China’s legislature has adopted an amendment to the China Company Law, passing sweeping changes to company capital rules, corporate governance structures, liquidation procedures, and shareholder rights, among others.The China revised company law has come into effect on July 1, 2024.What are key changes?
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1.Changes to subscribed capital payment terms for LLCs – Capital contribution within five years .
2.Changes to corporate governance structures – Establishment of an audit committee.
One of the major changes in the 2023 Company Law is the provision to allow LLCs and joint-stock companies to establish an “audit committee” within the board of directors, in which case it would not need to establish a board of supervisors (or appoint any supervisors). The audit committee can be “composed of directors on the board of directors and exercise the powers of the board of supervisors”.Now one person is okay to register a company in China .
3.Public information disclosure – for companies to publicly disclose details on their registered capital:
(1)The amount of registered capital and shareholder contributions
(2)The payment date and method
(3)Modifications to the equity and shareholder share information in LLCs
(4)Along with mandated disclosures, heftier penalties will apply for non-compliance or inaccurate reporting.
4.Greater flexibility in appointing a legal representative – The new law amendments broaden the pool of candidates for this position, permitting any director or manager who carries out the company’s affairs on its behalf to serve as its legal representative. In case the legal representative resigns, a successor must be appointed within 30 days.
5.Streamlined company deregistration – The recent revisions to China’s Company Law introduce new procedures that make it easier for qualified companies to shut down their WFOE. Companies that have not incurred any debts during their existence, or paid off all their debts simply need to announce their intent publicly for 20 days. If no objections are raised, they can complete deregistration within 20 more days by applying to authorities.
For foreign companies already doing business in China, as well as those considering entering the Chinese market would be wise to examine the new developments closely for better operation in China.
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