Company Law of the People's Republic of China
Company Law of the People's Republic of China
(Adopted at the Fifth session of the Standing Committee of theEighth National People's Congress on December 29, 1993)
Whole document
Company Law of the People's Republic of China
(Adopted at the Fifth session of the Standing Committee of the
Eighth National People's Congress on December 29, 1993)
Chapter 1 General Provisions
Article 1
This Law is formulated in accordance with the Constitution in order to
adapt to the needs to establish a modem enterprise system, standardize the
organization and activities of companies, protect the legitimate rights
and interests of companies, shareholders and creditors, safeguard social
and economic order and promote the development of the socialist market
economy.
Article 2
In this Law, the term "company" refers to a limited liability company
or a company limited by shares established within Chinese territory in
accordance with this Law.
Article 3
All limited liability companies and companies limited by shares are
enterprise legal persons.
In the case of a limited liability company, a shareholder is liable to
the company to the extent of the amount of the shareholder's capital
contribution. A limited liability company is liable for the debts of the
company with all its assets.
In the case of a company limited by shares, its entire capital is
divided into shares of equal value and shareholders shall be liable to the
company to the extent of the shares held by them. A company limited by
shares is liable for the debts of the company with all its assets.
Article 4
The shareholders of a company, as capital contributors, have the right
to enjoy the benefits of the assets of the company, make major decisions,
choose managers etc. in accordance with the amount of capital they have
invested in the company.
A company enjoys all legal person property rights constituted by the
shareholders' investment, enjoys civil rights and assumes civil
liabilities in accordance with law.
Ownership of the State-owned assets in a company belongs to the state.
Article 5
With respect to all its corporate property, a company conducts its
business autonomously in accordance with law and is responsible for its
own profits and losses.
Under the state's macro regulation and control adjustment, a company
organizes its production and operations autonomously according to market
demand with the objectives of raising economic efficiency and labour
productivity and preserving and increasing the value of assets.
Article 6
A company implements an internal management structure with a clear
division of rights and responsibilities, scientific management and
combined incentives and restrictions.
Article 7
A state owned enterprise which is being reorganized as a company shall
replace its system of operation, gradually and systematically take
inventory of its assets and verify its capital, determine property rights,
clear creditors' rights and indebtedness, value assets and set up a
standardized internal management structure in accordance with the law and
conditions and requirements of administrative regulations.
Article 8
The establishment of a limited liability company or a company limited
by shares shall comply with the conditions set out in this Law. A company
complying with the conditions of this Law is registered as a limited
liability company or a company limited by shares. A Company which does not
comply with the conditions set out in this Law shall not be registered as
a limited liability company or a company limited by shares.
Where the law or administrative regulations require that the
establishment of a company be submitted for examination and approval, the
procedures for such examination and approval are carried out before the
company is registered.
Article 9
A limited liability company established in accordance with this Law
shall have the words "limited liability company" in its name.
A company limited by shares established in accordance with this Law
shall have the words "company limited by shares" in its name.
Article 10
The domicile of a company is the place where its principal place of
business is located.
Article 11
In establishing a company, the company's articles of association shall
prepared in accordance with this Law. The articles of association are
binding on the company, the shareholders, directors, supervisors and
managers.
A company's business scope is specified in its articles of association
and registered in accordance with the law. For items in a company's
business scope which are restricted by law or administrative regulations,
approval shall be obtained in accordance with the law.
A company shall conduct business activities within its registered
business scope. A company may change its business scope by amendments to
its articles of association in accordance with procedures provided by law
and after changing its registration with the company registration
authority.
Article 12
A company may invest in other limited liability companies or companies
limited by shares and be liable to the companies which it has invested in
to the extent of the amount of capital invested in such companies.
Except for investment companies and holding companies specified by the
State Council, where a company invests in other limited liability
companies or companies limited by shares, the aggregate amount of
investment shall not exceed fifty per cent of the net assets of the
company, not including any increase in the capital of the other limited
liability companies or companies limited by shares in which the company
invests arising from any conversion of profits of these companies into
capital following such investment.
Article 13
A company may set up branches. Branches of a company do not have the
status of enterprise legal persons and the company assumes the civil
liabilities of its branches.
A company may set up subsidiaries. Subsidiaries of a company have the
status of enterprise legal persons and assume civil liabilities
independently in accordance with the law.
Article 14
In conducting its business activities, a company shall abide by the
law and by business ethics, strengthen the construction of socialist
spiritual civilization and accept the supervision of the government and
the public.
The legitimate rights and interests of a company are protected by law
and shall not be infringed.
Article 15
A company shall protect the legitimate rights and interests of its
staff and workers, strengthen labour protection and bring about production
safety.
A company should use various means to enhance vocational education and
on-the-job training for staff and workers to increase their work quality.
Article 16
The staff and workers of a company organize a trade union in
accordance with the law to carry out union activities and protect the
lawful rights and interests of the staff and workers. A company shall
provide the necessary conditions for activities of the trade union of the
company.
Limited liability companies established with investment by a wholly
state-owned company and those established with investment by two or more
state-owned enterprises or two or more other state-owned investment
entities practice democratic management in accordance with the provisions
of the Constitution and of relevant laws through the representative
conferences of the staff and workers and otherwise.
Article 17
The activities of the base-level organizations of the Communist Party
of China in the company are dealt with in accordance with the Charter of
the Communist Party of China.
Article 18
The Law applies to limited liability companies with foreign
investment. Where the laws on Sino-foreign equity joint venture
enterprises, Sino-foreign co-operative joint venture enterprises and
wholly-owned foreign enterprises otherwise provide, the provisions of such
laws apply.
Chapter 2 Establishment and Organizational Structure of A Limited Liability Company
Section 1 Establishment
Article 19
Establishment of a limited liability company shall be subject to
fulfillment of the following conditions;
(1) the number of shareholders meets the requirements of the law;
(2) the investment contributed by shareholders meets the minimum
amount of capital required by law;
(3) the company's articles of association are formulated jointly by
the shareholders;
(4) there is a company name, and an organizational structure complying
with the requirements for establishing a limited liability company; and
(5) there is a fixed site for production and operations and the
necessary conditions for production and operations.
Article 20
A limited liability company is established by capital contributions
made jointly by at least two and no more than fifty shareholders.
A state-authorized investment institution or a department authorized
by the state may invest on its own to establish a wholly state-owned
limited liability company.
Article 21
A state-owned enterprise established before the implementation of this
Law which fulfills the conditions for the establishment of a limited
liability company under this Law may be reorganized as a wholly
state-owned limited liability company in the case of an investment entity
with a single investor, or as a limited liability company as provided in
the first paragraph of the preceding Article in the case of an investment
entity with many investors.
Implementing procedures and specific means for the reorganization of
state-owned enterprises into companies are specified by the State Council
in separate provisions.
Article 22
The articles of association of a limited liability company shall set
out the following:
(1) the company's name and domicile;
(2) the company's business scope;
(3) the company's registered capital;
(4) shareholders' names or titles;
(5) shareholders' rights and obligations;
(6) the form and amount of shareholders' capital contributions;
(7) conditions for shareholders' transfer of capital contributions;
(8) the company's organs and the method of establishing them, their
powers and rules of procedure for discussion;
(9) the company's legal representative;
(10) grounds for the dissolution of the company and method for its
liquidation; and
(11) other matters which the shareholders consider necessary to
provide for.
The shareholders shall sign and seal the company's articles of
association.
Article 23
A limited liability company's registered capital is the capital
actually contributed by all the shareholders and registered with the
company registration authorities.
The registered capital of a limited liability company shall not be
less than the following minimum amounts:
(1) for a company engaging principally in production operations, CNY
500,000 yuan;
(2) for a company engaging principally in wholesaling commodities, CNY
500,000 yuan;
(3) for a company engaging principally in commercial retailing, CNY
300,000 yuan;
(4) for a company engaging principally in technology development,
consultancy and services, CNY 100,000 yuan.
Requirements for the minimum amount of registered capital for a
limited liability company in a particular line of business to be higher
than the amount stated in the preceding paragraphs are provided for in
separate laws or administrative regulations.
Article 24
Shareholders may make capital contributions in currency, or may invest
in kind, use industrial property, non-patented technology or land use
rights to make capital contributions based on their appraised value. For
investment in kind, industrial property, non-patented technology or land
use rights which are capital contributions, a valuation shall be carried
out and the property contributed verified, without overvaluation or
undervaluation. The valuation of land use rights is to be dealt with in
accordance with the provisions of laws and administrative regulations.
The amount of industrial property or non-patented technology
contributed as capital based on its appraised value shall not exceed
twenty percent of the registered capital of a company, except as otherwise
specified by the state for the use of the results of new and high
technology.
Article 25
Shareholders shall pay in full their respective subscribed capital
contributions specified in the article of association. If a shareholder
makes its contribution in currency, the currency contribution shall be
deposited in full into a temporary account established with a bank by the
proposed limited liability company; if the contribution is to be made in
investment in kind, industrial property, non-patented technology or land
use rights, procedures for transfer of the property rights shall be dealt
with in accordance with the law.
If a shareholder does not pay its subscribed capital contribution in
accordance with the provisions of the preceding paragraph, such
shareholder shall be liable for default to the other shareholders who have
fully paid their capital contributions.
Article 26
After the shareholders have paid in full their subscribed capital
contributions a legally authorized investment verification authority must
verify the investment and issue certificate.
Article 27
Upon verification by a legally authorized investment verification
authority of all capital contributions of shareholders, a designated
representative or jointly appointed agent of all the shareholders applies
to the company registration authority to register the establishment of the
company, submitting the company registration application, the company's
article of association, investment verification certificate and other
documents.
If examination and approval from relevant departments is required in
accordance with any law or administrative regulation, the approval
documents shall be submitted when applying to register the establishment
of the company.
Where the conditions required by this Law are met, the company
registration authority registers the company and issues a company business
licence. Where the conditions of this Law are not met, the company is not
registered.
The date of issue of the business licence is the date of establishment
of a limited liability company.
Article 28
After the establishment of a limited liability company, if the actual
values of the investment in kind, industrial property, non-patented
technology or land use rights are obviously lower than the values set in
the articles of association, the difference shall be made up by the
shareholder(s) who contributed such investment, and other shareholders at
the time of the establishment of the company shall be jointly liable for
the difference.
Article 29
If a branch or branches of a limited liability company is established
at the same time a limited liability company is established, application
for the registration of the branch(es) shall be made to the company
registration authority to obtain the business licence(s).
If a branch or branches of a limited liability company are established
after the establishment of the company, application for registration
shall be made by the legal representative of the company to the company
registration authority to obtain the business licence(s).
Article 30
An investment certificate shall be issued to each of the shareholders
upon the establishment of a limited liability company.
An investment certificate shall set out the following:
(1) the company's name;
(2) the company's date of registration;
(3) the company's registered capital;
(4) the shareholder's name and the amount and date of payment of
capital contribution; and
(5) the number and date of issue of the investment certificate.
An investment certificate is sealed with the company's seal.
Article 31
A limited liability company shall establish a register of shareholders
setting out the following:
(1) the shareholders' names and domiciles;
(2) the shareholders' amounts of capital contributions; and
(3) the numbers of the investment certificates.
Article 32
Shareholders have the right to examine the minutes of shareholders'
meetings and the company's financial and accounting reports.
Article 33
Shareholders are entitled to receive dividends in accordance with the
proportions of their capital contributions. Shareholders have a preemptive
right to subscribe capital when a company increases its capital.
Article 34
Shareholders shall not withdraw their capital contributions after the
registration of a company.
Article 35
Shareholders may transfer among themselves all or part of their
capital contributions.
Where a shareholder transfers its capital contribution to a person
other than a shareholder, the consent of more than half of all
shareholders shall be required. A shareholder objecting to such transfer
shall purchase the capital contribution to be transferred and such
shareholder is deemed to have agreed to the transfer if he does not
purchase the capital contribution.
For a transfer of capital contribution which is transferred with the
consent of the shareholders, other shareholders have a pre-emptive right
to purchase it on the same conditions.
Article 36
After a shareholder transfers its capital contribution in accordance
with the law, the company records in the register of shareholders the name
of the transferee, its domicile and the amount of the capital contribution
transferred.
Section 2 Organizational Structure
Article 37
The shareholder's meetings of a limited liability company are made up
of all shareholders. The shareholders' meeting is the company's
authoritative organization, exercising its powers in accordance with this
Law.
