CHINA (PRC FIRMS): An Introduction to Corporate/Commercial: Shanghai
Key changes and new legislative trends in the revised draft of the PRC Company Law
中国公司法修订草案的主要变化和新立法趋势
On 24 December 2021, the Standing Committee of the PRC National People’s Congress published the Company Law of the People’s Republic of China (Revised Draft for Comments) (the “Draft”). The Draft comprises 15 chapters and 260 articles in total, in which approximately 70 articles are substantially added or modified in comparison with the current PRC Company Law (the “Company Law”). The Draft is regarded as a new systematic revision of the Company Law, while the last amendment of such material degree could be traced back to 2005 with some small revisions made in 2013 and 2018. In accordance with the Foreign Investment Law, the Company Law is also applicable to the foreign-invested companies located in China.
2021年12月24日，中华人民共和国全国人民代表大会常务委员会公布了《中华人民共和国公司法（修订草案）》（征求意见稿）（以下简称“草案”）。本次草案共15章260条，在现行公司法13章218条的基础上，实质新增和修改70条左右。本次草案被视为是对现行公司法的全面系统修订，而上一次立法机构对公司法的大修是在2005年，并于2013年、2018年分别对部分条文进行了小修。根据《外商投资法》规定，中国境内外商投资企业也适用公司法。
This article provides a brief overview of the major highlights and changes of the Draft, the new legislative trends, and the relevant impact on company investors as well as the management personnel.
本文将对草案的亮点和主要变化及其体现出的立法趋势和对公司投资者和董事监事高级管理人员的相关影响做一概览。
1. Removing limitations on the number of investors for establishment of a company and specifying the regulations of capital contribution
1. 放松公司设立人数限制，对出资规定予以细化
(1) For the first time, the Draft allows the joint stock limited company to be established by one person. However, it still maintains the provision that most investors shall be domiciled within the territory of the People's Republic of China. We understand that means a sole shareholder joint stock limited company could only be set up by a domestic natural person or legal person, while foreign investors still face a legal obstacle to establish a sole foreign shareholder joint stock limited company in China. At the same time, the Draft deletes the provision that “one natural person could only set up one sole shareholder limited liability company” of the current Company Law, which seems to be investment incentives to boost the economy.
(1) 草案首次允许股份有限公司可由一人设立，但保留了需要半数以上发起人在中华人民共和国国境内有住所的规定。我们理解这意味着一人股份有限公司可以由一个境内自然人或一个境内法人设立，但是对于外国投资者来说，仍然无法在中国境内设立一人外商独资股份有限公司。同时草案也删除了现行公司法中关于“一个自然人只能投资设立一个一人有限责任公司”的限制规定，体现了鼓励投资、促进市场活力的导向。
(2) Giving flexibility regarding the types and issuance of shares of joint stock limited company
a) Introducing the authorised capital system: The Draft allows that the articles of association or the shareholders’ meeting of a company could authorise the board of directors to decide the issuing of new shares under the circumstance that the issuance of new shares does not exceed 20% of the total shares. This update seems to have absorbed the general practice in many common law countries and will look familiar to foreign investors. Apparently, compared to the current laws, it simplifies the procedure of the new shares issuance and increases the efficiency so that the company could raise funds in time to expand its production and operation.
b) Allowing the joint stock limited company to issue different types of shares: In addition to current ordinary shares, the Draft allows a joint stock limited company to issue preferred shares, deferred shares, shares with special voting rights, shares with restriction on transfer and other classified shares. This is a significant modification to the Company Law and obviously will create a more attractive market for the investors.
(2) 对股份有限公司股份种类及发行做出灵活化处理
a) 引入授权董事会发行股份制度: 草案规定在公司已发行股份代表的表决权总数百分之二十的情形下，章程或股东会可授权董事会决定发行新股。该制度对于普通法投资者来说应该并不陌生，本次修改应该是吸收了普通法国家的通行做法。显然，和现行公司法相比，草案简化了新股发行程序并提高了发行效率，有利于公司及时获得资本扩大生产经营。
b) 允许股份有限公司发行多种类别股: 除普通股以外，草案新增可发行优先股、劣后股、特殊表决权股、转让受限股等。这是对现行公司法的重大修改，毫无疑问将增加对投资者的吸引力。
(3) Stock rights, creditor's rights can be utilised for capital contribution.
3）公司出资方式新增“股权、债权”。
We believe, the revisions will add international elements and practice to the company law, boost the vitality and creativity of the market as well as promote the convenience of transactions.
我们相信，上述修改将使公司法变得更加国际化，为市场注入活力和创新，并促进交易便利性。
2. Optimising organizational structure
2. 优化公司组织结构
(1) Simplifying the governing structure of a company: As we all know, the governing structure of a PRC company includes board of directors /executive director, board of supervisors (or one or two supervisors in a small company) and senior managers under the Company Law, in which the concept of “supervisors” is quite of Chinese characteristics and there is no such equivalent concept in common law jurisdictions. This time, the Draft simplifies the governing structure by adding provisions that board of supervisors/supervisors could be replaced by an audit committee composed of directors and the position of general manager is no longer compulsory. Another example is that the number of the board members in a joint stock limited company is relaxed from 5-19 directors to more than three and with no cap.
