Company Law of the People's Republic of China (Amended in 1999)

Company Law of the People's Republic of China (Amended in 1999)

Order of the President [1999] No. 29

Dec 25, 1999

(Adopted by the Fifth Session of the Standing Committee of the Eighth National People's Congress on December 29, 1993 and promulgated by the Order of the President [1993] No.16, and amended according to the Decision of the 13th Session of the Standing Committee of the Ninth National People's Congress on Revising the Company Law of the People's Republic of China adopted on December 25, 1999.)

Contents
Chapter I General Provisions
Chapter II Establishment and Organizational Structures of Limited Liability Companies
Section 1 Establishment
Section 2 Organizational structures
Section 3 State Companies with Exclusive Investment
Chapter III Establishment and Organizational Structures of Share-holding Limited Companies
Section 1 Establishment
Section 2 Assembly of Shareholders
Section 3 The Board of Directors and the Manager
Section 4 The Board of Supervisors
Chapter IV Issue and Transfer of the Shares of Share-holding Limited Companies
Section 1 Issue of Shares
Section 2 Transfer of Shares
Section 3 Listed Companies
Chapter V Company Bonds
Chapter VI Financial Affairs and Accounting of Companies
Chapter VII Merger and Split of Companies
Chapter VIII Bankruptcy, Dissolution and Liquidation of Companies
Chapter IX Branches of Foreign Companies
Chapter X Legal Responsibility
Chapter XI Supplementary Provisions

Chapter I General Provisions

Article 1 This Law is formulated in accordance with the Constitution in order to meet the need of establishing a modern enterprise system, standardize the organization and behavior of companies, protect the lawful rights and interests of companies, shareholders and debtees, maintain social economic order, and promote the development of socialist market economy.

Article 2 "Companies" as the term is used in this Law refers to limited liability companies and share-holding limited companies established within the territory of China in accordance with this Law.

Article 3 Limited liability companies and share-holding limited companies are enterprise legal persons.
In a limited liability company, shareholders bear limited responsibility for the company according to their amounts of investment, while the company bears responsibility over its debts by relying upon its total assets.
In a share-holding limited company, all the capital of the company is divided into equal shares and shareholders bear limited responsibility for the company according to the number of shares they hold, while the company bears responsibility over its debts by relying upon its total assets.

Article 4 As investors, shareholders of a company enjoy such powers as to make profits from owners' assets, to make major decisions and to select management personnel according to their investment in the company's capital.
Companies enjoy the right over all the legal properties created with investment by shareholders, are entitled to civil rights according to law and bear civil responsibilities.
Ownership of state properties in a company belongs to the state.

Article 5 Companies use all of their legal properties to operate autonomously according to law and are responsible for their gains and losses.
Under the state macro regulation and control, companies shall autonomously organize their productions and operations according to market demands with the purpose of improving their economic results and labor productivity as well as maintaining and multiplying the value of their assets.

Article 6 Companies implement an internal management system of being clear about powers and responsibilities, scientific management and integrating stimulus and restraint.

Article 7 A state-owned enterprise must, if transforming into a company, change its operation mechanism, sort out properties and verify assets in a step-by-step way, define the ownership of properties, clear up financial claims and obligations, evaluate assets and set up standard internal management organs in accordance with the conditions and requirements as provided by laws and administrative regulations.

Article 8 The establishment of limited liability companies and share-holding limited companies must conform to the conditions as provided by this Law. Those that qualify for the conditions as provided by this Law are registered as limited liability companies or share-holding limited companies; those that do not qualify for the conditions as provided by this Law may not be registered as limited liability companies or share-holding limited companies.
If it is provided in laws or administrative regulations that the establishment of companies must be subject to examination and approval, such examination and approval procedures shall be gone through according to law prior to their registration.

Article 9 A limited liability company set up in accordance with this Law must include in its name the words of "limited liability company".
A share-holding limited company set up in accordance with this Law must include in its name the words of "share-holding limited company".

Article 10 A company shall reside at the place where its major working body is located.