Article 38
The shareholders' meeting exercises the following powers:
(1) to decide on the company's operational policies and investment
plans;
(2) to elect and replace directors and decide on matters relating to
the remuneration of directors;
(3) to elect and replace the supervisors who are representatives of
the shareholders, and decide on matters relating to the remuneration of
supervisors;
(4) to examine and approve reports of the board of directors;
(5) to examine and approve reports of the board of supervisors or any
supervisor(s);
(6) to examine and approve the company's proposed annual financial
budget and final accounts;
(7) to examine and approve the company's plans for profit distribution
and recovery of losses;
(8) to decide on increases in or reductions of the company's
registered capital;
(9) to decide on the issue of bonds by the company;
(10) to decide on transfers of capital contribution by shareholders to
a person other than a shareholder;
(11) to decide on issue such as merger, division, change in corporate
form or dissolution and liquidation of the company; and
(12) to amend the company's articles of association.
Article 39
Except as otherwise provided in this Law, methods of discussion and
voting procedures for shareholders' meetings are specified in the
company's articles of association.
A resolution for an increase in or reduction of registered capital,
division, merger, dissolution or change in corporate form of the company
shall be passed by shareholders representing two-thirds or more of the
voting rights.
Article 40
A company may amend its articles of association. A resolution to amend
the company's articles of association shall be passed by shareholders
representing two-thirds or more of the voting rights.
Article 41
Shareholders shall exercise voting rights at shareholders' meetings in
accordance with the proportions of their capital contribution.
Article 42
The first shareholders' meeting is convened and presided over by the
shareholder whose capital contribution is the largest. Such shareholder
exercises its rights in accordance with this Law.
Article 43
Shareholders' meetings are divided into regular meetings and interim
meetings.
Regular meeting shall be convened on time in accordance with the
provisions of the articles of association. Shareholders representing
one-fourth or more of the voting rights or one-third or more of the
directors or supervisors may request that an interim meeting be convened.
Where a limited liability company has a board of directors,
shareholders' meetings are convened by the board of directors and presided
over by the chairman of the board of directors. If the chairman of the
board of directors is unable to perform his duties for a particular
reason, the vice-chairman or another director designated by the chairman
presides over the meeting.
Article 44
When convening a shareholders' meeting, notice shall be given to all
shareholders fifteen days before the meeting is convened.
Shareholders' meetings shall keep minutes of the decisions made on
matters discussed. The minutes shall be signed by the shareholders present
at the meeting.
Article 45
A limited liability company has a board of directors with three to
thirteen members.
For a limited liability company established with the investment of two
or more state-owned enterprises or two or more state-owned investment
entities, members of its board of directors shall include representatives
of the staff and workers of the company. Representatives of staff and
workers on the board of directors are chosen by the company's staff and
workers by democratic election.
The board of directors has one chairman and may have one or two
vice-chairmen. The method of election of the chairman and vice-chairmen is
specified in the articles of association.
The chairman of the board of directors is the legal representative of
the company.
Article 46
The board of directors is responsible to the shareholders' meetings
and exercises the following powers:
(1) to be responsible for convening shareholders' meetings and
accountable to the shareholders' meeting;
(2) to implement the resolutions of the shareholders' meeting;
(3) to decide on the operational plans and investment plan of the
company;
(4) to formulate the company's proposed annual financial budget and
final accounts;
(5) to formulate plans for profit distribution and recovery of losses;
(6) to formulate plans for increases in or reductions of the company's
registered capital;
(7) to prepare plans for merger, division, change in corporate form
and dissolution of the company;
(8) to decide on the set up of the company's internal management
structure;
(9) to appoint or dismiss the company's manager (general manager) (the
"manager") and pursuant to the manager's nominations to appoint or dismiss
the deputy manager and the financial officers of the company and decide
upon their remuneration; and
(10) to formulate the company's basic management system.
Article 47
The term of office of the directors is as provided in the company's
articles of association, provided that each term shall not be longer than
three years. At the end of a director's term, the director may serve
another term if re-elected.
The shareholders' meeting shall not without reason remove a director
from office before the expire of that director's term.
Article 48
Meetings of the board of directors are convened and presided over by
the chairman. When the chairman is unable to perform his duties for a
particular reason, the vice-chairman or another director designated by the
chairman convenes and presides over the meetings. One-third or more of the
directors may request that an interim meeting be convened.
Article 49
Except as otherwise provided in this Law, methods of discussion and
voting procedures for the board of directors are provided for in the
company's articles of association.
When convening a meeting of the board of directors, notice of the
meeting shall be given to all directors ten days before the meeting is
convened.
The board of directors shall keep minutes of the decisions made on
matters discussed. Such minutes shall be signed by the directors present
at the meeting.
Article 50
A limited liability company has a manager who is appointed or
dismissed by the board of directors. The manager is responsible to the
board of directors and exercises the following powers:
(1) to be in charge of the company's production, operations and
management and organize the implementation of the resolutions of the board
of directors;
(2) to organize the implementation of the company's annual business
plan and investment plan;
(3) to propose plans for the putting in place of the company's
internal management structure;
(4) to propose the company's basic management system;
(5) to formulate specific rules and regulations for the company;
(6) to propose the appointment or dismissal of the company's deputy
manager(s) and financial officers;
(7) to appoint or dismiss management officers other than those
required to be appointed or dismissed by the board of directors; and
(8) other powers conferred by the company's articles of association
and the board of directors.
The manager is present at meetings of the board of directors.
Article 51
A limited liability company with a relatively small number of
shareholders and of a relatively small scale may have one executive
director and no board of directors. The executive director may also be the
company's manager.
The powers of the executive director shall be specified in the
company's articles of association with reference to the provisions of
Article 46 of this Law.
Where a limited liability company has no board of directors, the
executive director is the legal representative of the company.
Article 52
A limited liability company with a relatively large scale of
operations shall have a board of supervisors with not less than three
members. The board of supervisors elects a convener from among its
members.
The board of supervisors is made up of representatives of shareholders
and a reasonable proportion of representatives from the company's staff
and workers, the specific proportion to be provided in the company's
articles of association. Representatives of the staff and workers on the
board of supervisors are chosen by the company's staff and workers by
democratic election.
A limited liability company with a relatively small number of
shareholders and of a small scale may have one to two supervisors.
The directors, manager and financial officers of the company shall not
act concurrently as supervisors.
Article 53
The term of office of the supervisors is three years. At the end of a
supervisor's term, the supervisor may serve another term, if reelected.
Article 54
The board of supervisors as supervisor (s) exercises the following
powers:
(1) to inspect the company's financial situation;
(2) to exercise supervision over the acts of the directors and manager
carried out while performing their corporate functions which violate laws,
regulations or the company's articles of association;
(3) to demand remedies from a director or manager when the acts of
such director or manager are harmful to the company's interests;
(4) to propose the convening of an interim shareholders' meeting; and
(5) other powers specified in the company's articles of association.
The supervisors are present at meetings of the board of directors.
Article 55
When considering and deciding on the wages, welfare and production
safety of the staff and workers and labour protection, labour insurance
and other issues involving the personal interests of the staff and
workers, the company shall first solicit and consider the opinions of the
company's trade union and staff and workers, and shall invite
representatives from the trade union and the staff and workers to attend
the relevant meetings.
Article 56
When considering and deciding on major issues relating to the
company's production and operations and formulating important rules and
regulations, the company shall solicit and consider the opinions and
proposals of the company's trade union and staff and workers.
Article 57
Any of the following persons shall not serve as a director, supervisor
or manager of a company:
(1) persons without civil capacity or with restricted civil capacity;
(2) persons who have committed the offences of corruption, bribery,
infringement of property, misappropriation of property or sabotaging the
socioeconomic order, and have been sentenced to criminal penalties, where
less than five years have elapsed since the date of completion of the
sentence; or persons who have been deprived of their political rights due
to criminal offences, where less than five years have elapsed since the
date of the completion of implementation of this deprivation;
(3) persons who are former directors, factory directors or managers of
a company or enterprise which has become bankrupt and been liquidated as a
result of mismanagement and are personally liable for the bankruptcy of
such company or enterprise, where less than three years have elapsed since
the date of the completion of the bankruptcy and liquidation of the
company or enterprise;
(4) persons who were legal representatives of a company or enterprise
which had its business licence revoked due to a violation of the law and
who are personally liable, where less than three years have elapsed since
the date of the revocation of the business licence; or
(5) persons who have a relatively large amount of debts due and
outstanding.
Where a company elects, nominates or appoints any director or
supervisor or employs a manager contrary to the provisions of the
preceding clause, such election, appointment or employment is
ineffective.
Article 58
State civil servants shall not act concurrently as a company's
director, supervisor or manager.
Article 59
The directors, supervisors or managers shall abide by the company's
articles of association, faithfully execute their official duties and
protect the company's interests. They shall not exploit their position and
power in the company to advance their own private interests.
The directors, supervisors or managers of a company shall not exploit
their position to accept bribes or other illegal income or wrongfully take
over company property.
Article 60
The directors or managers shall not misappropriate company funds or
loan such funds to others.
The directors or managers shall not open accounts in their own names
or in the names of other individuals for the deposit of the company's
assets.
The directors or managers shall not provide a guarantee for debts of a
shareholder of the company or other individual(s) with the company's
assets.
Article 61
The directors or managers shall not engage on their own behalf or on
behalf of others in any business similar to the business of the company in
which they hold office or in activities harmful to the company's
interests. The proceeds from such business or activities shall belong to
the company.
Unless otherwise provided in the company's articles of association or
with the consent of a shareholders' meeting, a director or manager shall
not enter into any contracts or transactions with the company.
Article 62
The directors, supervisors or managers shall not disclose the secrets
of the company except in accordance with the provisions of the law or with
the consent of a shareholders' meeting.
Article 63
Where a director, supervisor or manager of a company violates the law,
administrative regulations or the company's articles of association while
performing his official corporate duties resulting in harm to the company,
such director, supervisor or manager shall be liable for damages.
Section 3 Wholly State-Owned Companies
Article 64
"A wholly state-owned company" in this Law refers to a limited
liability company in which a state-authorized investment institution or a
state-authorized department is the sole investor and which is established
solely by a state-authorized investment institution or by a
state-authorized department.
A company designated by the State Council for the production of
special products or belonging to a specified trade shall be established in
the form of a wholly state-owned company.
Article 65
The articles of association of a wholly state-owned company are
formulated in accordance with this Law by the state-authorized investment
institution or the state-authorized department or formulated by the board
of directors, and reported to the state-authorized investment institution
or the state-authorized department for approval.
Article 66
A wholly state-owned company does not have shareholders' meetings. The
company's board of directors is authorized by the state-authorized
investment institution or the state-authorized department to exercise part
of the powers of the shareholders' meetings, decide on the major issues of
the company, provided that decisions on merger, division, dissolution of
the company, increase or decrease in capital and issue of corporate bonds
shall be decided by the state-authorized investment institution or the
state-authorized department.
Article 67
The state-authorized investment institution or the state-authorized
department shall exercise supervision and management over the state-owned
assets of a wholly state-owned company in accordance with the provisions
of law and administrative regulations.
Article 68
A wholly state-owned company shall have a board of directors which
carries out its duties in accordance with the provisions of Article 46 and
Article 66 of this Law. The term of office of the board of directors is
three years.
The board of directors has three to nine members, appointed or
replaced by the state-authorized investment institution or the
state-authorized department in accordance with the board of directors'
terms. Members of the board of directors shall include representatives of
the staff and workers of the company. Representatives of the staff and
workers on the board of directors are chosen by the company's staff and
workers by democratic election.
The board of directors has a chairman and may have one vice-chairman
if necessary. The chairman and the vice-chairman are designated from among
the directors by the state-authorized investment institution or the
state-authorized department.
The chairman of the board of directors is the legal representative of
the company.
Article 69
A wholly state-owned company shall have a manager who is appointed or
dismissed by the board of directors. The manager exercises his powers in
accordance with the provisions of Article 50 of this Law.
With the consent of the state-authorized investment institution or the
state-authorized department, members of the board of directors may act
concurrently as manager.
Article 70
The chairman and vice-chairman of the board of directors, directors
and the manager of a wholly state-owned company shall not act concurrently
as officers of other limited liability companies, companies limited by
shares or other economic organizations without the consent of the
state-authorized investment institution or the state-authorized
department.
