be paid in full by the promoters within two years of the date of establishment of the company, or in the case of an investment company, be paid within five years. Before the capital is paid in full, the offer of shares to others may not be carried out.
Where a company limited by shares is established by means of share offer, the registered capital shall be the total paid-up share capital as registered with the company registry.
The minimum registered capital of companies limited by shares shall be Rmb 5 million. Where laws and administrative regulations stipulate a higher amount on the minimum registered capital of companies limited by shares, such stipulations shall prevail.
Article 82: The articles of association of a company limited by shares shall specify the following particulars:
the name and domicile of the company;
the scope of business of the company;
the method of establishment of the company;
the total number of shares of the company, the price per share and the registered capital;
the names of and number of shares subscribed for by the promoters, and their methods and time of capital contribution;
the composition, functions and powers and rules of procedure of the board of directors;
the legal representative of the company;
the composition, functions and powers and rules of procedure of the supervisory board;
the method of distribution of company profit;
the reasons for dissolution of the company and method of liquidation;
methods for notices and announcements of the company; and
other matters that the shareholders’ general meeting considers necessary to be specified.
Article 83: The methods of capital contribution of promoters shall be governed by Article 27 hereof.
Article 84: Where a company limited by shares is established by means of promotion, the promoters shall subscribe in writing for all the shares for which they subscribe as specified in the company’s articles of association. Where capital contribution is paid in a lump sum, the promoters shall pay all the capital contribution in full. Where capital contribution is made in instalments, they shall make the initial capital contribution. Where capital contribution is made in non-currency property, procedures for transfer of their property rights shall be handled according to law.
Where a promoter does not make capital contribution according to the provisions in the preceding paragraph, it shall be liable for breach of contract according to the promoters’ agreement.
After the promoters have made their first capital contribution, they shall elect the board of directors and supervisory board. The board of directors shall submit to the company registry the company’s articles of association, capital verification certificate issued by a capital verification institution established according to law, as well as other documents specified in laws and administrative regulations, and apply for registration of establishment.
Article 85: If a company limited by shares is established by means of share offer, the shares subscribed for by the promoters may not be less than 35% of the total number of company shares, unless where there are other stipulations in laws and administrative regulations, such stipulations shall prevail.
Article 86: When promoters offer shares to the public, they must publish the share prospectus and prepare subscription forms. The subscription forms shall specify the particulars listed in Article 87 hereof. The subscribers shall enter the number and amount of shares subscribed for and their domiciles on the forms, and shall sign and seal such forms. Subscribers shall pay subscription monies in accordance with the number of shares they subscribed for.
Article 87: A share prospectus shall have the company's articles of association formulated by the promoters attached, and shall specify the following particulars:
the number of shares subscribed for by the promoters;
the face value and issue price of each share;
the total number of bearer shares issued;
the purpose of the funds raised;
the rights and obligations of subscribers; and
the opening and closing dates of the share offer and a statement to the effect that subscribers may withdraw their share subscriptions if all the shares are not taken up within the time limit.
Article 88: When promoters offer shares to the public, the shares shall be distributed by a securities company established according to law, with which a distribution agreement shall be concluded.
Article 89: If promoters are to offer shares to the public, they shall conclude an agreement with a bank on the collection of subscription monies on behalf of the company.
The bank accepting subscription monies on behalf of the company shall accept and keep the subscription monies on behalf of the company in accordance with the agreement, and issue receipts to subscribers paying their subscription monies. In addition, the bank shall assume an obligation to issue certification of receipt of subscription monies to the relevant authority.
Article 90: After full payment of the subscription monies for a share issue, capital verification shall be carried out by a capital verification institution established according to law, which shall issue certificates. The promoters shall convene and preside over the inaugural meeting of the company within 30 days after full payment of subscription monies. The inaugural meeting shall be composed of the promoters and subscribers.
If the shares issued are not fully taken up by the cut off time specified in the share prospectus or if the promoters fail to convene the inaugural meeting within 30 days after full payment of the subscription monies for the share issue, the subscribers may claim a refund from the promoters according to the subscription monies paid plus bank deposit interest calculated for the same period.
Article 91: The promoters shall notify all subscribers or make an announcement 15 days prior to convening the inaugural meeting. The inaugural meeting may be held only if attended by the promoters and subscribers representing more than half of the total number of shares.
The following functions and powers shall be exercised at an inaugural meeting:
to deliberate the promoters’ report concerning preparation of the establishment of the company;
to approve the articles of association of the company;
to elect the members of the board of directors;
to elect the members of the supervisory board;
to examine and approve the establishment fees of the company;
to examine and approve the value at which promoters substituted property for subscription monies; and
if an event of force majeure or a major change in business conditions occurs that directly affects the establishment of the company, a resolution of not establishing the company may be passed.
For the inaugural meeting to pass resolutions concerning the matters stated in the preceding paragraph, they must be adopted by subscribers present at the meeting representing more than half of the voting rights.
Article 92: After promoters and subscribers pay their subscription monies or make their capital contributions as substitutes for subscription monies, they may not withdraw their share capital, except where the shares are not fully taken up on time, the promoters fail to convene the inaugural meeting on time or a resolution not to establish the company is adopted at the inaugural meeting.
Article 93: The board of directors shall, within 30 days after the end of the inaugural meeting, submit the following documents and apply for registration of establishment to the company registry:
the application for company registration;
the minutes of the inaugural meeting;
the articles of association of the company;
the capital verification certificates;
the employment documents for the legal representative, directors and supervisors, and their proof of identity;
the proof of legal person status of the promoters or the proof of identity of natural persons; and
the proof of domicile of the company.
Where the company limited by shares that is established by means of share offer issues shares to the public, it shall also submit the verification and approval document of the State Council’s securities regulatory authority to the company registry.
Article 94: Where a promoter fails to make his capital contribution in full according to the stipulations of the company’s articles of association after the company limited by shares is established, he shall make up the outstanding sum, and the other promoters shall bear joint and several liability.
Where, after the company limited by shares is established, it is discovered that the actual price of the non-currency property contributed as capital for establishment of company is markedly lower than the price specified in the company’s articles of association, the discrepancy shall be made up by the promoter that delivered the capital contribution. Other promoters shall bear joint and several liability.
Article 95: The promoters of a company limited by shares shall bear the following liabilities:
if the company cannot be established, joint and several liability for the debts and expenses occasioned during the establishment activities;
if the company cannot be established, joint and several liability for refunding the subscription monies already paid by subscribers plus bank deposit interest calculated for the same period; and
if during the course of establishment of the company, the company's interests are harmed due to the fault of the promoters, liability towards the company for compensation.