Article 11 In establishing a company, company articles of association must be formulated pursuant to this Law. This article of association has binding force to the company, its shareholders, directors, supervisors, and managers.
The business scope of a company is provided by its articles of association and registered according to law. An item in the business scope of a company which is subject to restrictions by laws or administrative regulations shall be subject to approval according to law.
A company shall operate within its registered business scope. A company may change its business scope after amending its articles of association in line with legal procedures and registering the changes with the company registration organ.

Article 12 A company may invest in other limited liability companies and share-holding limited companies and bears, according to the amount of investment it makes, limited responsibility to the company in which it invests.
Except for investment companies and holding companies listed by the State Council, the accumulative investment made by a company in other limited liability companies and share-holding limited companies may not exceed 50 per cent of the net assets of this company without accounting the amount of the extra capital multiplied with profits from the company which it invests.)
(Relevant articles: Legislation 1)

Article 13 A company may set up a branch or branches, the branch or branches does not have the status of enterprise legal persons, and their civil responsibility shall be borne by the company.
A company may set up constituent companies, these constituent companies have the status of enterprise legal persons, and independently bear civil responsibility according to law.

Article 14 A company must, during its business operations, abide itself by laws, observe professional morality, strengthen construction of socialist spiritual civilization, and subject itself to the supervision of governments and the social public.
The lawful rights and interests of a company are protected by law and saved from any encroachment or infringement.

Article 15 A company must safeguard the lawful rights and interests of its staffs and workers, strengthen labor protection, and guarantee safety in production.
A company shall try to strengthen the vocational education and in-work training of its staffs and workers in various forms so as to improve their professional quality.

Article 16 Staffs and workers of a company organize the trade union, stage trade union activities and safeguard the lawful rights and interests of staffs and workers according to law. A company shall provide necessary conditions for its trade union to stage activities.
State companies with exclusive investment and limited liability companies formed by more than two state-owned enterprises or more than two other enterprises with the state as the major body of investor shall exercise democratic management through the staffs and workers' representative assembly or other forms in accordance with the provisions of the Constitution and other relevant laws.

Article 17 The grassroots organizations of the Communist Party of China in a company shall carry out activities according to the Constitution of the Communist Party of China.

Article 18 This Law applies to limited liability companies with foreign investment, where it has been provided otherwise in laws governing Sino-foreign equity joint ventures, Sino-foreign cooperative ventures and ventures with exclusive foreign investment, these other provisions are applicable.

Chapter II Establishment and Organizational Structures of Limited Liability Companies

Section 1 Establishment

Article 19 For setting up a limited liability company, the following conditions shall be met:
1. a legal number of shareholders;
2. investment by shareholders amounting to the minimum quota of the legal capital;
3. devising company articles of association jointly by shareholders;
4. having a company name and organizational structures as required for a limited liability company;
5. having a fixed site and necessary conditions for carrying out production and business operation.

Article 20 A limited liability company is set up with the joint investment from more than two and less than 50 shareholders.
Investment organizations and departments authorized by the state may independently invest in and set up limited liability companies with exclusive state investment.)
(Relevant articles: Legislation 1)

Article 21 State-owned enterprises set up prior to the entry into effect of this Law may be transformed into limited liability companies with exclusive state investment in accordance with this Law if they qualify for the conditions as provided by this Law on the establishment of limited liability companies and stand as independent mainstream investors; if they are multiple mainstream investors, they may be transformed into limited liability companies as provided in the first paragraph of the preceding article.
Implementing steps and concrete measures governing the transformation of state-owned enterprises into companies are prescribed by the State Council separately.

Article 22 The articles of association of a limited liability company shall include the following contents:
1. name and domicile of the company;
2. business scope of the company;
3. registered capital of the company;
4. names or designation of shareholders;
5. rights and obligations of shareholders;
6. form and amount of investment by shareholders;
7. conditions for shareholders to transfer their investment;
8. company organizations and their establishment, functions and powers, and rules of procedure;
9. legal representative of the company;
10. causes for the dissolution of the company and measures governing its liquidation;
11. other contents are deemed as necessary by shareholders.
Shareholders shall put signatures and affix seals to the company articles of association.