Article 71
To transfer assets of a wholly state-owned company, in accordance with
the provisions of law and administration regulations, examination and
approval and procedures for transfer of property rights are handled by the
state-authorized investment institution or the state-authorized
department.
Article 72
Large-scale wholly state-owned companies with a sound system of
operation and management and whose operational situation is relatively
good may be authorized by the State Council to exercise rights as the
owner of the assets.
Chapter 3 Establishment and Organizational Structure of A Company Limited by Shares
Section 1 Establishment
Article 73
Establishment of a company limited by shares shall be subject to the
fulfillment of the following conditions:
(1) the number of promoters meets the requirement of the law;
(2) the share capital subscribed by the promoters and by public offer
meets the minimum amount of capital required by law;
(3) the issue of shares and related preliminary matters comply with
the provisions of law;
(4) articles of association are formulated by the promoters and
adopted by the founding meeting;
(5) there is a company name and the establishment of an organizational
structure complying with the requirements for the establishment of a
company limited by shares; and
(6) there is a fixed site for production and operations and the
necessary conditions for production and operations.
Article 74
A limited liability company may be established by means of promotion
or offer.
Establishment by the promoter method means the establishment of a
company by the subscription by the promoters for all the shares to be
issued by the company.
Establishment by the offer method means establishment of a company by
the subscription by the promoters of part of the shares to be issued by a
company and a public offer of the remaining part of the shares.
Article 75
The establishment of a company limited by shares shall have at least
five promoters including more than half of the promoters with domiciles
within Chinese territory.
When a state-owned enterprise is reorganized into a company limited by
shares, there may be less than five promoters, but the offer method shall
be adopted for its establishment.
Article 76
The promoters of a company limited by shares shall subscribe for
shares for which they are required to subscribe in accordance with this
Law and shall be responsible for the preparation of the establishment of
the company.
Article 77
The establishment of a company limited by shares shall be approved by
the department authorized by the State Council or by the provincial-level
people's government.
Article 78
The registered capital of a company limited by share is the total
share capital which has been registered with the company registration
authority and which has been actually received.
The minimum amount of the registered capital of a company limited by
shares is CNY 10,000,000. Requirements for the minimum amount of the
registered capital of a company limited by shares to be higher than the
above amount are provided for in separate laws or administrative
regulations.
Article 79
The articles of association of a company limited by shares shall set
out the following:
(1) the company's name and domicile;
(2) the company's scope of business;
(3) the company's method of establishment;
(4) the total shares, value per share and registered capital of the
company;
(5) the names of the promoters and the number of shares subscribed by
them;
(6) the rights and obligations of the shareholders;
(7) the composition, powers, term of office and rules of procedure for
discussion of the board of directors;
(8) the company's legal representative;
(9) the composition, powers, term of office and rules of procedure for
discussion of the board of supervisors;
(10) the company's method of profit distribution;
(11) grounds for the dissolution of the company and method for its
liquidation;
(12) procedures for company notices and announcements; and
(13) other matters which the shareholders' general meeting considers
necessary to specify.
Article 80
The promoters may make capital contributions in currency, or may
invest in kind, use industrial property, non-patented technology or land
use rights to make capital contributions based on their appraised value.
For investment in kind, industrial property, non-patented technology or
land use rights which are capital contributions, a valuation shall be
carried out, the property contributed, verified and conversion into shares
made, without over valuation or under valuation. The valuation of land use
rights is to be dealt with in accordance with the provisions of laws and
administration regulations.
The amount of industrial property or non-patented technology
contributed as capital based on its appraised value shall not exceed
twenty percent of the registered capital of a company.
Article 81
When a state-owned enterprise is reorganized into a company limited by
shares, it is strictly prohibited to under value state-owned assets for
conversion into shares, sell them at prices below their value, or
distribute them without compensation to individuals.
Article 82
Where a company limited by shares is to by established by the promoter
method, the promoters shall pay the full amount for the shares immediately
after they have subscribed in writing for all shares which the articles of
association provide to be issued. If investment in kind, industrial
property, non-patented technology or land use rights are used as payment
for the shares, procedures for the transfer of the property rights shall
be dealt with in accordance with the law.
The board of directors and the board of supervisors shall be elected
after the promoters have paid all capital contributions. The board of
directors submits to the company registration authority the approval
document(s), the company's articles of association, the investment
verification certificate and other documents for the establishment of the
company and applies to register the establishment of the company.
Article 83
Where a company limited by shares is to be established by the offer
method, the shares subscribed for by the promoters shall not be less than
thirty-five percent of the total number of shares of the company. The
remaining portion shall be offered to the public.
Article 84
When the promoters offer shares to the public, and application for the
offer shall be submitted to the securities administration authorities of
the State Council together with the following major documents:
(1) document(s) approving the establishment of the company;
(2) the company's articles of association;
(3) the operating budget;
(4) the promoters' names, the number of shares subscribed by the
promoters, the type(s) of capital contribution and investment verification
certificate;
(5) the prospectus;
(6) the names and addresses of the receiving bankers; and
(7) the names of the underwriters and relevant agreements.
The promoters shall not offer any shares to the public without prior
approval of the securities administration authorities of the State
Council.
Article 85
Subject to the approval of the securities administration authorities
of the State Council, promoters may publicly offer shares to investors
outside China. The concrete procedures for such offers are set out in
specific regulations of the State Council.
Article 86
The securities administration authorities of the State Council grant
approval to applications for offers which comply with the conditions
provided in this Law. If the applications do not comply with the
conditions provided in this Law, no approval is granted.
If, after the approval has been granted, the offer is found not to
comply with the provisions of this Law, approval shall be revoked. If
shares have not been offered, the offer will not be carried out. If shares
have already been offered, the subscribers may demand that the promoters
refund their payments for shares with interest at the bank's rate for a
deposit of the same term.
Article 87
The articles of association formulated by the promoters shall be
attached to the prospectus which shall set out the following:
(1) the number of shares subscribed by the promoters;
(2) the par value per share and issue price for each share;
(3) the total number of non-registered shares issued;
(4) the rights and obligations of the subscribers; and
(5) the duration of the offer and explanation that subscribers may
revoke their subscription to shares if the offer is under-subscribed at
the close of the offer.
Article 88
In making a public offer of shares, promoters shall publish a
prospectus and prepare share subscription applications. Share subscription
applications shall set out the items stated in the preceding article.
Subscribers fill in the number of shares subscribed, the amount of payment
and their domiciles, and sign and seal the share subscription application.
Subscribers make payment for shares according to the number of shares they
have subscribed.
Article 89
A public offer of shares by promoters shall be underwritten by
securities institutions. established in accordance with the law, and an
underwriting agreement shall be entered into.
Article 90
In making a public offer of shares, the promoters shall enter into a
agreement with the receiving bankers.
The receiving bankers shall receive and hold as agents the payments
for shares, issue receipts to subscribers making payments, and shall be
obliged to issue evidence of receipt of payments to the relevant
departments.
Article 91
After payment in full has been made for the shares issued, an
authorized investment verification authority shall verify the investments
and issue an investment verification certificate. The promoters shall
convene a founding meeting within thirty days. The founding meeting is
made up of the subscribers.
If the shares issued are not fully subscribed after the closing date
specified in the prospectus; or if the promoters do not convince the
founding meeting within thirty days of payment in full having been made
for the shares offered, the subscribers may demand that the promoters
refund their payments for shares plus interest at the bank's rate for a
deposit of the same term.
Article 92
The promoters shall give notice to all subscribers or make an
announcement of the date of the founding meeting fifteen days before the
meeting. The founding meeting shall be held only if subscribers
representing half or more of the total shares are present.
The founding meeting exercises the following powers:
(1) to examine the report of the promoters on preparations for the
establishment of the company;
(2) to adopt the company's articles of association;
(3) to elect the members of the board of directors;
(4) to elect the members of the board of supervisors;
(5) to examine and verify the expenses incurred for the establishment
of the company;
(6) to examine and verify the valuation of the property used by
promoters as payments for shares; and;
(7) in the case of the occurrence of force major or substantial
changes to operating conditions which have a direct effect on the
establishment of the company, a resolution not to establish the company
may be made.
A resolution at the founding meeting on any of the matters set out
above requires the approval of subscribers with more than half of the
voting rights present at the meeting.
Article 93
The promoters and subscribers shall not withdraw their share capital
after making payments for shares or making their contribution of capital
as payment for shares, except where the shares have not been fully
subscribed within the offer period, the promoters have not convened the
founding meeting within the period specified, or a resolution not to
establish the company is adopted at the founding meeting.
Article 94
Within 30 days of the conclusion of the founding meeting, the board of
directors shall submit to the company registration authority the following
documents and shall apply to register the establishment of the company:
(1) approval document from the relevant supervising departments;
(2) minutes of the founding meeting;
(3) the company's articles of association;
(4) the auditors' report on financial matters relating to the
preparation of the establishment of the company;
(5) investment verification certificate;
(6) the names and domiciles of members of the board of directors and
board of supervisors; and
(7) the name and domicile of the legal representative.
Article 95
The company registration authority shall, within thirty days from the
date of receipt of an application to register the establishment of a
company limited by shares decide whether or not to grant registration.
Registration is granted and a business licence issued if all the
conditions set out in this Law are met. Registration is not granted if the
conditions set out in this Law are not met.
The date of issue of the business licence is the date of establishment
of a company limited by shares. After the company is established, a public
announcement shall be made.
After the registration and establishment of a company limited by
shares, in the case of establishment by the offer method, a report on the
offer of shares shall be filed with the securities administration
authorities of the State Council for the record.
Article 96
Where a branch or branches are to be set up at the same time as the
establishment of a company limited by shares, application shall be made to
the company registration authority to register it or them and obtain
business licence(s).
Where a branch or branches are to be set up after the establishment of
a company limited by shares, the legal representative of the company shall
apply to the company registration authority to register it or them and
obtain business licence(s).
Article 97
Promoters of a company limited by shares shall assume the following
responsibilities:
(1) to be jointly liable for the debts and expenses arising from
actions to establish the company, if the company can not be established;
(2) to be jointly liable to refund subscribers' payments for shares
plus interest at the bank's rate for a deposit of the same term, if the
company cannot be established; and
(3) to be responsible for compensating the company for damages to the
interests of the company arising from negligence of the promoters during
the process of establishing the company.
Article 98
A limited liability company being converted into a company limited by
shares shall meet the conditions for a company limited by shares set out
in this Law, and procedures for the establishment of a company limited by
shares shall be carried out in accordance with this Law.
Article 99
When a limited liability company is converted into a company limited
by shares in accordance with the law and with approval, the total amount
of shares into which conversion is made shall be equivalent to the amount
of the company's net assets. When a limited liability company is converted
into a company limited by shares and increases its capital by public offer
of shares, the provisions of this Law concerning public offer of shares
shall be followed.
Article 100
Where a limited liability company is being converted into a company
limited by shares, the creditors' rights and indebtedness of the original
limited liability company are assumed by the company limited by shares
after the conversion.
Article 101
A company limited by shares shall deposit its articles of association,
register of shareholders, minutes of shareholders' general meetings and
financial and accounting reports at the company.
Section 2 Shareholders' General Meeting
Article 102
A company limited by shares shall have a shareholders' general meeting
made up of all shareholders. The shareholders' general meeting is the
company's authoritative organization which exercises its powers in
accordance with this Law.
Article 103
The shareholders' general meeting exercises the following powers:
(1) to decide on the company's operational policies and investment
plans;
(2) to elect and replace directors and decide on matters relating to
the remuneration of directors;
(3) to elect and replace the supervisors who are representatives of
the shareholders and decide on matters relating to the remuneration of
supervisors;
(4) to examine and approve reports of the board of directors;
(5) to examine and approve reports of the board of supervisors;
(6) to examine and approve the company's proposed annual financial
budget and final accounts;
(7) to examine and approve the company's profit distribution plan and
plan for recovery of losses;
(8) to decide on increases in or reductions of the company's
registered capital;
(9) to decide on the issue of bonds by the company;
(10) to decide on issue such as merger, division, dissolution and
liquidation of the company and other matters; and
(11) to amend the company's articles of association.
