China’s new Company Law ( Revised Version ) was adopted at the 18th session of the Standing Committee of the Tenth National People’s Congress of the People’s Republic of China on October 27, 2005. The Revised Company Law was put into effect on January 1, 2006. And we call Current Company Law " 2006 COMPANY LAW". The Old Company Law ( Revised Version ) was Adopted at the Fifth Session of the Standing Committee of the Eighth National People's Congress on December 29,1993 ,revised for the first time by the thirteenth session of the Standing Committee of the Ninth People's Congress on December 25, 1999, and revised for the second time at the 11th session of the Standing Committee of the 10th National People's Congress of the People's Republic of China on August 28, 2004. We call this Old Version Company "2004 COMPANY LAW". By comparing it with the 2004 COMPANY LAW in detail, I will advance the overall study of the 2006 COMPANY LAW. - Zhong Yi, Attorney at Law
When the board of directors is set up by a limited liability company , it shall be responsible for the shareholders’ meeting and exercise the following functions:
(1)Convening shareholders’ meetings and presenting reports thereto;
(2)Adopting resolutions made at the shareholders’ meetings;
(3)Determining the operational plans and investment plans;
(4)Working out the company’s annual financial budget plans and final account plans;
(5)Working out the company’s profit distribution plans and loss recovery plans;
(6)Working out the company’s plans on the increase or reduction of registered capital, as well as on the issuance of corporate bonds;
(7)Working out the company’s plans on merger, split-up, change of the company form, dissolution, etc.;
(8)Making decisions on the establishment of the company’s internal management departments;
(9)Making decisions on hiring or dismissing the company’s manager and his remuneration, and, according to the nomination of the manger, deciding on the hiring or dismissal of vice manager(s) and the person in charge of finance as well as their remuneration;
(10)Working out the company’s basic management system; and (11)Other functions as specified in the articles of association.
The board of supervisors or supervisor of a company with no board of supervisors may exercise the following powers:
(1)To check the financial affairs of the company;
(2)To supervise the duty-related acts of the directors and senior managers, to put forward proposals on the removal of any director or senior manager who violates any law, administrative regulation, the articles of association or any resolution of the shareholders’ meeting;
(3)To demand any director or senior manager to make corrections if his act has detrimented the interests of the company;
(4)To propose to call interim shareholders’ meetings, to call and preside over shareholders’ meetings when the board of directors does not exercise the function of calling and presiding over shareholders’ meetings as prescribed hereunder;
(5)To put forward proposals at shareholders’ meetings;
(6)To initiate actions against directors or senior managers in accordance with Article 152 hereunder; and
(7)Other duties as requireded by the articles of association.
2004 COMPANY LAW's CONTENTS
CHAPTER ONE GENERAL PROVISIONS
CHAPTER TWO ESTABLISHMENT AND ORGANIZATIONAL SETUP OF A LIMITED LIABILITY COMPANY
SECTION ONE ESTABLISHMENT
SECTION TWO ORGANIZATIONAL SETUP
SECTION THREE SOLELY STATE-OWNED COMPANIES
CHAPTER THREE ESTABLISHMENT AND ORGANIZATIONAL SETUP OF JOINT STOCK COMPANY LIMITED
SECTION ONE ESTABLISHMENT
SECTION TWO SHAREHOLDER'S MEETING
SECTION THREE BOARD OF DIRECTORS, MANAGER
SECTION FOUR SUPERVISORY COMMITTEE
CHAPTER FOUR ISSUE AND TRANSFER OF SHARES OF A JOINT STOCK LIMITED COMPANY
SECTION ONE ISSUE OF SHARES
SECTION TWO TRANSFER OF SHARES
SECTION THREE LISTED COMPANIES
CHAPTER FIVE CORPORATE BONDS
CHAPTER SIX FINANCIAL AFFAIRS AND ACCOUNTING OF A COMPANY
CHAPTER SEVEN MERGER AND DIVISION OF A COMPANY
CHAPTER EIGHT BANKRUPTCY, DISSOLUTION AND LIQUIDATION
CHAPTER NINE BRANCHES OF FOREIGN COMPANIES
CHAPTER TEN LEGAL RESPONSIBILITIES
CHAPTER ELEVEN SUPPLEMENTARY PROVISIONS
2006 COMPANY LAW's Contents:
Chapter I General Provisions
Chapter II Establishment and Organizational Setup of A Limited Liability Company
Section 1 Establishment
Section 2 Organizational Setup