Article 96: When a limited liability company is converted into a company limited by shares, the total amount of paid-up share capital converted shall not exceed the amount of net assets of the company. When a limited liability company that is converted into a company limited by shares offers shares to the public in order to increase its capital, such issue shall be carried out according to law.
Article 97: Companies limited by shares shall keep at their office the company’s articles of association, register of shareholders, counterfoil of corporate bonds, minutes of shareholders’ general meetings, minutes of the meetings of the board of directors, minutes of the meetings of the supervisory board, and financial and accounting reports.
Article 98: Shareholders shall have the right to examine the articles of association of the company, register of shareholders, counterfoil of corporate bonds, minutes of shareholders’ general meetings, minutes of the meetings of the board of directors, minutes of the meetings of the supervisory board, and financial and accounting reports, and to give suggestions for or inquire about the operation of the company.
Section Two: Shareholders’ General Meeting
Article 99: The shareholders’ general meeting of a company limited by shares shall be composed of all shareholders. The shareholders’ general meeting shall be the organ of authority of the company and shall exercise its functions and powers in accordance with this Law.
Article 100: The provisions of Paragraph One of Article 38 hereof on the functions and powers of the shareholders’ meeting of limited liability companies shall apply to the shareholders’ general meeting of companies limited by shares.
Article 101: The annual general meeting of the shareholders' general meeting shall be held once every year. An extraordinary shareholders' general meeting shall be convened within two months of the occurrence of any of the following circumstances:
the number of directors is less than the number stipulated herein or less than two-thirds of the number specified in the articles of association of the company;
the losses of the company that have not been made up reach one-third of the total paid-up share capital;
it is requested by a shareholder that independently holds, or by the shareholders that hold in aggregate, 10% or more of the company's shares;
it is considered necessary by the board of directors;
it is proposed by the supervisory board; or
other circumstances specified by the articles of association of the company.
Article 102: The shareholders' general meeting shall be convened by the board of directors and presided over by the chairman of the board. If the chairman of the board is unable to or does not perform his duty, the meeting shall be presided over by the vice-chairman of the board. If the vice-chairman of the board is unable to or does not perform his duty, the meeting shall be presided over by a director designated jointly by more than half of the directors.
If the board of directors is unable to or does not perform the duty of convening the shareholders’ general meeting, the meeting shall be convened and presided over by the supervisory board in a timely manner. If the supervisory board does not convene and preside over the meeting, a shareholder that has independently held, or the shareholders that have held in aggregate, 10% or more of the shares of the company for 90 or more consecutive days may themselves convene and preside over the meeting.
Article 103: If a shareholders’ general meeting is to be convened, all shareholders shall be notified of the time and venue of the meeting and the matters to be considered at the meeting 20 days before the meeting is held. In the case of an extraordinary shareholders’ general meeting, the shareholders shall be notified 15 days before the meeting is held. If bearer shares are to be issued, the time and venue of the meeting and the matters to be considered at the meeting shall be announced 30 days before the meeting is held.
A shareholder that independently holds, or the shareholders that hold in aggregate, 3% or more of the shares of the company may submit an extraordinary resolution in writing to the board of directors at least 10 days before a shareholders’ general meeting is held. The board of directors shall notify the other shareholders within two days of receipt of the resolution and submit the extraordinary resolution to the shareholders’ general meeting for consideration. The contents of the extraordinary resolution shall be within the scope of authority of the shareholders’ general meeting and shall have a clear subject and specific matters for resolution.
No resolution may be adopted by a shareholders’ general meeting on any matter not included in the notices specified in the preceding two paragraphs.
Holders of bearer shares that intend to attend a shareholders' general meeting shall deposit their share certificates with the company for a period beginning from five days before the meeting is held to the adjournment of the meeting.
Article 104: Shareholders present at a shareholders' general meeting shall have the right to one vote for each share held. However, there shall be no voting right for the shares of the company held by the company itself.
Resolutions of a shareholders' general meeting must be adopted by more than half of the voting rights held by the shareholders present at the meeting. However, resolutions of a shareholders' general meeting to amend the company’s articles of association, to increase or reduce the registered capital, or on merger, division, dissolution or change of the corporate form of the company must be adopted by two-thirds or more of the voting rights held by the shareholders present at the meeting.
Article 105: If it is stipulated in this Law and the articles of association of the company that a resolution must be adopted by the shareholders’ general meeting on matters such as transfer of major assets by or to the company or provision of security for an external party, the board of directors shall promptly convene a shareholders’ general meeting, and the shareholders’ general meeting shall vote on such matters.
Article 106: In the case of election of directors and supervisors of a shareholders’ general meeting, the cumulative voting system may be implemented in accordance with the provisions of the articles of association of the company or the resolution of the shareholders’ general meeting.
For the purposes of this Law, the term “cumulative voting system” shall mean that when a shareholders’ general meeting elects a director or supervisor, the number of voting rights attached to each share is the same as the number of directors or supervisors to be elected, and that the voting rights held by a shareholder may be exercised collectively.
Article 107: A shareholder may appoint a proxy to attend a shareholders' general meeting on his behalf. The proxy shall submit the shareholder's power of attorney to the company and exercise voting rights within the scope of authorization.
Article 108: The shareholders' general meeting shall keep minutes of the decisions on the matters under its consideration, and the presiding person and the directors present at the meeting shall sign the minutes of the meeting. The minutes of the meeting shall be kept together with the sign-in book of the attending shareholders and the powers of attorney of the attending proxies.
Section Three: Board of Directors, and Manager
Article 109: A company limited by shares shall have a board of directors of five to 19 members.
The members of the board of directors may include representatives of the staff and workers of the company. The representatives of the staff and workers among the members of the board of directors shall be democratically elected by the staff and workers of the company through the staff and workers’ congress, the staff and workers’ general meeting or other means.
The provisions of Article 46 hereof on the term of office of the directors of limited liability companies shall apply to the directors of companies limited by shares.
The provisions of Article 47 hereof on the functions and powers of the board of directors of limited liability companies shall apply to the board of directors of companies limited by shares.
Article 110: The board of directors shall have one chairman of the board and may have a vice-chairman (or vice-chairmen) of the board. The chairman and vice-chairman (or vice-chairmen) of the board shall be elected by more than half of all directors.
The chairman of the board shall convene and preside over the meetings of the board of directors and inspect the implementation of the resolutions of the board of directors. The vice-chairman of the board shall assist the chairman of the board in his work. Where the chairman of the board is unable to or does not perform his duties, his duties shall be performed by the vice-chairman. If the vice-chairman is unable to or does not perform his duties, his duties shall be performed by a director designated jointly by more than half of the directors.