Article 104
Shareholders' general meetings shall be held once every year. An
interim shareholders' general meeting shall be held within two months
under any of the following circumstances:
(1) the number of directors is less than tow-thirds of the number of
directors required by this Law or of the number of directors specified in
the company's articles of association;
(2) the unrecovered losses of the company's capital reach one-third of
the company's total share capital;
(3) upon request by shareholders holding ten per cent or more of the
shares of the company;
(4) when deemed necessary by the board of directors; and
(5) when the board of supervisors proposes convening it.
Article 105
Convening shareholders' general meetings is the responsibility of the
chairman of the board of directors in accordance with the provisions of
this Law and such meetings are presided over by the chairman. If the
chairman is unable to perform his duties for a particular reason, the
vice-chairman or another director designated by the chairman presides over
the meeting. When convening a shareholders' general meeting, notice shall
be given to all shareholders thirty days before the meeting, stating the
matters to be considered at the meeting. An interim shareholders' general
meeting shall not adopt resolutions on matters not stated in the notice.
Where bearer shares are issued, a public announcement shall be made
about the matters in the preceding paragraph forty-five days before the
meeting.
Where shareholders of bearer shares are present at a shareholders'
general meeting, their shares shall be deposited with the company from
five days prior to the opening of the meeting until the adjournment of the
meeting.
Article 106
Shareholders present at a shareholders' general meeting have one vote
for each share they hold.
Resolutions of the shareholders' general meeting shall be adopted with
half or more of the voting rights held by shareholders present at the
meeting. Resolutions of the shareholders' general meeting on merge,
division or dissolution of a company shall be adopted by shareholders with
two-thirds or more of the voting rights present at the meeting.
Article 107
Amendments to the articles of association of the company must be
adopted by shareholders with two-thirds or more of the voting rights
present at the meeting.
Article 108
Shareholders may appoint proxies to attend shareholders' general
meetings. A proxy shall present to the company a power of attorney from
the shareholder and shall exercise his voting rights within the scope of
his authorization.
Article 109
Minutes of decision made on matters discussed by the shareholders'
general meeting shall be kept and signed by the shareholders present at
the meetings. The minutes shall be kept together with the signed register
of shareholders in attendance and the powers of attomey of shareholders
who attended by proxy.
Article 110
shareholders have the right to examine the company's articles of
association, minutes of shareholders' general meetings and financial and
accounting reports, and to make proposals or inquiries in respect of the
company's operations.
Article 111
If any resolution adopted by a shareholders' general meeting or the
board of directors violates any law or administrative regulation or
infringes the lawful rights and interests of shareholders, shareholders
have the right to initiate proceedings in the people's court to require
that such acts of violation or infringement be stopped.
Section 3 Board of Directors, Manager
Article 112
A company limited by shares has a board of directors with five to
nineteen members.
The board of directors is responsible to the shareholders' general
meeting and exercises the following powers:
(1) to be responsible for convening the shareholders' general meeting
and reporting on its work to the shareholders' general meeting;
(2) to implement the resolutions of the shareholders' general
meetings;
(3) to decide on the company's business plans and investment plans;
(4) to formulate the company's proposed annual financial budget and
final accounts;
(5) to formulate the company's profit distribution plan and plan for
recovery of losses;
(6)to formulate proposals for increases in or reductions of the
company's registered capital and the issue of corporate bonds;
(7) to prepare plans for the merger, division or dissolution of the
company;
(8) to decide on the putting in place of the company's internal
management structure;
(9) to appoint or dismiss the company's manager, and pursuant to the
manager's nominations to appoint or dismiss the deputy general manager and
financial officers of the company and decide on their remuneration; and
(10) to formulate the company's basic management system.
Article 113
The board of directors has one chairman and may have one or two
vice-chairmen. The chairman and vice-chairmen are elected from the
directors with the approval of more than half of all the directors.
The chairman of the board of directors is the legal representative of
the company.
Article 114
The chairman of the board of directors exercises the following powers:
(1) to preside over shareholders' general meetings and convene and
preside over meetings of the board of directors;
(2) to check on the implementation of resolutions of the board of
directors; and
(3) to sign the company's share certificates and bonds.
The vice-chairmen assist the chairman in his work. When the chairman
is unable to perform his duties, the vice-chairman designated by the
chairman performs his duties on his behalf.
Article 115
The term of office of the directors is specified in the company's
articles of association, provided, however, that each term may not be
longer than three years. At the end of a director's term, the director may
serve another term if re-elected.
The shareholders' general meeting shall not without reason remove a
director from office before the expire of that director's term.
Article 116
Meetings of the board of directors are convened at least twice a year.
Notice of each meeting shall be given to all directors ten days before the
meeting.
For convening an interim meeting of the board of directors, the board
of directors may provide for a different method of giving notice and
notice period.
Article 117
Meetings of the board of directors shall be held only if half or more
of the directors are present. Resolutions of the board of directors
require the approval of more than half of all directors.
Article 118
The directors shall attend the meetings of the board of directors in
person. If a director is unable to attend a meeting for any reason, he may
appoint another director by a written power of attomey to attend the
meeting on his behalf. The power of attorney shall set out the scope of
the authorization.
The board of directors shall keep minutes of resolutions on matters
discussed at the meetings. The minutes are signed by the directors present
at the meeting and the person who recorded the minutes.
The directors shall be responsible for the resolutions of the board of
directors. If a resolution of the board of directors violates the law,
administrative regulations or the company's articles of association and
this results in the company sustaining serious losses, the directors
participating in the resolution are liable to compensate the company.
However, if it can be proven that a director expressly objected to the
resolution when the resolution was voted on, and that such objections were
recorded in the minutes of the meeting, such director may be free of
liability.
Article 119
A company limited by shares has a manager appointed and dismissed by
the board of directors. The manager is responsible to the board of
directors and exercises the following powers:
(1) to be in charge of the company's production, operation and
management and organize the implementation of the resolutions of the board
of directors;
(2) to organize the implementation of the company's annual business
plan and investment plan;
(3) to propose plans for the putting in place of the company's
internal management structure;
(4) to propose the company's basic management system;
(5) to formulate specific rules and regulations for the company;
(6) to propose the appointment or dismissal of the company's deputy
manager and financial officers;
(7) to appoint or dismiss management personnel other than those
required to be appointed or dismissed by the board of directors; and
(8) other powers conferred by the company's articles of association
and the board of directors.
The manager is present at meetings of the board of directors.
Article 120
The board of directors may, as required, authorize the chairman of the
board of directors to exercise part of the powers of the board of
directors during the period when the board of directors is not in session.
Article 121
When considering and deciding on the wages, welfare and production
safety of staff and workers and labour protection, labour insurance and
other issues involving the personal interests of staff and workers, the
company shall first solicit and consider the opinions and proposals of the
company's trade union and the staff and workers, and shall invite
representatives from the company's trade union and the staff and workers
to attend the relevant meetings.
Article 122
When considering and deciding on major issues relating to the
company's production and operation and formulating important rules and
regulations, the company shall solicit and consider the opinions and
proposals of the company's trade union and the staff and workers.
Article 123
The directors and manager shall abide by the company's articles of
association, faithfully execute their official duties, and protect the
company's interests. They shall not exploit their position and power in
the company to advance their own private interests.
The provisions of Article 57 to Article 63 of this Law on persons not
eligible for the positions of director and manager and on the obligations
and duties of the directors and manager are applicable to the directors
and manager of a company limited by shares.
Section 4 Board of Supervisors
Article 124
A company limited by shares has a board of supervisors made up of not
less than three members. The board of supervisors shall choose a convener
from among its members.
The board of supervisors is made up of representatives of the
shareholders and a reasonable proportion of representatives of the
company's staff and workers, the specific proportion to be provided for in
the company's articles of association. Representatives of the staff and
workers on the board of supervisors are chosen by the company's staff and
workers by democratic election.
The directors, manager and financial officers shall not act
concurrently as supervisors.
Article 125
The term of office of the supervisors is three years. At the end of a
supervisor's term, the supervisor may serve another term if re-elected.
Article 126
The board of supervisors exercises the following powers:
(1)to inspect the company's financial situation;
(2)to exercise supervision over the acts of the directors and manager
carried out while performing their corporate functions which violate laws,
regulations or the company's articles of association;
(3) to demand remedies from a director or manager when the acts of
such director or manager are harmful to the company's interests;
(4)to propose the convening of an interim shareholders' general
meeting; and
(5) other powers specified in the company's articles of association.
Supervisors are present at meetings of the board of directors.
Article 127
The discussion methods and voting procedures of the board of
supervisors are specified in the company's articles of association.
Article 128
The supervisors shall faithfully execute their supervisory duties in
accordance with laws, administrative regulations and the company's
articles of association.
The provisions of Articles 57 to Article 59 and Articles 62 to Article
63 of this Law on persons not eligible for the position of supervisor and
on the obligations and duties of supervisors are applicable to supervisors
of a company limited by shares.
Chapter 4 Issue and Transfer of Shares by A Company Limited by Shares
Section 1 Issue of Shares
Article 129
The capital of a company limited by shares is divided into shares.
Each share is of equal value.
Shares in a company take the form of share certificates. A share
certificate signed and issued by the company is an evidence that the share
is held by the shareholder.
Article 130
The issue of shares is public, fair and impartial. Shares of the same
class must have the same rights and benefits.
For shares certificates issued at the same time, each share shall have
the same issue terms and price. The share price for each share purchased
by any organization or individual must be the same.
Article 131
The share certificate issue price may be equal to or greater than the
par value, but may not be less than the par value.
Share certificates with an issue price above par value shall be
approved by the securities administration departments of the State
Council.
The premium obtained from the issue of share certificates above par
value is allocated to the company's capital common reserve fund.
Specific regulations governing the issue of share certificates at a
premium are separately issued by the State Council.
Article 132
Share certificates take the form of paper certificates or such other
form as specified by the securities administration departments of the
State Council.
The following items shall be set out on a share certificate:
(1) the company's name;
(2) the company's registration and establishment date;
(3) the class of the share certificate, the par value and the number
of shares represented by the share certificate; and
(4) the number of the share certificate;
The share certificate is signed by the chairman of the board of
directors and sealed by the company.
Share certificates of promoters shall bear the notation "promoter's
share certificate".
Article 133
Shares issued to promoters, state-authorized investment organizations
and legal persons shall be in the form of registered share certificates,
shall bear the name of such promoter, state-authorized investment
organizations or legal person, and may not carry a different account name
or be registered in the name of an agent.
Shares issued to the general public may be in the form of registered
share certificates and also may be in the form of bearer share
certificates.
Article 134
A company issuing registered share certificates shall prepare a
register of shareholders setting out the following:
(1) the name and address of the shareholders;
(2) the number of shares held by each shareholder;
(3) the number(s) of the share certificate(s) held by each
shareholder, and
(4) the date on which each shareholder acquired its shares.
A company issuing bearer share certificates shall record the number of
such share certificates issued, their numbers and dates of issue.
Article 135
The State Council may separately issue regulations governing the issue
of classes of share certificates not covered by this Law.
Article 136
A company limited by shares formally delivers share certificates to
its shareholders immediately upon its registration and establishment. No
share certificates shall be delivered prior to the registration and
establishment of the company.
Article 137
A company issuing new shares shall meet the following conditions:
(1) the previous issue of shares has been fully subscribed and at
least one year have elapsed since that issue;
(2)the company has been continuously profitable for the last three
years and is able to make dividend payments to its shareholders;
(3) there has been no false reporting in the company's financial and
accounting documents during the last three years; and
(4) the projected profit rate of the company equals or exceeds the
rate of interest on bank deposits for the same term.
A company which uses a given year's profits to issue new shares is not
subject to clause (2) above.
Article 138
In order for a company to issue new shares, resolutions shall be
passed on the following matters at a meeting of the shareholders:
(1) the class and quantity of the new shares;
(2) the issue price of the new shares; and
(3) the commencement and closing dates of the new share issue;
(4) the class and quantity of shares to be issued to existing
shareholders.
Article 139
Once the shareholders at a shareholders' meeting have passed a
resolution to issue new shares, the board of directors shall apply to the
apply to the authorized department of the State Council or to the
provincial level people's government for approval. Public offers shall
require the approval of the securities administration departments of the
State Council.
Article 140
Upon receiving approval to issue new shares in a public offer, the
company shall publish a prospectus for the new shares and its financial
statements with their detailed schedules, and prepare a share subscription
application.