Section 3 Special Provisions on One-person Limited Liability Companies
Section 4 Special Provisions on Solely State-owned Companies
Chapter III Transfer of Stock Right of A Limited Liability Company
Chapter IV Establishment and Organizational Setup of A Joint Stock Limited Company
Section 1 Establishment
Section 2 Shareholders' Assembly
Section 3 Board of Directors, Managers
Section 4 Board of Supervisors
Section 5 Special Provisions on the Organizational Setup of A Listed Company
Chapter V Issuance and Transfer of Shares of A Joint Stock Limited Company
Section 1 Issuance of Shares
Section 2 Transfer of Shares
Chapter VI Qualifications and Obligations of the Directors, Supervisors and Senior Management of A Company
Chapter VII Corporate Bonds
Chapter VIII Financial Affairs and Accounting of A Company
Chapter IX Merger and Split-up of Company; Increase and Deduction of Registered Capital
Chapter X Dissolution and Liquidation of A Company
Chapter XI Branches of Foreign Companies
Chapter XII Legal Liabilities
Chapter XIII Supplementary Provisions
Authored by: Zhong Yi, Attorney at Law - Shanghai Runhe Law Firm
Editor by: Liu Fei
1、what parts should a company name consist of?
With the exception of those prescribed by relevant laws, regulations and rules, a company name shall consist of, in the following order, “location”, “trade name (firm name)”, “industry” and “organization form”. The trade name in a company name shall include 2 Chinese Characters at least.
(1)Upon the approval of the State Administration for Industry and Commerce (SAIC), the enterprise that meets one of the following conditions may use a company name without “location”: With the establishment approved by the State Council; with the registration in SAIC; with the registered capital (or registered fund) not less than 50 million RMB; with other conditions prescribed by SAIC.
(2) One enterprise that meets one of the following conditions may use a company name without “industry”: with the business scope covering 5 or more kinds of industry described in the national economy; with the registered capital (registered fund)of more than RMB100 million or the parent company in an enterprise group; with a different name to the company approved or registered in the same Registration Authority.
2、What is the classified-approval of company name?
The company name is approved by the classified AIC in our country.
A. The State Administration for Industry and Commerce (hereinafter referred to as the SAIC) takes charge of nationwide administration of enterprise name registration, and is responsible for approval of the following enterprise names:
(1) those prefixed by such words as "Zhongguo" or"Zhonghua" (both mean China) or "Guojia" (State) or "Guoji" (international);
(2) those using such words as "Zhongguo" or "Zhonghua" (both mean China) or "Guojia" (State) or "Guoji" (international);
(3) those without the name of administrative division.
B. Local administrative organs for industry and commerce are responsible for the approval of the following enterprise names other than those stipulated in the preceding paragraph:
(1) those prefixed by administrative division at the same level;
(2) those conforming to those including the same administrative division as described in Article 12 of the present Measures.
( Article 12, A legal person enterprise who meets the following conditions may place the administrative division in its name after the identifier and before the organizational forms.
(a) where the identifier of the holding enterprise is used;
(b) where the name of such holding enterprise doesn’t contain the administrative division. )
The administrative organs for industry and commerce authorized by the SAIC to approve names of foreign-funded enterprises shall be responsible for approving the names of foreign-funded enterprises according to the present Measures.
3、What prohibitions are prescribed for the company name.
（1）A company name shall not use the following expressions and words: impair national or social public interests; might be a fraud or cause some misunderstandings to the public; the names of foreign country(region) or international organizations; the names of the party, the administration authority, communist party authority, army authority, mass organizations or social groups; the code of the army; Pinyin or digits; others prescribed in laws and administrative regulations.