Article 111: The board of directors shall convene at least two meetings each year. All directors and supervisors shall be notified 10 days before each meeting is held.
An extraordinary meeting of the board of directors may be proposed by shareholders representing 10% or more of the voting rights or one-third or more of the directors or the supervisory board. The chairman of the board shall convene and preside over the meeting of the board of directors within 10 days of receipt of the proposal.
The notification method and time limit for giving notice of the convening of extraordinary meetings of the board of directors may be decided separately.
Article 112: Meetings of the board of directors may be held only if attended by more than half of the directors. Resolutions of the board of directors must be adopted by more than half of all directors.
When voting on a resolution of the board of directors, each member shall have one vote.
Article 113: Meetings of the board of directors shall be attended by the directors in person. If a director for any reason is unable to attend the meeting, he may appoint another director in writing to attend the meeting on his behalf, and the power of attorney shall specify the scope of authorization.
The board of directors shall keep minutes of its decisions on the matters under its consideration, and the directors present at the meeting shall sign the minutes of the meeting.
The directors shall bear liability for the resolutions of the board of directors. If a resolution of the board of directors violates any law or administrative regulation, or the company's articles of association or a resolution of the shareholders’ general meeting, thereby causing the company to incur serious losses, the directors that took part in such resolution shall be liable to the company for compensation. However, if a director is proved to have expressed his objection to the resolution at the time of voting and the objection is recorded in the minutes of the meeting, such director may be released from such liability.
Article 114: A company limited by shares shall have a manager, who shall be engaged or dismissed by the board of directors.
The provisions of Article 50 hereof on the functions and powers of the manager of limited liability companies shall apply to the manager of companies limited by shares.
Article 115: The board of directors of a company may decide that a member of the board of directors shall serve concurrently as the manager.
Article 116: A company shall not directly or through a subsidiary provide any loan to its directors, supervisors or senior management personnel.
Article 117: A company shall periodically disclose to its shareholders the remuneration received by its directors, supervisors and senior management personnel from the company.
Section Four: Supervisory Board
Article 118: A company limited by shares shall have a supervisory board of no fewer than three members.
The supervisory board shall include representatives of the shareholders and an appropriate ratio of the representatives of the company's staff and workers, where the ratio of the staff and workers’ representatives shall not be less than one-third. The specific ratio shall be specified in the articles of association of the company. The staff and workers' representatives on the supervisory board shall be democratically elected through the staff and workers’ congress, the staff and workers’ general meeting or other means.
The supervisory board shall have a chairman and may have a vice-chairman (or chairmen). The chairman and vice-chairman of the supervisory board shall be elected by more than half of all supervisors. The chairman of the supervisory board shall convene and preside over the meetings of the supervisory board. If the chairman of the supervisory board is unable to or does not perform his duty, the meetings of the supervisory board shall be convened and presided over by the vice-chairman of the supervisory board. If the vice-chairman of the supervisory board is unable to or does not perform his duty, the meetings of the supervisory board shall be convened and presided over by a supervisor designated jointly by more than half of the supervisors.
Directors and senior management personnel may not concurrently serve as supervisors.
The provisions of Article 53 hereof on the term of office of the supervisors of limited liability companies shall apply to the supervisors of companies limited by shares.
Article 119: The provisions of Articles 54 and 55 hereof on the functions and powers of the supervisory board of limited liability companies shall apply to the supervisory board of companies limited by shares.
The costs and expenses necessary for the supervisory board to exercise its functions and powers shall be borne by the company.
Article 120: The supervisory board shall convene at least one meeting every six months. The supervisors may propose to convene an extraordinary meeting of the supervisory board.
The method of deliberation and the voting procedures of the supervisory board shall be specified in the articles of association of the company, except where stipulated herein.
Resolutions of the supervisory board shall be adopted by more than half of the supervisors.
The supervisory board shall keep minutes of its decisions on the matters under its consideration. The supervisors present at the meeting shall sign the minutes of the meeting.
Section Five: Special Provisions on the Organizational Structure of Listed Companies
Article 121: For the purposes of this Law, the term “listed company” shall mean a company limited by shares whose shares are listed and traded on a stock exchange.
Article 122: If the amount of the major assets purchased or sold or the amount of security provided by a listed company within one year exceeds 30% of the total assets of the company, a resolution shall be passed by the shareholders’ general meeting and adopted by two-thirds or more of the voting rights held by the shareholders present at the meeting.
Article 123: A listed company shall have independent directors. The specific procedures thereon shall be stipulated by the State Council.
Article 124: A listed company shall have a secretary to the board of directors to be in charge of matters such as the preparation of the shareholders’ general meetings and the meetings of the board of directors of the company, the safekeeping of documents as well as the administration of the shareholders' information of the company and the handling of information disclosure.
Article 125: If a director of a listed company is affiliated with an enterprise involved in a resolution matter of the meeting of the board of directors, he may not exercise his voting right on such resolution or the voting right of any other director as proxy. Such meeting of the board of directors may be held if attended by more than half of the directors without such affiliation, and the resolution of the meeting of the board of directors must be adopted by more than half of the directors without such affiliation. If the number of directors without such affiliation present at the meeting of the board of directors is less than three, the matter shall be submitted to the shareholders’ general meeting of the listed company for consideration.
PART FIVE: ISSUE AND TRANSFER OF SHARES OF COMPANIES LIMITED BY SHARES
Section One: Issue of Shares
Article 126: The capital of companies limited by shares shall be divided into shares of equal amount.
The shares of companies shall take the form of share certificates. Share certificates shall be the vouchers issued by companies evidencing the shares held by their shareholders.
Article 127: Shares shall be issued in accordance with the principles of equitability and fairness. Each share of the same type shall carry the same rights and benefits.
Shares of the same type in the same issue shall be issued on the same conditions and at the same price. The same price shall be payable for each of the shares subscribed for by any work unit or individual.
Article 128: Shares may be issued at or above par but not below par.
Article 129: Share certificates shall be of paper or in such other form as determined by the State Council’s securities regulatory authority.
The following main particulars shall be clearly stated on a share certificate:
the name of the company;
the date of establishment of the company;
the class and face value of the share certificate and the number of shares it represents; and
the serial number of the share certificate.
Share certificates shall be signed by the legal representative and sealed by the company.
The words “promoters’ share certificate” shall be clearly indicated on share certificates of promoters.