A public offer of new shares shall be underwritten by a legally
established securities institution and an underwriting agreement shall be
executed.
Article 141
A company issuing new shares may determine its pricing plans in the
light of the company's continuous profitability and the increase in the
value of its property.
Article 142
After a company issuing new shares has fully collected the payments
for shares, the company shall change its registration with the company
registration authority and issue a public notice.
Section 2 Transfer of Shares
Article 143
A shareholder may transfer his shares in accordance with the law.
Article 144
A shareholder's transfer of its shares must be carried out through a
legally established stock exchange.
Article 145
Registered share certificates are transferred by means of endorsement
or by other means as stipulated by law or by administrative regulations.
Upon the transfer of registered share certificates, the company
records the name and address of the transferee in the register of
shareholders.
Pursuant to the previous paragraph, no changes in the register of
shareholders shall be made within 30 days before the convening of the
shareholders' general meeting or within 5 days before the record date for
the issue of dividends.
Article 146
A transfer of bearer share certificates is effective upon delivery of
the share certificates to the transferee through a legally established
stock exchange.
Article 147
Shares of a company held by a promoter of that company shall not be
transferred for three years after the company's establishment.
Directors, supervisors and the manager of a company shall report to
that company all the shares that they hold in the company, and shall not
transfer them during their term of office.
Article 148
A state-authorized investment institution may transfer the shares it
holds in accordance with the law and may also purchase the shares held by
other shareholders. The approval limits and the regulatory regime for such
share transfers and purchases are separately determined by law or by
administrative regulations.
Article 149
A company shall not purchase the company's own share certificates,
except in order to decrease its capital by canceling its shares or when it
merges with another company that holds its shares.
Within ten days following the purchase of the company's own share
certificates pursuant to the terms of the preceding paragraph, a company
shall, in accordance with applicable law and administrative regulations,
cancel that portion of its shares, change its registration and issue a
public notice.
A company shall not accept the company's own share certificates as
collateral.
Article 150
In the event registered share certificates are stolen, lost or
destroyed, the shareholder may, pursuant to the procedures for public
invitation to assert claims contained in the Code of Civil Procedure,
request the people's court to declare the share certificates invalid.
After the share certificates are declared invalid by the people's
court, the shareholder may, pursuant to the procedures for public
invitation to assert claims, apply to the company to have share
certificates re-issued.
Section 3 Listed Companies
Article 151
A listed company referred to in this Law means a company limited by
shares whose issued shares are approved for trading on a stock exchange by
the State Council or its authorized securities administration departments.
Article 152
A company limited by shares shall meet the following requirements
before applying for its shares to be listed on a stock exchange:
(1) the securities administration departments of the State Council
have approved the company's stock being issued to the public;
(2) the company's total share capital is not less than CNY 50,000,000;
(3) the company has been in operation for over three years and has
been profitable in each of the last three years; if an original
state-owned enterprise has been converted and the company established
according to the law, or the company has been reorganized and established
after the effective date of this Law with a large-or medium-sized
state-owned enterprise as its main promoter, the three year periods may be
calculated continuously;
(4) the number of shareholders each holding shares of a par value
totaling at least CNY 1,000 is not less than one thousand; the company's
shares already issued to the public account for over 25% of the company's
total shares; if the company's total share capital exceeds CNY
400,000,000, company shares already issued to the public account for over
15% of the company's total shares;
(5) during the last three years, the company has not committed any
significant acts in violation of the law and the company's financial
statements have not contained any false statements; and
(6) such other conditions as may be specified by the State Council.
Article 153
A company limited by shares applying to have its shares listed for
trading shall file an application for approval with the State Council or
its authorized securities administration departments and submit relevant
documents in accordance with applicable laws and administrative
regulations.
The State Council or its authorized securities administration
departments grant approval to those listing applications which meet the
requirements specified in this Law and deny approval to those listing
applications which do not meet the requirements specified in this Law.
A company which has been granted approval for listing must publish a
share listing report and keep its application documents on file in a
designated place for public inspection.
Article 154
Shares of a company which has been approved for listing shall trade on
a stock exchange in accordance with applicable laws and administrative
regulations.
Article 155
If granted approval by the securities administration departments of
the State Council, shares of a company may be listed abroad, The specific
means are stipulated by special regulations issued by the State Council.
Article 156
Pursuant to laws and administrative regulations, a listed company
shall periodically make public its financial and operational conditions. A
listed company shall publish its financial statements once every six
months in each fiscal year.
Article 157
A listed company in one of the following situations shall have its
listing temporarily suspended upon determination by the securities
administration departments of the State Council:
(1) the company's total share capital, share distribution, or other
circumstances have changed such that the company no longer meets the
listing requirements;
(2) the company does not make public its financial condition as
required by the regulations, or its financial statements contain false
statements;
(3) the company commits a significant violation of law; and
(4) the company has had a loss in each of the three previous years.
Article 158
A listed company in the situation described in clause (2) or clause
(3) of the preceding article which upon investigation is found to have
caused serious consequences, or a listed company which is in the situation
described in clause (1) or clause (4) of the same article and is unable to
eliminate it within a limited time, does not meet the listing
requirements, its listing shall be terminated upon decision by the
securities administration departments of the State Council.
If a company resolves to dissolve itself, or if a company is legally
ordered to close down by the responsible administrative department, or if
a company is declared to be bankrupt, the company shall have its listing
terminated upon decision by the securities administration departments of
the State Council.
Chapter 5 Corporate Bonds
Article 159
A company limited by shares, a wholly state-owned company and a
limited liability company established with the investment by two or more
state-owned enterprises or two or more state-owned investment entities, in
order to raise funds for production and operations, may issue corporate
bonds in accordance with this Law.
Article 160
"Corporate bonds" as used in this Law mean valuable securities issued
by a company in accordance with legally specified procedures and pursuant
to which the company covenants to repay principal and interest within a
certain period of time.
Article 161
The issue of corporate bonds shall be subject to the following
conditions:
(1) the net assets of a company limited by shares are not less than
CNY 30,000,000, and the net assets of a limited liability company are not
less than CNY 60,000, 000;
(2) the aggregate amount of bonds of the company does not exceed forty
per cent of the net assets of the company;
(3) the average distributable profits over the previous three years is
sufficient to defray one year's interest payments on the company's bonds;
(4) the funds raised are used in a manner consistent with state
industrial policy;
(5) the interest rate payable on the corporate bonds does not exceed
the levels set by the State Council; and
(6) such other conditions as may be provided for by the State Council.
The funds raised by corporate bonds shall be used for the purposes
approved by the approval authority and shall not be used to cover losses
or for non-productive expenditures.
Article 162
A company shall not re-issue corporate bonds under any of the
following circumstances:
(1) the corporate bonds issued the previous time have not yet been
fully subscribed;
(2) the company has defaulted on previously issued corporate bonds or
other indebtedness, or is late in the payment of principal or interest,
and such situation is still continuing.
Article 163
When a company limited by shares or a limited liability company
proposes to issue corporate bonds, its board of directors shall draft a
proposal for approval by resolution at a meeting of the shareholders.
The issue of corporate bonds by a wholly state-owned company shall be
decided by the state-authorized investment organization or the
state-authorized department.
Once a resolution or decision has been made pursuant to the preceding
two paragraphs, the company shall submit an application for approval to
the securities administration departments of the State Council.
Article 164
The scale of an issue of corporate bonds shall be determined by the
State Council. Approvals by the securities administration departments of
the State Council of an issue of corporate bonds shall not exceed the
scale determined by the State Council.
The securities administration departments of the State Council shall
grant approval if an application to issue corporate bonds satisfies the
requirements of this Law and deny approval if an application to issue
corporate bonds does not satisfy the requirements of this Law.
If an approval that has previously been granted for an application is
found not to satisfy the requirements of this Law, the approval shall be
revoked. With respect to corporate bonds not yet issued, the issue will
not be carried out. With respect to corporate bonds already issued, the
issuing company shall return the funds paid to the subscribers, together
with interest calculated at the rate on bank deposits for the same term.
Article 165
The company shall submit the following documents when applying to the
securities administration departments of the State Council for approval to
issue corporate bonds:
(1) the company's registration certificate;
(2) the company's articles of association;
(3) corporate bond offer procedure; and
(4) an asset appraisal report and investment verification report.
Article 166
Upon approval of the company's application to issue corporate bonds,
the company shall make public its corporate bond offer procedure.
The corporate bond offer procedure shall set out the following:
(1) the company's name;
(2) the total amount and face value of the bonds;
(3) the bonds' interest rate;
(4) the periods and method for paying principal and interest;
(5) the commencement and closing dates of the issue;
(6) the net assets of the company;
(7) the total amount of corporate bonds already issued but not yet
due; and
(8) the underwriter for the corporate bonds.
Article 167
When a company issues corporate bonds, the bonds shall show
information including the company's name, the face value of the bond, the
interest rate, and the date of maturity, and be signed by the chairman of
the board of directors and sealed by the company.
Article 168
Corporate bonds may be either bearer or registered bonds.
Article 169
A company which issues corporate bonds shall keep a corporate bonds
register.
When registered bonds are issued, the following items shall be set out
in the register:
(1) the names and addresses of the bondholders;
(2) the date on which the bond was acquired by the bondholder and its
number;
(3)the total amount of the bond, its face value, interest rate,
principal and interest payment dates and method of payments; and
(4) the issue date.
When bearer bonds are issued, the register shall set out the total
amount of the bonds, the interest rate, the maturity date and payment
method, the date of issue and the number of the bonds.
Article 170
Corporate bonds may be transferred. Transfers of corporate bonds shall
be carried out through a legally established stock exchange.
The transfer price is negotiated and agreed upon by the transferor and
transferee.
Article 171
Registered corporate bonds are transferred by the bondholder through
endorsement or by other means as stipulated by law or administrative
regulations.
Upon the transfer of a registered corporate bond, the company records
in its corporate bond register the name and address of the transferee.
A transfer of a bearer corporate bond becomes effective upon the
delivery of the corporate bond to the transferee at a legally established
stock exchange.
Article 172
Subject to a resolution at a general meeting of the shareholders, a
listed company may issue corporate bonds convertible into shares of the
company. The procedures for conversion are specified in the corporate bond
offer procedures.
The issue of corporate bonds convertible into shares shall be
submitted to the securities administration departments of the State
Council for approval. Corporate bonds convertible into shares shall meet
not only the requirements for the issue of bonds but also the requirements
for the issue of shares.
Corporate bonds convertible into shares shall be marked "convertible
corporate bonds", and the quantity of convertible corporate bonds shall be
recorded in the corporate bond register.
Article 173
A company which issues corporate bonds convertible into shares shall
issue share certificates to bondholders in accordance with its conversion
procedures, provided that the bondholder has the option whether or not to
convert.
Chapter 6 Financial Affairs and Accounting of A Company
Article 174
A company shall establish its financial and accounting systems
according to laws, administrative regulations and the regulations of the
responsible finance department of the State Council.
Article 175
At the end of each fiscal year, the company shall prepare a financial
statement which shall be examined and verified as provided by law.
The company's financial statements shall include the following
accounting statements and schedules:
(1) balance sheet;
(2) profit and loss statement;
(3) statement of financial changes;
(4) explanation of financial condition; and
(5) profit distribution statement.
Article 176
A limited liability company shall present its financial statements to
the shareholders in accordance with the time periods specified in the
company's articles of association.
A company limited by shares shall deposit its financial statements at
the company for inspection by the shareholders at least twenty days before
the convening of the annual general meeting of shareholders.
A company limited by shares established by the offer method shall make
public its financial statements.
Article 177
When distributing each year's after-tax profits, the company shall set
aside ten per cent of its after-tax profits for the company's statutory
common reserve fund and five per cent to ten per cent of its profits for
the company's statutory common welfare fund. When the aggregate balance in
the statutory common reserve fund is fifty per cent or more of the
registered capital of the company, the company need not make any further
allocations to that fund.
When the company's statutory common reserve fund is not sufficient to
make up for the company's losses of the previous year, current year
profits shall be used to make up for the losses before allocations are set
aside for the statutory common reserve fund or the statutory common
welfare fund in accordance with the previous clause.
Subject to a resolution of the shareholders' meeting, after the
company has set aside funds from after-tax profits for the statutory
common reserve fund, the company may set aside funds for a discretionary
common reserve fund.