（2）A company name may not contain another company’s company name, unless the SAIC prescribed as otherwise.
（3）Except the enterprises the establishment of which is decided by the State Council, an enterprise’s name shall not be prefixed by such words as "Zhongguo" or "Zhonghua" (both mean China) or "Guajia" (State) or "Guoji" (international).
Where such words as "Zhongguo" or "Zhonghua" (both mean China) or "Guajia" (State) or "Guoji" (international) are used in the middle of the enterprise names, such words shall be attributive words describing the industrial sector concerned.
（4）The “location” above county shall not be used as a “trade” name, except for with other meanings.
（5）One enterprise can just own one company name. Such a company shall not use a same or familiar name to another enterprise registered in the same Registration Authority.
4、What documents shall be submitted for the application to Pre-Approval of Company Name.
(1)《The Application Form for Pre-Approval of Company Name》.
This form shall be signed by all investors.
(2)《A Certificate for the Designated Representative or the Joint-Authorized Agent》
This certificate shall be signed by all investors and clarify the contents and the term of the authorization and the rights of the representative or the agent. In addition, the copy of the ID card of the representative or the agent shall be submit at one time, which shall be signed by the ID card’s owner.
(3) If the application is for a special company name, the Registration Authority has the right to ask the investor to provide relevant explanations and documents.
(4)The investor which enterprises or economic organizations shall submit Business Certification or other certification proving it is legal.
when ascertaining the " Corporation Law" to categorize appellation, I spent a few hours. At the Chinese legal profession, distinction among "Company", "Corporation" or "Enterprise" isn't very explicit.
For example:
Company Law of the People’s Republic of China
Law of the People’s Republic of China on Foreign-funded Enterprises
Law of the People's Republic of China on Chinese-Foreign Equity Joint Venture
Law of the People's Republic of China on Individual Proprietorship Enterprises
I noticed that "company law" is generally used in the England (COMPANIES ACT 1985); but in the United States "Corporation Law" is generally used.("Emanuel law outlines")
In order to make it clear , I turned to "Black's Law Dictionary"
and "http://dictionary.law.com" for help.
quoted from Black's Law Dictionary - Eighit Edition :
company
1. A corporation --- or. less commonly, an association, partnership, or union --- that carries on a commercial or industrial enterprise.
2. A corporation, partnership, association, joint-stock company, trust, fund, or organized group of persons, whether incorporated or not, and (in an official capacity) any receiver, trustee in bankruptcy, or similar official, or liquidating agent, for any of the foregoing.
corporation
An entity (usu. a business) having authority under law to act as a single person distinct from the shareholders who own it and having rights to issue stock and exist indefinitely; a group or succession of persons established in accordance with legal rules into a legal or juristic apart from them, who make it up, exists indefinitely apart from them, and has the legal powers that ist constitution gives it.
Enterprise
An organization or venture, esp. for business purposes.
quoted from http://dictionary.law.com/
company
n. any formal business entity for profit, which may be a corporation, a partnership, association or individual proprietorship. Often people think the term "company" means the business is incorporated, but that is not true. In fact, a corporation usually must use some term in its name such as "corporation," "incorporated," "corp." or "inc." to show it is a corporation.
corporation
n. an organization formed with state governmental approval to act as an artificial person to carry on business (or other activities), which can sue or be sued, and (unless it is non-profit) can issue shares of stock to raise funds with which to start a business or increase its capital......
I didn't find the definion of "Enterprise" in "http://dictionary.law.com"
In addition, According to the "Wikipedia, the free encyclopedia"
Corporations law or corporate law is the field of law concerning the creation and regulation of corporations and other business organizations. A corporation is a legal entity that is legally treated, in certain instances, as a person; the corporation can own property, execute contracts, sue, and be sued. In British practice, corporate law is more often called company law.