Article 130: Shares issued by a company may be registered shares and may also be bearer shares. Shares issued by a company to a promoter or a legal person shall be registered shares and shall bear the name of such promoter or legal person. No separate account with a different name may be opened for such shares, nor may such shares be registered in the name of a representative.
Article 131: Companies that issue registered shares shall establish share registers, in which the following particulars shall be recorded:
the names and domiciles of the shareholders;
the number of shares held by each shareholder;
the serial numbers of the share certificates held by each shareholder; and
the date on which each shareholder obtained the shares.
Companies that issue bearer shares shall record the number, serial numbers and issue date of the share certificates.
Article 132: The State Council may formulate separate regulations for the issue by companies of shares of types other than those provided for in this Law.
Article 133: Companies limited by shares shall formally deliver the share certificates to their shareholders immediately upon establishment. Companies may not deliver share certificates to their shareholders prior to establishment.
Article 134: When a company issues new shares, resolutions in respect of the following matters shall be adopted by the shareholders’ general meeting:
the class and amount of the new shares;
the issue price of the new shares;
the opening and closing dates of the new share issue; and
the class and amount of new shares issued to existing shareholders.
Article 135: When a company issues new shares to the public upon verification and approval by the State Council’s securities regulatory authority, it must announce a prospectus for the new shares and financial and accounting reports, and prepare subscription forms.
The provisions of Articles 88 and 89 hereof shall apply to the issue of new shares to the public by companies.
Article 136: The pricing proposal for new shares to be issued by a company may be determined on the basis of its operation and financial status.
Article 137: After a company has raised the full amount of subscription monies from a new share issue, it must register the change with the company registry and make an announcement.
Section Two: Transfer of Shares
Article 138: Shares held by shareholders may be transferred according to law.
Article 139: Transfer of shares by shareholders shall be conducted at a securities trading place established according to law or by other means as stipulated by the State Council.
Article 140: Registered shares shall be transferred by means of endorsement by the shareholder or by other means stipulated in laws and administrative regulations. After the transfer, the company shall record the name and domicile of the transferee in the register of shareholders.
No change registration shall be carried out in respect of the register of shareholders specified in the preceding paragraph within 20 days prior to convening a shareholders' general meeting or within five days prior to the reference date determined by the company for the distribution of dividends. However, where the law has stipulated otherwise on the change registration of the register of shareholders of listed companies, such stipulations shall prevail.
Article 141: A transfer of bearer shares shall become effective immediately upon delivery of the shares by the shareholder to the transferee.
Article 142: Shares held by the promoters in the company promoted may not be transferred within one year of the date of establishment of the company. Shares issued by a company prior to the public offer of its shares may not be transferred within one year of the date of listing of its shares on a stock exchange.
A director, supervisor or senior management personnel of a company shall declare to the company the number of shares in the company held by him and any change thereof, and may not transfer more than 25% of the shares in the company held by him each year during his term of office. The shares held by him may not be transferred within one year of the date of listing of the company’s shares. The aforementioned person may not transfer the shares in the company he holds within six months after he leaves office. The articles of association of the company may specify other restrictive provisions on the transfer of the company’s shares held by the directors, supervisors and senior management personnel of the company.
Article 143: A company may not purchase its own shares except in any of the following circumstances:
to reduce the registered capital of the company;
to merge with another company (companies) that hold(s) its shares;
to reward the staff and workers of the company with shares; or
a shareholder requests the company to purchase the shares held by him since he objects to a resolution of the shareholders’ general meeting on the merger or division of the company.
Where a company purchases its own shares for reasons specified in Items (1) to (3) of the preceding paragraph, a resolution of the shareholders’ general meeting shall be adopted. Shares purchased by the company pursuant to the preceding paragraph shall be cancelled within 10 days of the date of purchase if the circumstances fall under Item (1), or transferred or cancelled within six months if the circumstances fall under Item (2) or (4).
A company’s own shares purchased by the company pursuant to Item (3) of Paragraph One shall not exceed 5% of the total issued shares of the company. The funds used for the purchase shall be taken from the after-tax profits of the company, and the shares purchased shall be transferred to the staff and workers within one year.
A company may not accept its own shares as the subject matter of a pledge.
Article 144: If a registered share certificate is stolen, lost or destroyed, the shareholder may petition to a people's court to declare the certificate void in accordance with the procedures for public invitation to assert claims as specified in the PRC, Civil Procedure Law. After the people’s court has declared such share certificate void, the shareholder may apply to the company for a new share certificate.
Article 145: Shares of a listed company shall be listed and traded in accordance with the relevant laws, administrative regulations and the trading rules of stock exchanges.
Article 146: A listed company must disclose its financial status, business condition and major litigation according to the provisions of laws and administrative regulations, and must publish a financial and accounting report once every six months in each fiscal year.
PART SIX: QUALIFICATIONS AND OBLIGATIONS OF DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT PERSONNEL OF COMPANIES
Article 147: A person may not serve as a company's director, supervisor or senior management personnel if he is:
a person with no or limited capacity for civil acts;
a person that was sentenced to criminal punishment for the crime of corruption, bribery, encroachment of property, misappropriation of property or disruption of the order of the socialist market economy, and not more than five years has elapsed since the expiration of the enforcement period; or a person that was deprived of his political rights for committing a crime, and not more than five years has elapsed since the expiration of the enforcement period;
a director, factory director or manager of a company or enterprise liquidated upon bankruptcy that was personally responsible for the bankruptcy of the company or enterprise, and not more than three years has elapsed since the date of completion of the bankruptcy liquidation;
the legal representative of a company or enterprise that had its business licence revoked and had been closed down by order for violation of law, for which such representative bears individual liability, and not more than three years has elapsed since the date on which the business licence of the company or enterprise was revoked; and
a person with a comparatively large amount of personal debts due and unsettled.
If a company elects or appoints a director or supervisor or employs senior management personnel in violation of the preceding paragraph, such election, appointment or employment shall be invalid.
If a director, supervisor or senior management personnel falls under the circumstances specified in Paragraph One of this Article during his term of office, the company shall dismiss him from his office.
Article 148: Directors, supervisors and senior management personnel shall abide by laws, administrative regulations and the articles of association of the company, and have a fiduciary obligation and obligation of diligence to the company.
Directors, supervisors and senior management personnel may not take advantage of their positions and powers to collect or accept bribes or other illegal income, and may not encroach upon the property of the company.