(1) 草案简化了公司治理结构的规定: 众所周知，现行公司法将公司组织结构分为董事会/执行董事、监事会（或对小公司来说一至两个监事）和经理三个机构。其中监事制度，是比较有中国特色的，普通法中并无相关对应概念。草案对此予以了简化，比如新增了可以不设监事会或监事的情形，改为设置由董事组成的审计委员会替代，股份有限公司经理职位不再强制要求设置。再比如调整股份有限公司董事会人数从5人至19人为3人以上。
(2) An obligatory provision is added in the Draft that the board of directors shall have not only shareholders’ representatives but also employee representatives for a company with more than 300 employees, while only state-owned companies are required to have employee representatives in the board under the Company Law. We suppose that this provision might be controversial, however, should it be passed, at least one employee representative shall be elected as director for all the large and medium-sized private and foreign-invested companies.
(2) 草案新增职工300人以上的公司除股东代表董事外必须有职工代表董事，而现行公司法仅规定国有企业董事会成员中需有职工代表。我们认为本条将较为具有争议性，然而如本条获得通过，则意味着将来中大型的民营企业、外商投资企业都需要设置职工代表董事。
(3) Additional requirements are found in the Draft regarding the quorum and voting of directors’ meeting in contrast with the corresponding articles in the Company Law which give the autonomy of quorum and voting to companies' articles of association. To be specific, the Draft requires that a meeting of the board of directors can only be held when more than half of the directors are present, and the board resolution is valid only if it is approved by more than half of all directors. It is difficult to conclude whether it is more strict or neutral, as each company may have a different situation. However, the additional law in the Draft at least provides a criterion.
(3) 草案新增对董事会出席人数、表决的新要求，而现行公司法则将此交由章程自行约定。具体而言，草案要求董事会会议应有过半数的董事出席方可举行，并且须经全体董事的过半数通过的决议才有效。该项条款是更严格还是更平和难以定论，因为每个公司可能面临不同情况，但至少草案中新增的法律提供了一个标准。
It is estimated that these changes will have a great impact on corporate governance. Companies are expected to adjust the relevant personnel and organisational structure if the Draft is adopted by the legislative authorities.
上述变化预计将对公司治理产生较大影响，如草案获得通过，公司需要进行调整相关人员和组织结构。
3. Enhancing the obligations of directors and senior managers (“management personnel”)
3. 强化董事和高级管理人员（“董事、高管”）的责任
(1) A series of regulations on related party transactions are added. For instance, the Draft specifies the affiliated directors’ reporting obligation and avoidance of voting, while such requirements only exist in the listing companies pursuant to the current laws.
(1) 新增与关联交易有关的系列规定。例如，增加了关联董事的报告义务和回避表决等一系列的规定，而该等规定在现有法律法规中仅在上市公司的监管规定中体现。
(2) It is stipulated in the Draft that the liquidation obligors of a company become directors instead of shareholders in the Company Law. Besides, these directors shall be liable for the loss of the company or the creditors if they fail to perform their liquidation duties timely.
(2) 公司清算义务人由股东修改为董事。相应增加董事作为清算义务人未及时清算的赔偿责任。
(3) The circumstances under which management personnel shall assume compensation liabilities become broader in the Draft. For instance, it is added that management personnel have the obligation to check shareholders’ subscription of capital contribution, make sure the company distributes profits or reduce registered capital legally. Failing those, the management personnel may be liable for the loss of the company.
(3) 增加董事、高管承担赔偿责任的情形，比如新增董事、高管核查股东出资义务、向股东分配利润或减资的合规性。如果董事、高管未行使相关职责的则面临对因此造成的公司损失承担赔偿责任。
(4) It is also specified in the Draft that any management personnel who cause damage to others intentionally or by gross negligence while performing duties shall be jointly and severally liable with the company.
(4) 新增规定董事、高管执行职务因故意或重大过失造成他人损害的，与公司承担连带责任。
We can find that the Draft sets higher demand on management personnel. It is suggested for management personnel to attach importance to these changes, take effective precautions against the risks and avoid violation.
以上修改都进一步对董事、高管的行为予以了约束和规范，建议董事、高管对此予以重视，并采取有效措施加以防范，避免违法违规。
4. Promoting and admitting electronic methods and information system
4.推进和承认信息化手段和电子化信息系统
(1) The validity of the electronic business licence is confirmed in the Draft.
(1) 电子营业执照的效力得到认可。
(2) In addition to traditional newspaper, the unified enterprise information publicity system is accepted as a mean of announcement for invalidation of business licence, merger, separation, and reduction of capital.
(2) 除传统报纸外，草案将统一的企业信息公示系统作为公司营业执照作废、公司合并、分立、减资的公告途径。
(3) It is also added in the Draft that shareholders' meetings or meetings of the board of directors could be conducted in an electronic way pursuant to the company's articles of association.
(3) 新增股东会、董事会可以按公司章程规定采用电子通讯方式进行。
It is understood that the above revisions are adapting to the changes of the times and will further benefit companies to increase efficiency and reduce the transaction costs.
上述修改体现了法律顺应时代变化，有助于公司进一步提高效率、降低交易成本。
In conclusion, the Draft provides significant innovation and improvement on the Company Law. The Draft is more international, modernised and offers market participants greater autonomy, while it also reflects legislative authorities’ intention to protect creditors' and employees’ rights.
总体而言，草案对现行公司法进行了较大改动，草案更加的国际化、现代化、给予市场参与者更多自由，但同时也体现了立法机关保护债权人、职工利益的立法意图。