Article 23 The registered capital of a limited liability company is the investment actually paid by all its shareholders and registered at the company registration organ.
The registered capital of a limited liability company may not be smaller than the minimum amounts specified below:
1. CNY500,000 for a company with production and operation as its major line of businesses;
2. CNY500,000 for a company with wholesaling of commodities as its major line of businesses;
3. CNY300,000 for a company with commercial retailing as its major line of businesses;
4. CNY100,000 for a company specializing scientific and technical development, consulting, and services.
Where the minimum amount of the registered capital of limited liability companies in special sectors have to be bigger than the amount specified in the preceding paragraph, the amount is provided by laws or administrative regulations separately.

Article 24 Shareholders may make investment either in cash or in kind, or in the form of industrial property, non-patented technology, or land-use rights. The materials, industrial property, non-patented technology and land-use rights to be used as investment must be evaluated, priced, and verified, and neither overestimation nor underestimation is allowed during their pricing. The evaluation and pricing of land-use rights are carried out in accordance with the provisions of laws or administration regulations.
The investment amount made in the form of industrial property and non-patented technology may not exceed 20 per cent of the registered capital of a limited liability company, except for cases which the state has promulgated special provisions on the use of high and new technology.

Article 25 Shareholders shall pay in full their respective investment amount agreed to by themselves and specified in the company articles of association. Shareholders who invest in cash shall deposit the full amount of their cash investment into the temporary account opened at a bank by the limited liability company to be established; and those who invest in kind or with industrial property, non-patented technology or land-use rights shall go through procedures for the ownership transfer of their properties according to law.
A shareholder who fails to pay in full his or her promised investment amount according to the provisions of the preceding paragraph shall take responsibility of breach of promise to shareholders who have made full payment of their investment.

Article 26 After payment by shareholders of their total investment amount, a legal capital verification organ must be invited to carry out verification of the capital and issue certificate of capital verification.

Article 27 After verification of the investment of all shareholders by the legal capital verification organ, a representative appointed by all shareholders or an agent entrusted by them collectively applies to the company registration organ for establishment registration and submits the company registration application, company articles of association, capital verification certificate, and other papers.
Those which are subject to examination and approval of relevant departments as provided in laws or administrative regulations shall, in applying for establishment registration, submit documents of approval.
The company registration organ shall register those which qualify for conditions as provided in this Law and issue business licenses to them; the company registration organ shall not register those which do not meet conditions as provided in this Law.
The issue date of business license is the date of the establishment of a limited liability company.

Article 28 If it is discovered, after establishment of a limited liability company, that the actual value of the materials, industrial property, non-patented technology, or land-use rights put in as investment is remarkably smaller than the values fixed in the company articles of association, the deficiencies shall be made up by the shareholder making the investment, and other shareholders at the time of the establishment of the company shall bear joint responsibility.

Article 29 A limited liability company which decides to set up a branch or branches at the same time of its establishment, shall file an application to the company registration organ for registration of these branches and obtain the business license.
If a limited liability company sets up a branch or branches after its establishment, the legal representative of the company shall file an application to the company registration organ for registration of these branches and obtain the business license.

Article 30 After its establishment, a limited liability company shall sign and issue investment certificates to its shareholders.
An investment certificate shall contain the following items:
1. name of the company;
2. date of company registration;
3. registered capital of the company;
4. name or designation of the shareholder, investment amount, and the date of investment payment; and
5. serial number of the investment certificate and its issue date.
Investment certificates shall carry the official seal of the company.

Article 31 A limited liability company shall prepare a name list of shareholders. Included in this name list shall be the following items:
1. name or designation and domicile of the shareholder;
2. investment amount by the shareholder; and
3. serial number of the investment certificate.

Article 32 Shareholders have the right to consult the minutes of the meetings of shareholders and the company's financial and accounting statements.

Article 33 Shareholders receive dividends according to their investment amount. If the company decides to increase its capital, its shareholders may have the priority to make investment.

Article 34 Shareholders may not withdraw their investment after their company registration.