Corporate law also includes the law governing the relationships among various constituents of a corporation such as shareholders, directors and management. By way of illustrative example, the following are questions of corporate law: (quoted from http://en.wikipedia.org/wiki/Company_law)
Ultimately, I use "Company Law" to refer to "China Company Law" , but use "Corporation Law " so as to categorize appellation, because "Corporation Law " covers the other enterprises.
The minimum registered capital requirement has been lowered to the local investor:
for limited liability companies, from RMB 100,000 to RMB 30,000 (approx.USD 3,750); and for companies limited by shares, from RMB 10,000,000 to RMB 5,000,000 (approx. USD 625,000).
2006 Company Law 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 prevail.
2004 Company Law Article 23:
The registered capital is the total amount of investment paid in by all the shareholders registered with the registration department.
The amount of registered capital should not be less than the amount specified below:
1. for a company mainly engaging in production operations, RMB500,000;
2. for a company mainly engaging in wholesales, RMB500,000;
3. for a company mainly engaging in retail sales, RMB300,000;
4. for a company engaging in technology development, consulting and
services, RMB100,000.
If the minimum amount of registered capital of a limited liability company of a given trade should be higher than those provided for in the preceding paragraph, it shall be determined separately by law or administrative decrees.
2006 Company Law Article 81:
When a joint stock limited company is established by promotion, its registered capital shall be the total capital stock subscribed by all the promoters as registered in the company registration authority. The minimum amount of initial capital contributions to be made by all promoters shall be not less than 20% of the total registered capital, the remaining amount shall be paid off by the promoters within 2 years from the day when the company is established, while for an investment company, the remaining amount may be paid off within 5 years. Before the registered capital is paid off, no stock may be offered to others for subscription.
When a joint stock limited company is established by stock floatation, its registered capital shall be the total actually paid capital stock as registered in the company registration authority. The minimum amount of the registered capital of a joint stock limited company shall be RMB 5 million yuan. If any law or administrative regulation provides a relatively higher minimum amount of registered capital, such provision shall prevail.
2004 Company Law Article 78 The registered capital of a joint stock company limited shall be the total share capital which has been registered with the registration department and which has been actually received. The minimum amount of registered capital of a joint stock company limited shall be RMB10 million. Requirements for the minimum amount of the registered capital of a joint stock company limited to be higher than the above amount are provided for in separate laws or administrative decrees.
This is a good news to the local investor, the 2006 Company Law allows the registered capital of a company to be fully contributed within 2 years after its establishment. The above-mentioned changes are intended to make efficient use of investors' funds and encourage good practice in making contributions to the registered capital of a company.
A limited liability company may have a manager, who shall be hired or dismissed upon decision of the board of directors. The manager shall be responsible for the board of directors and shall exercise the following powers:
(1)Taking charge of the management of the production and business operations of the company, organizing the implementation of the resolutions of the board of directors;
(2)Organizing the execution of the company’s annual operational plans and investment plans;
(3)Drafting plans on the establishment of the company’s internal management departments;
(4)Drafting the company’s basic management system;
(5)Formulating the company’s concrete bylaws;
(6)Proposing to hire or dismiss the company’s vice manager(s) and person in charge of finance;
(7)Deciding on the hiring or dismissal of the persons-in-charge other than those who shall be decided by the board of directors; and
(8)Other powers conferred by the board of directors.
If the articles of association provide otherwise for the powers of managers, the articles of association shall prevail. In addition,the manager has the right to attend the meetings of the board of directors as a non-voting representative.
2006 Company Law's New Contents:
1, Chapter 2, Section 3, "Special Provisions on One-person Limited Liability Companies"
2, the title of Section 4 in Chapter 2 is changed from"stateowned sole corporation"(2004 Comyany Law: Chapter 2 Section 3) into "Special Provisions on Solely State-owned Companies ".
3, List parts of articles sheets of the old articles (2004 Comyany Law), added for Chapter 3 "Transfer of Stock Right of A Limited Liability Company".
4, the title of Section 5 in Chapter 4 is changed from" Listed Companies"(2004 Comyany Law: Chapter 4 Section 3) into " Special Provisions on the Organizational Setup of A Listed Company ".