After the company has made up its losses and made allocations to its
common reserve fund and statutory common welfare fund, the remaining
profits are distributed in proportion to the shareholders' capital
contributions if the company is a limited liability company and in
proportion to the number of shares held by the shareholders if the company
is a company limited by shares.
If a shareholders meeting or the board of directors violates the above
provisions and profits are distributed to the shareholders before the
company makes up for losses or makes allocations to the statutory common
fund and the statutory common reserve welfare fund, the profits
distributed in violation of the provisions must be returned to the
company.
Article 178
In accordance with this Law, the premium a company limited by shares
obtains when it issues shares at a price which exceeds par value, and any
other income designated for the capital common reserve fund by the
regulations of the responsible finance department of the State Council
shall be allocated to the company's capital common reserve fund.
Article 179
The common reserve fund of a company is used to make up its losses,
expand its production and operations or for conversion into additional
capital of the company.
When the common reserve fund of a company limited by shares is
converted to capital in accordance with a resolution passed at a general
meeting of the shareholders, the company either distributes new shares in
proportion to the shareholders, number of shares, or increases the par
value of each share, provided, however, that when the statutory common
reserve fund is converted to capital, the balance of the statutory common
reserve fund may not fall below twenty-five percent of the registered
capital.
Article 180
The company's statutory common welfare fund is used for the collective
welfare of the company's staff and workers.
Article 181
A company shall not keep accounting books and records other than those
provided by law.
The company's assets shall not be held in an account opened in the
name of any individual.
Chapter 7 Merger and Division of A Company
Article 182
A resolution to effect the merger and division of a company shall be
passed at a meeting of the shareholders.
Article 183
The merger and division of a company limited by shares shall be
approved by the authorized department of the State Council or by the
provincial government.
Article 184
The merger of a company may take the form of either merger by
absorption or merger by the establishment of a new company.
Where one company is absorbed by another in a merger by absorption,
the absorbed company is dissolved. Where two or more companies establish a
new company in a merger by re-establishment, all merged parties are
dissolved.
In the event of a merger, the merging parties shall execute a merger
agreement and prepare a balance sheet and an inventory of property. The
company shall notify its creditors within ten days of the date of the
company's resolution to merge and shall publish public notices in a
newspaper at least three times within thirty days of the date of the
company's resolution to merge. A creditor has the right within thirty days
of receiving such notice from the company (or, for creditors who do not
receive the notice, within ninety days of the date of the first public
notice) to demand that the company repay its debts to that creditor or
provide a corresponding guarantee for such debt. A company which does not
repay its debts or provide corresponding guarantees for such debts shall
not be merged.
At the time of merger, the creditors' rights and indebtedness of each
of the merged parties shall be assumed by the company which survives the
merger or the newly established company.
Article 185
When a company is divided, its property shall be split up accordingly.
At the time a company is divided, the company shall prepare a balance
sheet and an inventory of property. The company shall notify its creditors
within ten days of the date of the company's resolution to divide and
shall publish public notices in a newspaper at least three times within
thirty days of the date of the company's resolution to divide. A creditor
has the right within thirty days of receiving such notice from the company
(or, for creditors who do not receive the notice, within ninety days of
the date of the first public notice) to demand that the company repay its
debts to that creditor or provide a corresponding guarantee for such debt.
A company which does not repay its debts or provide corresponding
guarantees for such debts shall not be divided.
Debts of the company prior to division are assumed by the
post-division companies in accordance with the agreements entered into.
Article 186
When a company needs to reduce its registered capital, it prepares a
balance sheet and an inventory of property.
The company shall notify its creditors within ten days of the date of
the company's resolution to reduce its registered capital and shall
publish public notices in a newspaper at least three times within thirty
days of the date of the company's resolution to reduce its registered
capital. A creditor has the right within thirty days of receiving such
notice from the company (or, for creditors who do not receive notice,
within ninety days of the date of the first public notice) to demand that
the company repay its debts to that creditor or provide a corresponding
guarantee for such debt.
The registered capital of a company following such capital reduction
shall not be less than the minimum levels set by law.
Article 187
When a limited liability company increases its registered capital, the
shareholders' subscription and payment of contributions for the newly
increased capital are carried out in accordance with the relevant
provisions of this Law governing payment of capital contributions for the
establishment of a limited liability company.
When a company limited by shares issues new shares in order to
increase its registered capital, the process by which shareholders
subscribe for new shares shall be carried out in accordance with the
relevant provisions of this Law governing payment for shares for the
establishment of a company limited by shares.
Article 188
When a company merges or divides and there is a change in any item in
its registration, the company shall change its registration with the
company registration authority in accordance with the law. When a company
dissolves, the company shall cancel its registration in accordance with
the law. When a new company in established, its establishment shall be
registered in accordance with the law.
When a company increases or decreases its registered capital, the
company shall carry out a change of registration with the company
registration authority.
Chapter 8 Insolvency, Dissolution and Liquidation of A Company
Article 189
In the case of a company legally declared bankrupt because it is
unable to repay debts due, the people's court shall, in accordance with
the provisions of relevant laws, organize the shareholders, relevant
organizations and relevant professional personnel to establish a
liquidation group to carry out bankruptcy liquidation procedures with
respect to the company.
Article 190
A company may dissolve in any of the following situations:
(1) pursuant to the provisions of the company's articles of
association, the term of the company has expired or one of the other
events which are grounds for dissolution has occurred;
(2) a resolution for dissolution is passed by a shareholders' meeting;
and
(3) dissolution is necessary due to a merger or division of the
company.
Article 191
A liquidation group shall be set up within fifteen days of a company
being dissolved pursuant to provisions (1) or (2) of the preceding
article. The liquidation group of a limited liability company is made up
of its shareholders. The composition of the liquidation group of a company
limited by shares is determined by a general meeting of the shareholders.
If a liquidation group to carry out liquidation procedures is not set up
within the specified time limit, the creditors may apply to the people's
court to have it designate relevant persons to form a liquidation group in
order to carry out liquidation procedures. The people's court shall accept
and hear such applications and timely designate the members of the
liquidation group in order to carry out liquidation procedures.
Article 192
A company which is ordered according to law to close down for
violating laws and administrative regulations shall be dissolved, and the
relevant responsible authority shall organize the shareholders, relevant
institutions and professional personnel to establish a liquidation group
to carry out liquidation procedures.
Article 193
During the liquidation period, the liquidation group shall exercise
the following powers:
(1) to check the company's property and separately prepare a balance
sheet and an inventory of property;
(2) to send notices to creditors or notify them by public notice;
(3) to deal with and liquidate relevant uncompleted business matters
of the company;
(4) to pay off outstanding taxes;
(5) to clear creditors' rights and indebtedness;
(6) to deal with the property remaining after the company's debts have
been repaid; and
(7) to represent the company in any civil litigation proceedings.
Article 194
The liquidation group shall, within ten days of its establishment,
send notices to creditors, and within sixty days of its establishment
publish public notices in a newspaper at least three times. A creditor
shall, within thirty days of receiving notice, report its creditors'
rights to the liquidation group, or for creditors who do not receive
notice, within ninety days of the date of the first public notice.
When reporting creditors' rights, the creditor shall provide and
explanation of matters relevant to the creditor's rights and shall provide
evidentiary materials. The liquidation group shall carry out registration
of creditors' rights.
Article 195
After checking the company's property and preparing a balance sheet
and an inventory of property, the liquidation group shall formulate a
liquidation plan and present it to a meeting of the shareholders or to the
relevant responsible authority for confirmation.
To the extent that the company is able to repay its debts, it shall
respectively pay all liquidation expenses, wages of staff and workers,
labour insurance fees and taxes owing, and shall repay the company's
debts.
The assets of the company remaining after its debts have been repaid
in accordance with the provisions of the previous clause are distributed
in proportion to the shareholders capital contributions if the company is
a limited liability company and in proportion to the number of shares held
by the shareholders if the company is a company limited by shares.
During the liquidation period, a company shall not commence any new
operational activities. The property of the company shall not be
distributed to the shareholders until the settlement provided for in the
second paragraph of this article is complete.
Article 196
After putting the company's property in order and preparing a balance
sheet and an inventory of property in connection with liquidation of the
company resulting from dissolution, the liquidation group discovers that
the company's assets are insufficient to repay the company's debts, the
liquidation group shall immediately apply to the people's court for a
bankruptcy declaration.
After a company is declared bankrupt by a ruling of the people's
court, the liquidation group shall transfer liquidation matters to the
people's court.
Article 197
After liquidation of the company is completed, the liquidation group
shall prepare a liquidation report and present it for confirmation to a
meeting of the shareholders or to the relevant responsible authority,
apply to the company registration authority for cancellation of the
company's registration and publish by public notice of the termination of
the company. Where no application is made for cancellation of the
company's registration, the company's business license is revoked by the
company registration authority and a public notice is published.
Article 198
The members of a liquidation group shall faithfully attend to their
duties and carry out their liquidation tasks in accordance with the law.
The members of a liquidation group shall not exploit their position to
accept bribes or other illegal income, nor shall they wrongfully take over
the property of the company.
The members of a liquidation group who intentionally or through gross
negligence cause losses to the company or its creditors shall be
responsible for providing compensation.
Chapter 9 Branches of Foreign Companies
Article 199
Pursuant to this Law, a foreign company may set up branches within
Chinese territory, and may engage in production and operational
activities.
Under this Law, "foreign company" means a company registered and
established outside Chinese territory in accordance with the law of a
foreign country.
Article 200
To set up a branch or branches within Chinese territory, a foreign
company shall file an application with the responsible Chinese
authorities, and present its company's articles of association, the
company's registration certificate issued by its home country and other
relevant documents. After receiving approval, the company shall register
with the company registration authority as provided by law and obtains a
business license.
The approval procedures for branches of foreign companies are
separately provided for in regulations issued by the State Council.
Article 201
A foreign company which establishes a branch within Chinese territory
shall appoint a representative or agent in charge of the branch and
allocate to the branch appropriate funds for the operational activities it
is engaged in.
Where it is necessary to provide for a minimum amount of operational
funds for branches of foreign companies, separate regulations are issued
by the State Council.
Article 202
The branch of a foreign company shall indicate in its name the
nationality of the foreign company and whether it has limited or unlimited
liability.
The articles of association of the foreign company shall be available
at its branches.
Article 203
A foreign company is a foreign legal person and its branches
established within Chinese territory do not have the status of Chinese
legal persons.
A foreign company assumes civil liability for the operational
activities of its branches within Chinese territory.
Article 204
A branch of a foreign company established with approval and engaging
in business activities within Chinese territory shall abide by the laws of
China and shall not harm the social and public interests of China. Its
legitimate rights and interests shall be protected by the laws of China.
Article 205
When a foreign company withdraws its branches from Chinese territory,
it shall repay its debts according to law and carry out liquidation in
accordance with the provisions of the relevant company liquidation
procedures set out in this Law. Until such debts are repaid, the property
of the branch shall not be transferred outside of Chinese territory.
Chapter 10 Legal Liabilities
Article 206
A company which violates this Law by falsely reporting its registered
capital when registering, presenting false documentation or employing
other deceptions to conceal important facts in order to obtain
registration of the company shall be ordered to remedy the situation. A
company that falsely reports its registered capital shall be fined at
least five per cent and no more than ten per cent of the amount of the
registered capital falsely reported. A company that presents false
documentation or employs other deceptions to conceal important facts shall
be fined at least CNY 10,000 and no more than CNY 100,000. In serious
cases, the company's registration shall be canceled. If the violation
constitutes a criminal offence, criminal liability shall be investigated
in accordance with the law.
Article 207
A company which prepares a false prospectus, share subscription
application or corporate bond offer procedure in connection with the issue
of shares or corporate bonds shall be ordered to halt such issue and
return all funds raised together with interest, and is fined an amount of
at least one per cent and no more than five per cent of the amount of the
funds illegally raised. If the violation constitutes a criminal offence,
criminal liability shall be investigated in accordance with the law.
Article 208
A promoter or shareholder who does not pay cash or property in kind or
does not transfer property rights, so making a false capital contribution
and committing fraud against creditors and the general public, shall be
ordered to remedy his wrongs and is fined at least five per cent and no
more than ten per cent of the capital which he falsely contributed. If the
violation constitutes a criminal offence, criminal liability shall be
investigated in accordance with the law.