Article 35 Shareholders may transfer all or part of their investment among themselves.
A shareholder who intends to transfer his or her investment to an outsider shall be subject to an agreement from more than half of the total number of the company's shareholders. Those shareholders who disagree with the transfer shall buy the investment to be transferred. If they do not buy this investment, they shall be regarded as having agreed to the transfer.
Under equal conditions, other shareholders shall have preemptive rights over the investment to be transferred by a shareholder with agreement from shareholders.

Article 36 After the transfer by a shareholder of his or her investment according to law, the company shall record the name or designation and domicile of the transferee and the assigned investment amount in the name list of shareholders.

Section 2 Organizational structures

Article 37 The shareholders' assembly of a limited liability company is composed of all its shareholders, is a power organ of the company and exercises functions and powers pursuant to this Law.

Article 38 The shareholder's assembly exercises the following functions and powers:
1. to decide on the business operation principles and investment plans of the company;
2. to elect and change directors and deciding on matters concerning the remuneration of directors;
3. to elect and change supervisors assumed by the representatives of shareholders and deciding on matters concerning the remuneration of supervisors;
4. to deliberate and approve reports made by the board of directors;
5. to deliberate and approve reports made by the board of supervisors or by individual supervisor;
6. to deliberate and approve the annual budget and final accounting of the company;
7. to deliberate and approve plans of company profits distribution and plans of company losses compensation;
8. to make resolutions on the expansion or reduction of the registered capital of the company;
9. to make resolutions on the issue of company bonds;
10. to make resolutions on the transfer of investment by shareholders to outsiders;
11. to make resolutions on the merger or split of the company, on alteration of its form, and on matters concerning its dissolution and liquidation; and
12. to amend the company articles of association.

Article 39 The procedural rules and voting procedures of the shareholders' assembly are stipulated in the company articles of association unless they are provided otherwise in this Law.
Any resolution made by the shareholders' assembly on the expansion or reduction of the company's registered capital, on its split, merger, dissolution, or on alteration of its form must be passed by shareholders representing more than two thirds of the company's voting rights.

Article 40 A company may amend its articles of association. The resolution to amend the company articles of association must be passed by shareholders representing more than two thirds of the company's voting rights.

Article 41 The right to vote at shareholders' assembly meetings is exercised by shareholders according to the proportion of their investment.

Article 42 The first meeting of the shareholders' assembly is called and presided over by the shareholder making the biggest investment, and exercises functions and powers in accordance with the provisions of this Law.

Article 43 The meeting of shareholders' assembly is divided into regular meeting and temporary meeting.
Regular meeting shall be called at the time set in the company articles of association. Shareholders representing more than one quarter of the voting rights and directors or supervisors representing more than one thirds may propose for temporary meeting.
Where a limited liability company has set up a board of directors, its shareholders' assembly meeting is called by the board of directors and presided over by the board chairman, if the board chairman can not perform his or her duty due to special reasons, the meeting is presided over by the vice-chairman or the director assigned by the chairman.

Article 44 If a shareholders' assembly meeting is to be held, notices shall be sent to all shareholders 15 days prior to the convention of the meeting.
The shareholders' assembly shall turn decisions on matters it has discussed into minutes of meetings, and all shareholders attending the meeting shall put their signatures on these minutes.

Article 45 A limited liability company shall set up a board of directors composed of 3 to 13 persons.
Included into the board of directors of a limited liability company set up between more than two state enterprises or between enterprises with investment from more than two state mainstream investors shall be representatives from its staffs and workers. The representatives of staffs and workers to sit on the board of directors are democratically elected by its staffs and workers.
The board of directors has one chairman and may have one or two vice-chairmen. The measures governing the election of the chairman and vice-chairman are stipulated in the company articles of association.
The chairman is the legal representative of the company.

Article 46 The board of directors is accountable for the shareholders' assembly and exercises the following functions and powers:
1. to take charge of the organization of shareholders' assembly meetings and make work report to the shareholders' assembly;
2. to implement resolutions made by the shareholders' assembly;
3. to decide on the company's operation plans and investment programs;
4. to work out the annual budget and final accounting of the company;
5. to work out plans of company profit distribution and loss compensation;
6. to work out plans on the expansion or reduction of the registered capital of the company;
7.
　　......