5, List parts of articles sheets of the old articles (2004 Comyany Law), added for Chapter 6 " Qualifications and Obligations of the Directors, Supervisors and Senior Management of A Company ".
6, the title of Chapter 9 is changed from" Merger and Division of a Company "(2004 Comyany Law: Chapter 4 Section 3) into " Merger and Split-up of Company; Increase and Deduction of Registered Capital ".
7,the title of Chapter 10 is changed from" Bankruptcy, Dissolution And Liquidation "(2004 Comyany Law: Chapter 8 ) into " Dissolution and Liquidation of A Company ".
8, There are 13 chapters in the 2006 Comyany Law, totally 219 articles; however,there are only 11 chapters in the 2004 Comyany Law, totally 230 articles.
The term "one-person limited liability company" as mentioned in China Company Law refers to a limited liability company with only one natural person shareholder or legal person shareholder. The minimum amount of registered capital of a one-person limited liability company shall be RMB 100, 000 yuan (approx. USD 12,500). The shareholder shall, in a lump sum, pay the capital contributions as specified in the articles of association.
A one-person limited liability companies shall, in the company registration, give a clear indication that it is solely-funded by one natural person or legal person and the same shall be specified in the business license of the company, make a financial statement by the end of every fiscal year, which shall be subject to audit by an accounting firm.
The New Company Law (2006) permits for the first time the formation of one-person limited liability companies. But if the shareholder of a one-person limited liability company is unable to prove that the property of the one-person limited liability company is independent from his own property, he shall bear joint liabilities for the debts of the company.
This can prevent the sole shareholder from taking advantage of the company's assets for his/her personal use, so as to protect the obligee. But this make the burden of proof infinite escalating to the One-person Limited Liability Companies. So I hope the court may determine the burden of proof according to the principle of fairness and the principle of honesty and credit and take such elements as the ability to produce evidences into consideration.
The shareholders' meeting shall exercise the following functions:
(1) Determining the company's operational guidelines and investment plans;
(2) Electing and changing the directors and supervisors assumed by non-representatives of the employees and deciding the matters relating to their remuneration;
(3) Deliberating and approving reports of the board of directors;
(4) Deliberating and approving reports of the board of supervisors or the supervisor;
(5) Deliberating and approving annual financial budget plans and final account plans of the company;
(6) Deliberating and approving company profit distribution plans and loss recovery plans;
(7) Making resolutions about the increase or reduction of the company's registered capital;
(8) Making resolutions about the issuance of corporate bonds;
(9) Adopting resolutions about the assignment, split-up, change of company form, dissolution, liquidation of the company;
(10) Revising the articles of association of the company;
(11) Other functions as specified in the articles of association.
For any of the affairs as listed in the preceding paragraph, if all the shareholders make a written consent to it , it is not required to convene a shareholders' meeting. A decision may be made directly and shall bear the signatures or seals of all the shareholders.
2006 China Company Law
Article 5 In conducting business operations, a company shall comply with the laws and administrative regulations, social morality, and business morality. It shall act in good faith, accept the supervision of the government and general public, and bear social responsibilities.
2004 China Company Law
Article 5 A company shall operate independently with all its assets, and be responsible for its own profits and losses.
Explanation: This provision had stipulated the duty which has to be fulfilled by the company..
After the revision of the company law, the related content on the state-owned enterprises are deleted, and the social responsibility a company has to assume is specified.
The companies, as the basic units of social economic activities, and as civil subjects, whose legitimate rights and interests are protected, are requested to undertake the certain social responsibility: (1) The company must abide by the law, the administrative rules and regulations. Its business activities should be carried out legally. These are the most important duties of a company. (2) The company should observe social morality and business ethics. The social morality refers to the public moral standard by which each social subject should abide must in its contact process. The business ethics refers to the ethic standard that should be followed in conducting business activity. These two kinds of standards mutually permeate in the activities conducted by the market subjects, preferably playing supplementary role to the law. The company, as an entity that has the widespread relation with aspects of social economy, should observe social morality and business ethics, and accept the bound of norms. Social morality and the business ethics should be explicitly stipulated in law as a set of legal norms to facilitate the form of the fine management attitude and business integrity and safeguard the public interest and economic order.