Article 209
A promoter or shareholder who illicitly withdraws his capital
contribution after the establishment of the company shall be ordered to
correct his wrongs and is fined at least five per cent and no more than
ten per cent of the capital contribution illicitly withdrawn. If the
violation constitutes a criminal offence, criminal liability shall be
investigated in accordance with the law.
Article 210
A company which, without having obtained approval as provided by this
Law from the relevant responsible authority, arbitrarily issues shares or
corporate bonds is ordered to halt such issue and return all funds raised
together with interest, and shall be fined at least one per cent and no
more than five per cent of the amount of the funds illegally raised. If
the violation constitutes a criminal offence, criminal liability shall be
investigated in accordance with the law.
Article 211
A company which violates this Law by keeping accounting books and
records other than those provided for by law shall be ordered to remedy
the situation and shall be fined at least CNY 10,000 and no more than CNY
100,000. If the violation constitutes a criminal offence, criminal
liability shall be investigated in accordance with the law.
Where assets of the company are held in an account opened in the name
of an individual, illegal income shall be confiscated and there shall be
fine of at least the same amount and less than five times the amount of
the illegal income. If the violation constitutes a criminal offence,
criminal liability shall be investigated in accordance with the law.
Article 212
If a company furnishes to shareholders or the general public financial
statements which are false or which conceal important facts, the personnel
in charge of the matter who have direct responsibility and other personnel
with direct responsibility shall be fined at least CNY 10,000 and no more
than CNY 100,000. If the violation constitutes a criminal offence,
criminal liability shall be investigated in accordance with the law.
Article 213
If in violation of this Law, state assets are converted into shares or
sold at a low price or given to individuals without compensation, the
personnel in charge of the matter who have direct responsibility and other
personnel with direct responsibility are subject to administrative
sanctions in accordance with the law. If the violation constitutes a
criminal offence, criminal liability shall be investigated in accordance
with the law.
Article 214
If a director, supervisor or manager exploits his position to accept
bribes or other illegal income or to take property of the company
wrongfully, the illegal income is confiscated, he shall be ordered to
return the company's property and he is subject to sanctions by the
company. If the violation constitutes a criminal offence, criminal
liability shall be investigated in accordance with the law.
If a director or manager misappropriates company funds or takes
company funds and lends them to another, he shall be ordered to return
the funds to the company, is subject to sanctions by the company, and
turns over to the company all income obtained. If the violation
constitutes a criminal offence, criminal liability shall be investigated
in accordance with the law.
When a director or manager in violation of this Law uses the company's
assets to provide a guarantee for the debts of its shareholders or other
individuals, he is ordered to cancel the guarantee, is responsible
according to law for providing compensation, and turns over to the company
all income derived from the illegal provision of the guarantee. If the
circumstances are serious, he shall be subject to sanctions by the
company.
Article 215
If a director or manager in violation of this Law operates for himself
or on behalf of another a business in the same line of business as the
company in which he holds a position, in addition to turning over all
income obtained, he shall be subject to sanctions by the company.
Article 216
If a company does not make allocations to its statutory common reserve
fund or its statutory common welfare fund in accordance with this Law, the
company shall be ordered to make up the exact amount which should have
been allocated and shall be subject to a fine of at least CNY 10,000 and
no more than CNY 100,000.
Article 217
In the event of a merger, division, reduction of registered capital
or liquidation, if the company does not send notice to or publish public
notices for its creditors in accordance with the provisions of this Law,
the company shall be ordered to remedy the situation and shall be subject
to a fine of at least CNY 10, 000 and no more than CNY 100,000.
If at the time of liquidation, a company conceals its property, makes
false entries on its balance sheet or its inventory of property, or
distributes the company's property before repaying its debts, the company
shall be ordered to remedy the situation and shall be subject to a fine of
at least one per cent and no more than five per cent of the assets
concealed or the debts not repaid before distribution. The personnel in
charge of the matter who have direct responsibility and the other
personnel with direct responsibility shall be subject to a fine of at
least CNY 10,000 and no more than CNY 100,000. If the violation
constitutes a criminal offence, criminal liability shall be investigated
in accordance with the law.
Article 218
If a liquidation group does not file a liquidation report with the
company registration authority in accordance with the provisions of this
Law, or the liquidation report conceals important facts or contains
significant omissions, the wrongs shall be ordered to be remedied.
If a member of the liquidation group exploits his position for corrupt
or improper ends, obtains illegal income or wrongfully takes over assets
belonging to the company, he shall be ordered to return the company's
property, the illegally obtained income shall be confiscated, and he shall
be fined at least the amount of and no more than five times the amount of
the income illegally obtained. If the violation constitutes a criminal
offence, criminal liability shall be investigated in accordance with the
law.
Article 219
If an institution responsible for assessing, verifying, or examining
and certifying assets provides false documentation, its unlawful income is
confiscated and it is subject to a fine of at least the amount of and no
more than five times the amount of the unlawful income. The institution
shall also be ordered to cease doing business, and the certification of
the qualifications of the personnel directly responsible shall be revoked
by the relevant responsible authority. If the violation constitutes a
criminal offence, criminal liability shall be investigated in accordance
with the law.
If an institution responsible for assessing, verifying, or examining
and certifying assets, as a result of negligence, prepares a report which
contains important omissions, the institution shall be ordered to remedy
the situation. If the circumstances are relatively serious, it shall be
subject to a fine of at least the amount of and no more than three times
the amount of the income received. The institution shall also be ordered
to cease doing business, and the certification of the qualifications of
the personnel directly responsible shall be revoked by the relevant
responsible authority.
Article 220
If the relevant department authorized by the State Council approves an
application for the establishment of a company which does not meet the
requirements of this Law or approves an application for an issue of shares
which does not meet the requirements of this Law, and the circumstances
are serious, the personnel in charge of the matter who have direct
responsibility and other personnel with direct responsibility shall be
subject to administrative sanctions in accordance with the law. If the
violation constitutes a criminal offence, criminal liability shall be
investigated in accordance with the law.
Article 221
If the securities administration departments of the State Council
grant approval for share offers, listings of shares and issues of bonds
which do not meet the requirements of this Law, and the circumstances are
serious, the personnel in charge of the matter who have direct
responsibility and other personnel with direct responsibility are subject
to administrative sanctions in accordance with the law. If the violation
constitutes a criminal offence, criminal liability shall be investigated
in accordance with the law.
Article 222
If the company registration authority registers a company which does
not meet the registration requirements of this Law, and the circumstances
are serious, the personnel in charge of the matter who have direct
responsibility and other personnel with direct responsibility shall be
subject to administrative sanctions in accordance with the law. If the
violation constitutes a criminal offence, criminal liability shall be
investigated in accordance with the law.
Article 223
If a higher level department orders the company registration authority
to register a company which does not meet the registration requirements of
this Law, or covers up an unlawful registration, the personnel in charge
of the matter who have direct responsibility and such other persons with
direct responsibility shall be subject to administrative sanctions in
accordance with the law. If the violation constitutes a criminal offence,
criminal liability shall be investigated in accordance with the law.
Article 224
A company not lawfully registered as a limited liability company or a
company limited by shares which falsely makes use of the title "limited
liability company" or "company limited by shares" is ordered to remedy the
situation or is canceled. It may also shall be subject to a fine of at
least CNY 10,000 and no more than CNY 100,000. If the violation
constitutes a criminal offence, criminal liability shall be investigated
in accordance with the law.
Article 225
A company which without justification fails to commence business more
than six months after establishment or ceases to do business for more than
six consecutive months after commencing business, has its business license
revoked by the company registration authority.
When items in a company's registration have changed, and the company
fails to carry out a change of registration as required by this Law, the
company shall be ordered to register such changes within a certain time
period, and if the company fails to do so, it shall be subject to a fine
of at least CNY 10,000 and no more than CNY 100,000.
Article 226
If a foreign company in violation of the provisions of this Law,
arbitrarily establishes a branch or branches within Chinese territory, it
shall be ordered to remedy the situation or to close down, and may shall
be subject to a fine of at least CNY 10,000 and no more than CNY 100,000.
Article 227
If the responsible authority whose duty it is to process approvals
pursuant to this Law fails to grant approval to an application which meets
the requirements of this Law or the company registration authority fails
to register a company whose application meets the requirements of this
Law, the interested party may apply for reconsideration according to law
or may bring an administrative suit.
Article 228
If a company which violates the provisions of this Law shall be
subject to civil claims for compensation and to payment of fines and
penalties, but has insufficient assets, it first assumes responsibility
for payment of the civil claims.
Chapter 11 Supplementary Articles
Article 229
Companies registered and established prior to the effective date of
this Law pursuant to laws, administrative regulations, local regulations
and pursuant to the "Standard Opinion on Limited Liability Companies" or
the "Standard Opinion on Companies Limited by Shares" issued by the
relevant responsible department of the State Council continue to exist.
Those companies not completely satisfying the requirements of this Law
shall meet the requirements of this Law within the specified time limit.
Specific methods for implementation of this Law are to be set out in
separate regulations issued by the State Council.
Article 230
This Law comes into effect on July 1, 1994.
y not carry a different account name
or be registered in the name of an agent.
Shares issued to the general public may be in the form of registered
share certificates and also may be in the form of bearer share
certificates.
Article 134
A company issuing registered share certificates shall prepare a
register of shareholders setting out the following:
(1) the name and address of the shareholders;
(2) the number of shares held by each shareholder;
(3) the number(s) of the share certificate(s) held by each
shareholder, and
(4) the date on which each shareholder acquired its shares.
A company issuing bearer share certificates shall record the number of
such share certificates issued, their numbers and dates of issue.
Article 135
The State Council may separately issue regulations governing the issue
of classes of share certificates not covered by this Law.
Article 136
A company limited by shares formally delivers share certificates to
its shareholders immediately upon its registration and establishment. No
share certificates shall be delivered prior to the registration and
establishment of the company.
Article 137
A company issuing new shares shall meet the following conditions:
(1) the previous issue of shares has been fully subscribed and at
least one year have elapsed since that issue;
(2)the company has been continuously profitable for the last three
years and is able to make dividend payments to its shareholders;
(3) there has been no false reporting in the company's financial and
accounting documents during the last three years; and
(4) the projected profit rate of the company equals or exceeds the
rate of interest on bank deposits for the same term.
A company which uses a given year's profits to issue new shares is not
subject to clause (2) above.
Article 138
In order for a company to issue new shares, resolutions shall be
passed on the following matters at a meeting of the shareholders:
(1) the class and quantity of the new shares;
(2) the issue price of the new shares; and
(3) the commencement and closing dates of the new share issue;
(4) the class and quantity of shares to be issued to existing
shareholders.
Article 139
Once the shareholders at a shareholders' meeting have passed a
resolution to issue new shares, the board of directors shall apply to the
apply to the authorized department of the State Council or to the
provincial level people's government for approval. Public offers shall
require the approval of the securities administration departments of the
State Council.
Article 140
Upon receiving approval to issue new shares in a public offer, the
company shall publish a prospectus for the new shares and its financial
statements with their detailed schedules, and prepare a share subscription
application.
A public offer of new shares shall be underwritten by a legally
established securities institution and an underwriting agreement shall be
executed.
Article 141
A company issuing new shares may determine its pricing plans in the
light of the company's continuous profitability and the increase in the
value of its property.
Article 142
After a company issuing new shares has fully collected the payments
for shares, the company shall change its registration with the company
registration authority and issue a public notice.
Section 2 Transfer of Shares
Article 143
A shareholder may transfer his shares in accordance with the law.
Article 144
A shareholder's transfer of its shares must be carried out through a
legally established stock exchange.
Article 145
Registered share certificates are transferred by means of endorsement
or by other means as stipulated by law or by administrative regulations.
Upon the transfer of registered share certificates, the company
records the name and address of the transferee in the register of
shareholders.
Pursuant to the previous paragraph, no changes in the register of
shareholders shall be made within 30 days before the convening of the
shareholders' general meeting or within 5 days before the record date for
the issue of dividends.
Article 146
A transfer of bearer share certificates is effective upon delivery of
the share certificates to the transferee through a legally established
stock exchange.
Article 147
Shares of a company held by a promoter of that company shall not be
transferred for three years after the company's establishment.