Article 149: Directors and senior management personnel may not have the following conduct:
misappropriate the funds of the company;
deposit the funds of the company in an account opened in his personal name or in the name of another individual;
in violation of the articles of association of the company, lend the funds of the company to other persons or use the property of the company to provide security for other persons without the consent of the shareholders’ meeting, shareholders’ general meeting or the board of directors;
enter into a contract or transaction with the company in violation of the articles of association of the company or without the consent of the shareholders’ meeting or shareholders’ general meeting;
take advantage of the convenience of his position to seek for himself or other persons commercial opportunities that belong to the company or to operate by himself or for another person the same type of business as that of his company without the consent of the shareholders’ meeting or shareholders’ general meeting;
accept as his own the commissions of a transaction between another person and the company;
disclose the secrets of the company without authorization; or
other acts that violate his fiduciary obligation to the company.
The income derived by a director or senior management personnel from violating the provisions of the preceding paragraph shall belong to the company.
Article 150: If a director, supervisor or senior management personnel violates the provisions of laws, administrative regulations or the articles of association of the company in the execution of company duties, thereby causing losses to the company, he shall be liable for compensation.
Article 151: If a director, supervisor or senior management personnel is required by the shareholders’ meeting or shareholders’ general meeting to attend the meeting as non-voting attendee, the director, supervisor or senior management personnel shall attend the meeting as a non-voting attendee and accept inquiries from the shareholders.
Directors and senior management personnel shall truthfully provide the relevant information and materials to the supervisory board or, in the case of a limited liability company without a supervisory board, the supervisor, and may not obstruct the supervisory board or supervisors in exercising its/their functions and powers.
Article 152: If a director or senior management personnel is in the circumstances specified in Article 150 hereof, the shareholders in the case of a limited liability company, or a shareholder that has independently held, or the shareholders that have held in aggregate, 1% or more of the shares of the company for more than 180 consecutive days in the case of a company limited by shares, may request in writing the supervisory board or, in the case of a limited liability company without a supervisory board, the supervisor to institute proceedings in a people’s court. If a supervisor is in the circumstances specified in Article 150 hereof, the aforementioned shareholders may request in writing the board of directors or, in the case of a limited liability company without a board of directors, the executive director to institute proceedings in a people’s court.
If the supervisory board or, in the case of a limited liability company without a supervisory board, the supervisor, or the board of directors or executive director refuses to institute proceedings after receipt of the written request of the shareholder as specified in the preceding paragraph, or fails to institute proceedings within 30 days of the date of receipt of the request, or if the matter is urgent and failure in the immediate institution of proceedings would result in damage to the interests of the company that is difficult to remedy, the shareholder(s) specified in the preceding paragraph shall have the right to directly institute proceedings in his or their name in a people’s court for the interests of the company.
If any other person infringes upon the lawful rights and interests of the company and thereby causing losses to the company, the shareholder(s) specified in Paragraph One of this Article may institute proceedings in a people’s court pursuant to the provisions of the preceding two paragraphs.
Article 153: If, in violation of the provisions of laws, administrative regulations or the articles of association of the company, a director or senior management personnel harms the interests of the shareholders, the shareholders may institute proceedings in a people’s court.
PART SEVEN: CORPORATE BONDS
Article 154: For the purposes of this Law, the term "corporate bonds" shall mean valuable securities issued by a company in accordance with statutory procedure, the principal of which such company agrees to repay, together with interest, within a definite time limit.
Issue of corporate bonds by companies shall comply with the conditions for issue stipulated in the PRC, Securities Law.
Article 155: After an issuing company’s application for issuing corporate bonds has been verified and approved by the department authorized by the State Council, it shall announce the method of offer of the corporate bonds.
The method of offer of corporate bonds shall specify the following main particulars:
the name of the company;
the purpose of the funds from the offer of the corporate bonds;
the total amount and the face value of the bonds;
the method of determining the interest rate of the bonds;
the time limit for and method of repayment of the principal together with the interest thereon;
the details of the guarantee for bonds;
the bond price and the opening and closing dates of the bond issue;
the amount of the company's net assets;
the total amount of previously issued corporate bonds that have not yet matured; and
the distributor of the corporate bonds.
Article 156: When a company issues corporate bonds in scrip form, it must clearly record thereon particulars such as the name of the company, the face value of the bond, the interest rate and the time limit for repayment, and the bonds shall be signed by the legal representative and sealed by the company.
Article 157: Corporate bonds may be registered bonds and may also be bearer bonds.
Article 158: When issuing corporate bonds, a company shall prepare a corporate bond counterfoil book.
In the case of an issue of registered corporate bonds, the following particulars shall be recorded in the corporate bond counterfoil book:
the names and domiciles of the bondholders;
the dates on which the bondholders obtained the bonds and the serial numbers of the bonds;
the total amount of the bonds, the face value and the interest rate of the bonds, and the time limit for and method of repayment of the principal together with the interest thereon; and
the date of issue of the bonds.
In the case of an issue of bearer corporate bonds, the following particulars shall be recorded in the corporate bond counterfoil book: the total amount of the bonds, the interest rate, the time limit for and method of repayment, the date of issue and the serial number of the bonds.
Article 159: Registration and clearing institutions of registered corporate bonds shall establish relevant systems such as systems for registration, keeping custody, payment of interest and exchange of bonds.
Article 160: Corporate bonds may be transferred. The transfer price of corporate bonds shall be agreed upon between the transferor and the transferee.
Where the corporate bonds are listed for trading on the stock exchange, they shall be transferred according to the trading rules of the stock exchange.
Article 161: Registered corporate bonds shall be transferred by means of endorsement by the bondholder or such other means as specified in laws and administrative regulations. After the transfer, the company shall record the name and domicile of the transferee in the corporate bond counterfoil book.
A transfer of bearer corporate bonds shall become effective immediately upon delivery of the bonds by the bondholder to the transferee.
Article 162: Upon adoption of a pertinent resolution by the shareholders' general meeting, listed companies may issue corporate bonds convertible into shares. The specific method of conversion shall be stipulated in the method of offer of the corporate bonds. An issue of corporate bonds convertible into shares by a listed company shall be reported to the State Council’s securities regulatory authority for verification and approval.
When issuing corporate bonds convertible into shares, the words “convertible corporate bond” shall be clearly indicated on the bonds, and the amount of convertible corporate bonds shall be recorded in the corporate bond counterfoil book.
Article 163: A company that issues corporate bonds convertible into shares shall issue shares in exchange for such bonds to the bondholders in accordance with the conversion method. However, bondholders shall have an option as to whether or not to convert their bonds into shares.
PART EIGHT: FINANCIAL AFFAIRS AND ACCOUNTING OF COMPANIES
Article 164: Companies shall establish their own financial and accounting systems in accordance with laws, administrative regulations, and regulations of the finance department of the State Council.
