Company Law in China

Prior to the 1978, there wasn't the concept of “Company”; all economic entities were belonging to the state or the country, Economic sector was managed or controlled by the government only. It was not necessary for people to form an economic entity to carry out their business because there wasn't private owned business. There were state owned enterprise and governmental entities to carried out business. The state owned enterprise did not responsible to bear the profits & losses individually. They were following administrative advices or country's strategies to operate their business.

Until 1978, as consequence of China's domestic economic reform and was opened to the outside economy, to help the country transitional period from a planned economy to the make economy smoothly. The concept of “company” was reintroduced into Chinese history. It is necessary for people to operation their business and responsible to bear the profits & losses, and dealing with other entities to ensure competitive for survival and success in the market.

There are different business entities in China, limited liability company, joint stock company limited, individual owned company, Chinese-foreign equity joint ventures, Chinese-foreign contractual joint ventures and wholly-foreign owned company.

A New Era of Company Law

On October 27, 2005, a new company law has been Enacted at the Tenth National People’s Congress of the People’s Republic of China and promulgated on the same day by the President of China and came into force as of January 1, 2006.

1. Eliminated the proportional limit for investment abroad of company asset.
(Article 15 A company may invest in other enterprises. However, unless it is otherwise provided for by any law, it shall not become a capital contributor that shall bears several and joint liabilities for the debts of the enterprises it invests in.)

2. Company investment in any other enterprise or provide guaranty for others.
(Article 16 Where a company intends to invest in any other enterprise or provide guaranty for others, it shall, under its articles of association, make a resolution through the board of directors, shareholders’ meeting or shareholders’ assembly. If the articles of association prescribe any limit on the total amount of investments or guaranties, or on the amount of a single investment or guaranty, the aforesaid total amount or amount shall not exceed the limited amount. If a company intends to provide guaranty to a shareholder or actual controller of the company, it shall make a resolution through the shareholder’s meeting or shareholders’ assembly.)

3. The minimum amount of registered capital of a limited liability company shall be RMB 30, 000 yuan, the margin shall be paid off within 2 to 5 years.
(Article 26 The registered capital of a limited liability company shall be the total amount of capital contributions subscribed to by all the shareholders registered in the company registration authority. The amount of the initial capital contributions made by all shareholders shall not be less than 20% of the registered capital, nor less than the statutory minimum amount of registered capital, the margin shall be paid off by the shareholders within 2 years from the day when the company is established; for an investment company, it may be paid off within 5 years. The minimum amount of registered capital of a limited liability company shall be RMB 30, 000 yuan. If any law or administrative regulation prescribes a relatively higher minimum amount of registered capital of a limited liability company, the provisions of that law or administrative regulation shall be followed.)

4. The amount of the capital contributions in cash paid by all the shareholders shall be no less than 30% of the registered capital of the limited liability company.
(Article 27 A shareholder may make capital contributions in cash, in kind, or intellectual property right, land use right or other non-monetary properties that may be assessed on the basis of currency and may be transferred in accordance with the law, excluding the properties that shall not be treated as capital contributions under any law or administrative regulation.

The value of the non-monetary properties as capital contributions shall be assessed and verified, which shall not be over-valued or under-valued. If any law or administrative regulations provides for the value assessment, such law or administrative regulation shall be followed.

The amount of the capital contributions in cash paid by all the shareholders shall be no less than 30% of the registered capital of the limited liability company. )shall make a resolution through the shareholder’s meeting or shareholders’ assembly.)

To be continue….