2006 China Company Law:
Article 4 The shareholders of a company shall be entitled to enjoy the capital proceeds, participate in making important decisions, choose managers and enjoy other rights.
2004 China Company Law:
Article 4 Shareholders of a company, as capital contributor, shall have the right to enjoy capital gains, take major policy decisions and choose managers in proportion to share of the investment they make in the company.
A company shall enjoy all legal person property rights formed by the investment by shareholders, enjoy civil rights, and bear the civil responsibilities according to law.
Ownership of the State-owned property rights in a company belongs to the State.
Explanation: This article is about the shareholder's right specified.
The shareholder is a company's investors. The shareholder invests his property in the company, namely enjoying shareholder's rights by his investment.
The shareholder enjoys the shareholder's rights, mainly the right of assets income and the participation in significant decision-making and management selecting in a company. The right of assets income refers to the right the shareholder obtains the dividend in sharing the profits according to his investment share from the company. Obtaining dividend is the main goal of the shareholders; So long as the shareholder has as scheduled fulfilled the investment duty according to the regulation or the stipulations in the shareholder's agreement, he or she has the right to request for assigning dividend. Generally speaking, the limited liability company's shareholder shall obtain dividends in proportion to its investment, and the shareholders of joint stock limited partnership shall obtain the dividend according to his or her stock proportion.
This revision of the company law, according to the need in practices, expanded the shareholder's freedom in the dividend assignment stipulated in shareholder's agreement and the regulations in the company. Regulations are as follows; the shareholder obtains dividends in proportion to his or her share, with an exception when the shareholder agrees or the article regulates not to assign dividends according to the principals above. The right of participation in decision-making refers to; the shareholder makes resolution to company's significant movements in shareholder's meeting or the general meeting of shareholders through votes. Company's significant movement may include: capital changes in company, namely increase or reduction in registered capital; financing, such as issuing company bonds; foreign investment, guarantee for other person, the purchase or the transfer of main property, variation in company's main business; movements as merger, splitting, variation of types of organization, dismissal, liquidation.
The shareholder's meeting or the general meeting of shareholders may authorize the board of directors to exercise the rights above, if not violate the legal compulsory regulation. The right of selecting management refers to: the right of the shareholders in making the resolution through the shareholder meeting or the general meeting of shareholders to elect company's trustees, supervisors. It also includes the right of deciding management's salary. The separation of company's property rights and the operating right, in other words, investors do not need to participate in the management, is the trend towards modern corporate system. Especially for the limited liability company, the shareholders as investors, exercising their power through board of shareholders in management-selecting and decision-making，does not have the decision-making power him/herself. In order to enhance the management efficiency in a company, there should be a certain limit on the rights of the board of shareholders. The shareholder and the shareholder's meeting should not intervene in general management decision-making.
Company shareholder's legitimate rights and interests shall be guaranteed. Protecting shareholder's legitimate rights and interests from violation is the main purpose of legislation. In dealing with the existing problems in practice, this law pays attention to the protection of medium and small shareholder's legitimate rights and interests and the balance of shareholder's benefit under the premises of majority capital decision. Therefore, certain concrete systems are increased, such stipulations are: The company shareholders may not abuse the shareholder's right to harm company or other shareholders' benefits. If such abuse is committed, the shareholder should assume liability for compensation;
The limited liability company's shareholders may consult the account book. The shareholders in Limited Liability Company may request the company to purchase its share and withdraw from the company if certain dividend is not assigned. Once the shareholder has the objection in merger, splitting, transfer of main property, he may request withdrawal from the company. At the same time, this law provides, in many aspects, higher degree of freedom in company regulations;
This enables medium and small shareholders to safeguard their rights in formulating company regulations through consultation with mutual equality at the start of company establishment. These systems will concretely play a positive role in protecting the shareholder rights and interests and maintaining fairness and equality.
Authored by: Zhong Yi, Ling Jie