Article 165: Companies shall prepare financial and accounting reports at the end of each fiscal year. Such reports shall be audited by an accounting firm according to law.
Financial and accounting reports of companies shall be prepared according to laws, administrative regulations and regulations of the finance department of the State Council.
Article 166: Limited liability companies shall deliver their financial and accounting reports to each of their shareholders within the time limit specified in their articles of association.
The financial and accounting reports of companies limited by shares shall be made available at the company for the perusal of shareholders 20 days before the annual shareholders’ general meeting is held. Companies limited by shares that issue shares to the public must announce their financial and accounting reports.
Article 167: When companies distribute their after-tax profits for a given year, they shall allocate 10% of profits to their statutory common reserve. Companies shall no longer be required to make allocations to their statutory common reserve once the aggregate amount of such reserve exceeds 50% of their registered capital.
If a company’s statutory common reserve is insufficient to make up its losses of the previous years, such losses shall be made up from the profit for the current year prior to making allocations to the statutory common reserve pursuant to the preceding paragraph.
Companies may, if so resolved by the shareholders’ meeting or the shareholders’ general meeting, make allocations to the discretionary common reserve from their after-tax profits after making allocations to the statutory common reserve from the after-tax profits.
A company’s after-tax profits remaining after it has made up its losses and made allocations to its common reserve shall be distributed, in the case of a limited liability company, according to Article 35 hereof and, in the case of a company limited by shares, in proportion to the shareholdings of its shareholders, unless the articles of association of the company limited by shares stipulate that the profits shall not be distributed in proportion to the shareholdings.
If the shareholders’ meeting, shareholders’ general meeting or board of directors violates the preceding paragraph by distributing profits to shareholders before the company has made up its losses and made allocations to the statutory common reserve, the profit distributed in violation of regulations must be returned to the company by the shareholders.
Companies that hold the shares of their own company shall not be entitled to distribution of profits.
Article 168: Companies shall enter under their capital common reserve the premiums earned from the issue of shares above par and such other revenue as the finance department of the State Council requires to be entered under the capital common reserve.
Article 169: Companies shall apply their common reserve to making up their losses, increasing their production and business operations, or increasing their capital by means of conversion. However, the capital common reserve may not be used to make up the losses of the company.
When funds from the statutory common reserve are converted to capital, the funds remaining in such reserve shall amount to not less than 25% of the increased registered capital.
Article 170: The employment and dismissal of accounting firms that handle company’s audit business by the companies shall be decided by the shareholders’ meeting, shareholders’ general meeting and board of directors according to the stipulations of the company’s articles of association.
When the shareholders’ meeting, shareholders’ general meeting or board of directors votes on the dismissal of accounting firms, it shall permit the accounting firm to state its opinion.
Article 171: Companies shall provide to the accounting firm they employ truthful and complete accounting vouchers, account books, financial and accounting reports and other accounting materials, and may not refuse to do so, or conceal or submit untruthful materials.
Article 172: Companies may not establish any account books in addition to those required by law.
No accounts may be opened in the name of any individual for the keeping of a company’s assets.
PART NINE: MERGER AND DIVISION, INCREASE AND REDUCTION OF CAPITAL OF COMPANIES
Article 173: The merger of companies may take the form of merger by absorption or merger by new establishment.
The absorption by one company of one or more other companies shall be merger by absorption, in which case the absorbed company or companies shall be dissolved. The merger of two or more companies and establishment of a new company shall be merger by new establishment, in which case the parties to the merger shall be dissolved.
Article 174: When companies merge, the parties to the merger shall enter into a merger agreement and prepare balance sheets and schedules of property. The companies shall notify their creditors within a period of 10 days commencing from the date on which the merger resolution is passed and, within 30 days, make newspaper announcements of the merger. Creditors may, within a period of 30 days commencing from the date of receipt of the written notification, or within a period of 45 days commencing from the date of the announcement for those who do not receive written notification, claim full repayment or require the provision of a corresponding guarantee from the company concerned.
Article 175: When companies are merged, the surviving company or the newly established company shall succeed to the claims and debts of each party to the merger.
Article 176: When a company is divided, its property shall be divided correspondingly.
When a company is to be divided, it shall prepare a balance sheet and a schedule of property. The company shall notify its creditors within a period of 10 days commencing from the date on which the division resolution is passed and, within 30 days, make newspaper announcement of the division.
Article 177: The joint and several liability for the debts before a company is divided shall be borne by the companies in existence following the division, except where the written agreement on payment of debts reached between the company and the creditors prior to the division stipulate otherwise.
Article 178: When a company needs to reduce its registered capital, it must prepare a balance sheet and a schedule of property.
The company shall notify its creditors within a period of 10 days commencing from the date on which the resolution to reduce the registered capital is passed and, within 30 days, make newspaper announcement of the reduction. Creditors shall, within a period of 30 days commencing from the date of receipt of the written notification, or within a period of 45 days commencing from the date of the announcement for those who do not receive written notification, have the right to claim full repayment or require the provision of a corresponding guarantee from the company.
Following a capital reduction, the amount of a company’s registered capital may not be less than the statutory minimum.
Article 179: When a limited liability company increases its registered capital, the capital contributions to the increase in capital subscribed for by its shareholders shall be handled in accordance with the relevant provision hereof concerning payment of capital contributions in connection with the establishment of a limited liability company.
When a company limited by shares issues new shares to increase its registered capital, shareholders shall subscribe for the new shares in accordance with the relevant provisions hereof concerning the payment of subscription monies in connection with the establishment of a company limited by shares.
Article 180: When the merger or division of a company involves changes in registered particulars, such changes shall be registered according to law with the company registry. When a company is dissolved, it shall cancel its registration according to law. When a new company is established, its establishment shall be registered according to law.
When a company increases or reduces its registered capital, it shall register the change with the company registry.
PART TEN: DISSOLUTION AND LIQUIDATION OF COMPANIES
Article 181: A company shall be dissolved as a result of the following:
when the term of operation as specified in the company's articles of association expires or another reason for dissolution as specified in the company's articles of association arises;
if the shareholders’ meeting or shareholders’ general meeting resolves to dissolve the company;
if dissolution is necessary as a result of the merger or division of the company;
its business licence has been revoked, or it is ordered to close down or is banned according to law; or
it is ordered to be dissolved by the people’s court according to Article 183 hereof.
Article 182: Where a company is in the circumstance specified in Item (1) of Article 181 hereof, it may continue to exist through amendment of the company’s articles of association.
Where the company’s articles of association are amended according to the preceding paragraph, the matter shall be adopted by two-thirds or more of the voting rights of the shareholders in the case of a limited liability company, or two-thirds or more of the voting rights of the shareholders present at the shareholders’ general meeting in the case of a company limited by shares.
Article 183: Where there are serious difficulties in the operation and management of the company and the continual existence would cause major losses to the rights and interests of the shareholders, and the matter cannot be resolved through other means, shareholders representing 10% or more of the voting rights of all shareholders of the company may petition to the people’s court for dissolution of the company.
Article 184: When a company is to be dissolved pursuant to Item (1), (2), (4) or (5) of Article 181 hereof, it shall establish a liquidation committee and commence liquidation within 15 days of the date of occurrence of the grounds for dissolution. In the case of a limited liability company, such liquidation committee shall be composed of its shareholders. In the case of a company limited by shares, such liquidation committee shall be composed of persons decided upon by the directors or shareholders’ general meeting. If no liquidation committee is established and liquidation is not carried out within the time limit, creditors may request the people’s court to designate relevant persons to form a liquidation committee and carry out liquidation. The people’s court shall accept such request and timely organize a liquidation committee to carry out liquidation.
Article 185: A liquidation committee shall exercise the following functions and powers during liquidation:
to thoroughly examine the property of the company and prepare a balance sheet and a schedule of property, respectively;
to notify creditors by notice or announcement;
to dispose of and liquidate relevant unfinished business of the company;
to pay all outstanding taxes in full as well as taxes arising in the course of liquidation;
to clear the claims and debts;
to dispose of the property remained after full payment of the company's debts; and
to participate in civil litigation activities on behalf of the company.
Article 186: A liquidation committee shall notify creditors within a period of 10 days commencing from the date of its establishment and, within 60 days, make newspaper announcement of the liquidation. Creditors shall, within a period of 30 days commencing from the date of receipt of the written notification, or within a period of 45 days commencing from the date of the announcement for those who do not receive written notification, declare their claims to the liquidation committee.
When declaring their claims, creditors shall explain relevant particulars of their claims and provide supporting material. Claims shall be registered by the liquidation committee.
During the period of declaration of claims, the liquidation committee may not repay the debts to the creditors.
Article 187: After a liquidation committee has thoroughly examined the company's property and prepared a balance sheet and a schedule of property, it shall formulate a liquidation plan and submit the same to the shareholders' meeting, shareholders' general meeting or the people’s court for confirmation.
The property of a company remained after the property is respectively applied to payment of the liquidation expenses, the wages, social insurance premiums and statutory compensation of staff and workers and the outstanding taxes, and to full payment of the debts of the company shall be distributed, in the case of a limited liability company, in proportion to the capital contributions of its shareholders and, in the case of a company limited by shares, in proportion to the shareholdings of its shareholders.
During liquidation, a company shall continue to exist, but it may not engage in new business activities unrelated to liquidation. Company property may not be distributed among shareholders prior to full repayment in accordance with the stipulations of the preceding paragraph.
Article 188: If the liquidation committee, having thoroughly examined the company's property and prepared a balance sheet and a schedule of property, discovers that the company's property is insufficient to pay its debts in full, it shall apply to the people's court for declaration of insolvency according to law.
After the people's court has ruled to declare the company insolvent, the company's liquidation committee shall turn over the liquidation matters to the people's court.
Article 189: Following the completion of liquidation, the liquidation committee shall compile a liquidation report and submit the same to the shareholders' meeting, shareholders' general meeting or the people’s court for confirmation, as well as to the company registry. In addition, the liquidation committee shall apply for cancellation of the company's registration and announce the company's termination.
Article 190: Members of a liquidation committee shall be faithful in the discharge of their duties and perform their liquidation obligations according to law.
Members of a liquidation committee may not abuse their authority to accept bribes or other illegal income and may not seize company property.
If members of a liquidation committee willfully or through gross negligence cause loss to the company or its creditors, they shall be liable for compensation.
Article 191: Where a company is declared bankrupt according to law, it shall be subject to insolvency liquidation according to the laws on enterprise insolvency.
PART ELEVEN: BRANCHES OF FOREIGN COMPANIES
Article 192: For the purposes of this Law, the term “foreign companies” shall mean companies incorporated outside the PRC in accordance with a foreign country’s law.
Article 193: To establish a branch in the PRC, a foreign company shall file an application with China's competent authority and submit relevant documents such as its articles of association, the company registration certificate issued by its country, etc. Upon approval, it shall carry out registration procedures with the company registry according to law and obtain a business licence.
Measures for examination and approval of branches of foreign companies shall be separately determined by the State Council.
Article 194: A foreign company that establishes a branch in the PRC must designate a representative or agent in the PRC to be responsible for such branch and shall allocate an amount of funds to such branch commensurate with the business activities in which it is to engage.
If it is necessary to prescribe a minimum amount of operating funds of branches of foreign companies, such amount shall be separately prescribed by the State Council.
Article 195: The name of a branch of a foreign company shall indicate the nationality and form of liability of such foreign company.
The branch of a foreign company shall keep at its office a copy of such foreign company's articles of association.
Article 196: Branches established in the PRC by foreign companies shall not have the status of Chinese legal persons.
Foreign companies shall be civilly liable for the business activities carried out in the PRC by their branches.
Article 197: The business activities engaged in within the PRC by foreign companies' branches that have been established upon approval must comply with the law of China and may not harm China's public interest. The lawful rights and interests of such branches shall be protected by the laws of China.
Article 198: When a foreign company closes its branch in the PRC, it must pay its debts in full according to law and carry out liquidation in accordance with the provisions of this Law concerning company liquidation procedure. Such foreign company may not transfer its branch's property out of the PRC prior to full payment of its debts.
PART TWELVE: LEGAL LIABILITY
Article 199: If, in violation of the provisions hereof, company registration is obtained by means of reporting a false amount of registered capital or by submitting false materials or resorting to other fraudulent methods to conceal major facts, the company registry shall order rectification and, in the case of a company that reported a false amount of registered capital, the company shall be fined not less than 5% and not more than 15% of the false amount of registered capital and, in the case of a company that submitted false materials or resorted to other fraudulent methods to conceal major facts, the company shall be fined not less than Rmb 50,000 and not more than Rmb 500,000. In serious cases, the company’s registration or the business licence shall be revoked.
Article 200: If promoters or shareholders of a company make false capital contributions by failing to pay or deliver or pay or deliver according to schedule currency or non-currency property as capital contribution, the company registry shall order rectification, and a fine of not less than 5% and not more than 15% of the amount of false capital contribution shall be imposed.
Article 201: If promoters or shareholders of a company surreptitiously withdraw their capital contributions after the company has been established, the company registry shall order rectification, and a fine of not less than 5% and not more than 15% of the amount of capital contribution withdrawn surreptitiously shall be imposed.
Article 202: If a company violates this Law by establishing account books in addition to those required by law, the finance department of the people’s government at county level or above shall order rectification, and a fine of not less than Rmb 50,000 and not more than Rmb 500,000 shall be imposed.
Article 203: If a company makes false record or conceals major facts in the materials provided to the relevant department in charge such as the financial and accounting reports, the relevant department in charge shall impose a fine of not less than Rmb 30,000 and not more than Rmb 300,000 on the personnel in charge that are directly responsible and other directly responsible personnel.
Article 204: If a company fails to make allocations to the statutory common reserve in accordance with the provisions hereof, the finance department of the people’s government at county level or above shall order the company to allocate the full amount to be allocated, and may impose a fine of not more than Rmb 200,000 on the company.
Article 205: If a company, when being merged or divided, reducing its registered capital or carrying out liquidation, fails to notify its creditors or to announce the same to its creditors in accordance with the provisions hereof, the company registry shall order rectification, and the company shall be fined not less than Rmb 10,000 and not more than Rmb 100,000.
If a company in liquidation conceals property, records false information in its balance sheet or schedule of property or distributes company property prior to full payment of its debts, the company registry shall order rectification, and the company shall be fined not less than 5% and not more than 10% of the amount of property concealed or the amount of company property distributed prior to full repayment of its debts. The personnel in charge that are directly responsible and other directly responsible personnel shall be fined not less than Rmb 10,000 and not more than Rmb 100,000.
Article 206: If a company, during the period of liquidation, engages in business activities unrelated to liquidation, the company registry shall issue a warning and confiscate the illegal income.
Article 207: If a liquidation committee fails to submit a liquidation report to the company registry in accordance with the provisions hereof or if the liquidation report submitted conceals major facts or contains major omissions, the company registry shall order rectification.
If members of a liquidation committee use their authority to engage in graft, seek illegal income or seize company property, the company registry shall order them to return the company property, confiscate the illegal income and may impose a fine of not less than the amount of and not more than five times the illegal income.
Article 208: If an organization undertaking asset valuation, capital verification or other verification provides sham materials, the company registry shall confiscate its illegal income, impose a fine of not less than the amount of and not more than five times the amount of the illegal income, and the relevant departments in charge may order the organization to cease business, revoke the qualification certificates of the personnel directly responsible and revoke the business licence according to law.
If an organization undertaking asset valuation, capital verification or other verification provides a report containing serious omissions due to negligence, the company registry shall order rectification. If the circumstances are relatively serious, it shall be fined not less than the amount of and not more than five times revenue obtained and, in addition, the relevant departments in charge may order the organization to cease business, revoke the qualification certificates of the personnel directly responsible and revoke the business licence according to law. If the valuation result, capital verification or other verification issued by an organization undertaking asset valuation, capital verification or other verification is proved to be false, thereby causing losses to the creditors of a company, the organization shall bear the liability for compensation to the extent of the amount of the false valuation or verification unless it is able to prove that it is not at fault.
Article 209: If a company registry grants registration to an application for registration that does not satisfy the conditions set forth herein, or does not grant registration to an application that satisfies the conditions set forth herein, administrative penalty shall be imposed on the personnel in charge that are directly responsible and on other directly responsible personnel according to law.
Article 210: If authorities at a level higher than a company registry force the company registry to grant registration to an application for registration that does not satisfy the conditions set forth herein or not to grant registration to an application for registration that satisfies the conditions set forth herein, or if they cover up an illegal registration, administrative penalty shall be imposed on the personnel in charge that are directly responsible and on other directly responsible personnel according to law.
Article 211: If an entity that has not been registered according to law as a limited liability company or company limited by shares passes itself off as a limited liability company or company limited by shares, or an entity that has not been registered according to law as the branch of a limited liability company or company limited by shares passes itself off as the branch of a limited liability company or company limited by shares, the company registry shall order rectification or close down the entity, and may impose a fine of not more than Rmb 100,000.
Article 212: If a company without proper reason fails to commence business within six months following its establishment or, after having commenced business, voluntarily suspends business for more than six months, its business licence may be revoked by the company registry.
If a change occurs in a particular of company registration and the relevant change is not registered in accordance with regulations, the company registry shall order registration within a time limit and, if registration procedures are not carried out within such time limit, a fine of not less than Rmb 10,000 and not more than Rmb 100,000 shall be imposed.
Article 213: If a foreign company violates the provisions hereof by establishing a branch in China without authorization, the company registry shall order rectification or shut down the branch, and may impose a fine of not less than Rmb 50,000 and not more than Rmb 200,000.
Article 214: If serious illegal acts that harm State security and social and public interests are carried out in the name of the company, the business licence shall be revoked.
Article 215: Companies that violate the provisions hereof shall assume civil liability for compensation and be subject to fines, and such company's property is insufficient to pay such compensation and fine, it shall first assume civil liability for compensation.
Article 216: Where the provisions hereof are violated and a criminal offence is constituted, criminal liability shall be pursued according to law.
PART THIRTEEN: SUPPLEMENTARY PROVISIONS
Article 217: The meanings of the following terms in this Law:
“senior management personnel” means the manager, deputy manager and person in charge of financial affairs of a company and, in the case of a listed company, the secretary to the board of directors and other personnel specified in the articles of association.
“controlling shareholder” means the shareholder whose capital contribution accounts for 50% or more of the total capital of a limited liability company or whose shareholding accounts for 50% or more of the total share capital of a company limited by shares; or the shareholder whose capital contribution or shareholding is less than 50% but whose voting rights pursuant to such capital contribution or shareholding are sufficient to have a major impact on the resolutions of the shareholders’ meeting or shareholders’ general meeting.
“de facto controlling person” means a person who, although not a shareholder of the company, is capable of actually controlling the conduct of the company through investment relations, agreements or other arrangements.
“affiliation” means the relationship between the controlling shareholder, de facto controlling person, director, supervisor or senior management personnel of a company and an enterprise directly or indirectly by him as well as any other relationship that may lead to a transfer of the interests of the company. However, there shall be no affiliation between State-controlled enterprises merely due to the fact that the State has a controlling interest in both of them.
Article 218: This Law shall apply to foreign-invested limited liability companies and companies limited by shares. Where laws on foreign investment have other stipulations, such stipulations shall apply.
Article 219: This Law shall be implemented as of 1 January 2006. |