Directors, supervisors and the manager of a company shall report to
that company all the shares that they hold in the company, and shall not
transfer them during their term of office.
Article 148
A state-authorized investment institution may transfer the shares it
holds in accordance with the law and may also purchase the shares held by
other shareholders. The approval limits and the regulatory regime for such
share transfers and purchases are separately determined by law or by
administrative regulations.
Article 149
A company shall not purchase the company's own share certificates,
except in order to decrease its capital by canceling its shares or when it
merges with another company that holds its shares.
Within ten days following the purchase of the company's own share
certificates pursuant to the terms of the preceding paragraph, a company
shall, in accordance with applicable law and administrative regulations,
cancel that portion of its shares, change its registration and issue a
public notice.
A company shall not accept the company's own share certificates as
collateral.
Article 150
In the event registered share certificates are stolen, lost or
destroyed, the shareholder may, pursuant to the procedures for public
invitation to assert claims contained in the Code of Civil Procedure,
request the people's court to declare the share certificates invalid.
After the share certificates are declared invalid by the people's
court, the shareholder may, pursuant to the procedures for public
invitation to assert claims, apply to the company to have share
certificates re-issued.
Section 3 Listed Companies
Article 151
A listed company referred to in this Law means a company limited by
shares whose issued shares are approved for trading on a stock exchange by
the State Council or its authorized securities administration departments.
Article 152
A company limited by shares shall meet the following requirements
before applying for its shares to be listed on a stock exchange:
(1) the securities administration departments of the State Council
have approved the company's stock being issued to the public;
(2) the company's total share capital is not less than CNY 50,000,000;
(3) the company has been in operation for over three years and has
been profitable in each of the last three years; if an original
state-owned enterprise has been converted and the company established
according to the law, or the company has been reorganized and established
after the effective date of this Law with a large-or medium-sized
state-owned enterprise as its main promoter, the three year periods may be
calculated continuously;
(4) the number of shareholders each holding shares of a par value
totaling at least CNY 1,000 is not less than one thousand; the company's
shares already issued to the public account for over 25% of the company's
total shares; if the company's total share capital exceeds CNY
400,000,000, company shares already issued to the public account for over
15% of the company's total shares;
(5) during the last three years, the company has not committed any
significant acts in violation of the law and the company's financial
statements have not contained any false statements; and
(6) such other conditions as may be specified by the State Council.
Article 153
A company limited by shares applying to have its shares listed for
trading shall file an application for approval with the State Council or
its authorized securities administration departments and submit relevant
documents in accordance with applicable laws and administrative
regulations.
The State Council or its authorized securities administration
departments grant approval to those listing applications which meet the
requirements specified in this Law and deny approval to those listing
applications which do not meet the requirements specified in this Law.
A company which has been granted approval for listing must publish a
share listing report and keep its application documents on file in a
designated place for public inspection.
Article 154
Shares of a company which has been approved for listing shall trade on
a stock exchange in accordance with applicable laws and administrative
regulations.
Article 155
If granted approval by the securities administration departments of
the State Council, shares of a company may be listed abroad, The specific
means are stipulated by special regulations issued by the State Council.
Article 156
Pursuant to laws and administrative regulations, a listed company
shall periodically make public its financial and operational conditions. A
listed company shall publish its financial statements once every six
months in each fiscal year.
Article 157
A listed company in one of the following situations shall have its
listing temporarily suspended upon determination by the securities
administration departments of the State Council:
(1) the company's total share capital, share distribution, or other
circumstances have changed such that the company no longer meets the
listing requirements;
(2) the company does not make public its financial condition as
required by the regulations, or its financial statements contain false
statements;
(3) the company commits a significant violation of law; and
(4) the company has had a loss in each of the three previous years.
Article 158
A listed company in the situation described in clause (2) or clause
(3) of the preceding article which upon investigation is found to have
caused serious consequences, or a listed company which is in the situation
described in clause (1) or clause (4) of the same article and is unable to
eliminate it within a limited time, does not meet the listing
requirements, its listing shall be terminated upon decision by the
securities administration departments of the State Council.
If a company resolves to dissolve itself, or if a company is legally
ordered to close down by the responsible administrative department, or if
a company is declared to be bankrupt, the company shall have its listing
terminated upon decision by the securities administration departments of
the State Council.
Chapter 5 Corporate Bonds
Article 159
A company limited by shares, a wholly state-owned company and a
limited liability company established with the investment by two or more
state-owned enterprises or two or more state-owned investment entities, in
order to raise funds for production and operations, may issue corporate
bonds in accordance with this Law.
Article 160
"Corporate bonds" as used in this Law mean valuable securities issued
by a company in accordance with legally specified procedures and pursuant
to which the company covenants to repay principal and interest within a
certain period of time.
Article 161
The issue of corporate bonds shall be subject to the following
conditions:
(1) the net assets of a company limited by shares are not less than
CNY 30,000,000, and the net assets of a limited liability company are not
less than CNY 60,000, 000;
(2) the aggregate amount of bonds of the company does not exceed forty
per cent of the net assets of the company;
(3) the average distributable profits over the previous three years is
sufficient to defray one year's interest payments on the company's bonds;
(4) the funds raised are used in a manner consistent with state
industrial policy;
(5) the interest rate payable on the corporate bonds does not exceed
the levels set by the State Council; and
(6) such other conditions as may be provided for by the State Council.
The funds raised by corporate bonds shall be used for the purposes
approved by the approval authority and shall not be used to cover losses
or for non-productive expenditures.
Article 162
A company shall not re-issue corporate bonds under any of the
following circumstances:
(1) the corporate bonds issued the previous time have not yet been
fully subscribed;
(2) the company has defaulted on previously issued corporate bonds or
other indebtedness, or is late in the payment of principal or interest,
and such situation is still continuing.
Article 163
When a company limited by shares or a limited liability company
proposes to issue corporate bonds, its board of directors shall draft a
proposal for approval by resolution at a meeting of the shareholders.
The issue of corporate bonds by a wholly state-owned company shall be
decided by the state-authorized investment organization or the
state-authorized department.
Once a resolution or decision has been made pursuant to the preceding
two paragraphs, the company shall submit an application for approval to
the securities administration departments of the State Council.
Article 164
The scale of an issue of corporate bonds shall be determined by the
State Council. Approvals by the securities administration departments of
the State Council of an issue of corporate bonds shall not exceed the
scale determined by the State Council.
The securities administration departments of the State Council shall
grant approval if an application to issue corporate bonds satisfies the
requirements of this Law and deny approval if an application to issue
corporate bonds does not satisfy the requirements of this Law.
If an approval that has previously been granted for an application is
found not to satisfy the requirements of this Law, the approval shall be
revoked. With respect to corporate bonds not yet issued, the issue will
not be carried out. With respect to corporate bonds already issued, the
issuing company shall return the funds paid to the subscribers, together
with interest calculated at the rate on bank deposits for the same term.
Article 165
The company shall submit the following documents when applying to the
securities administration departments of the State Council for approval to
issue corporate bonds:
(1) the company's registration certificate;
(2) the company's articles of association;
(3) corporate bond offer procedure; and
(4) an asset appraisal report and investment verification report.
Article 166
Upon approval of the company's application to issue corporate bonds,
the company shall make public its corporate bond offer procedure.
The corporate bond offer procedure shall set out the following:
(1) the company's name;
(2) the total amount and face value of the bonds;
(3) the bonds' interest rate;
(4) the periods and method for paying principal and interest;
(5) the commencement and closing dates of the issue;
(6) the net assets of the company;
(7) the total amount of corporate bonds already issued but not yet
due; and
(8) the underwriter for the corporate bonds.
Article 167
When a company issues corporate bonds, the bonds shall show
information including the company's name, the face value of the bond, the
interest rate, and the date of maturity, and be signed by the chairman of
the board of directors and sealed by the company.
Article 168
Corporate bonds may be either bearer or registered bonds.
Article 169
A company which issues corporate bonds shall keep a corporate bonds
register.
When registered bonds are issued, the following items shall be set out
in the register:
(1) the names and addresses of the bondholders;
(2) the date on which the bond was acquired by the bondholder and its
number;
(3)the total amount of the bond, its face value, interest rate,
principal and interest payment dates and method of payments; and
(4) the issue date.
When bearer bonds are issued, the register shall set out the total
amount of the bonds, the interest rate, the maturity date and payment
method, the date of issue and the number of the bonds.
Article 170
Corporate bonds may be transferred. Transfers of corporate bonds shall
be carried out through a legally established stock exchange.
The transfer price is negotiated and agreed upon by the transferor and
transferee.
Article 171
Registered corporate bonds are transferred by the bondholder through
endorsement or by other means as stipulated by law or administrative
regulations.
Upon the transfer of a registered corporate bond, the company records
in its corporate bond register the name and address of the transferee.
A transfer of a bearer corporate bond becomes effective upon the
delivery of the corporate bond to the transferee at a legally established
stock exchange.
Article 172
Subject to a resolution at a general meeting of the shareholders, a
listed company may issue corporate bonds convertible into shares of the
company. The procedures for conversion are specified in the corporate bond
offer procedures.
The issue of corporate bonds convertible into shares shall be
submitted to the securities administration departments of the State
Council for approval. Corporate bonds convertible into shares shall meet
not only the requirements for the issue of bonds but also the requirements
for the issue of shares.
Corporate bonds convertible into shares shall be marked "convertible
corporate bonds", and the quantity of convertible corporate bonds shall be
recorded in the corporate bond register.
Article 173
A company which issues corporate bonds convertible into shares shall
issue share certificates to bondholders in accordance with its conversion
procedures, provided that the bondholder has the option whether or not to
convert.
Chapter 6 Financial Affairs and Accounting of A Company
Article 174
A company shall establish its financial and accounting systems
according to laws, administrative regulations and the regulations of the
responsible finance department of the State Council.
Article 175
At the end of each fiscal year, the company shall prepare a financial
statement which shall be examined and verified as provided by law.
The company's financial statements shall include the following
accounting statements and schedules:
(1) balance sheet;
(2) profit and loss statement;
(3) statement of financial changes;
(4) explanation of financial condition; and
(5) profit distribution statement.
Article 176
A limited liability company shall present its financial statements to
the shareholders in accordance with the time periods specified in the
company's articles of association.
A company limited by shares shall deposit its financial statements at
the company for inspection by the shareholders at least twenty days before
the convening of the annual general meeting of shareholders.
A company limited by shares established by the offer method shall make
public its financial statements.
Article 177
When distributing each year's after-tax profits, the company shall set
aside ten per cent of its after-tax profits for the company's statutory
common reserve fund and five per cent to ten per cent of its profits for
the company's statutory common welfare fund. When the aggregate balance in
the statutory common reserve fund is fifty per cent or more of the
registered capital of the company, the company need not make any further
allocations to that fund.
When the company's statutory common reserve fund is not sufficient to
make up for the company's losses of the previous year, current year
profits shall be used to make up for the losses before allocations are set
aside for the statutory common reserve fund or the statutory common
welfare fund in accordance with the previous clause.
Subject to a resolution of the shareholders' meeting, after the
company has set aside funds from after-tax profits for the statutory
common reserve fund, the company may set aside funds for a discretionary
common reserve fund.
After the company has made up its losses and made allocations to its
common reserve fund and statutory common welfare fund, the remaining
profits are distributed in proportion to the shareholders' capital
contributions if the company is a limited liability company and in
proportion to the number of shares held by the shareholders if the company
is a company limited by shares.
If a shareholders meeting or the board of directors violates the above
provisions and profits are distributed to the shareholders before the
company makes up for losses or makes allocations to the statutory common
fund and the statutory common reserve welfare fund, the profits
distributed in violation of the provisions must be returned to the
company.
Article 178
In accordance with this Law, the premium a company limited by shares
obtains when it issues shares at a price which exceeds par value, and any
other income designated for the capital common reserve fund by the
regulations of the responsible finance department of the State Council
shall be allocated to the company's capital common reserve fund.
Article 179
The common reserve fund of a company is used to make up its losses,
expand its production and operations or for conversion into additional
capital of the company.
When the common reserve fund of a company limited by shares is
converted to capital in accordance with a resolution passed at a general
meeting of the shareholders, the company either distributes new shares in
proportion to the shareholders, number of shares, or increases the par
value of each share, provided, however, that when the statutory common
reserve fund is converted to capital, the balance of the statutory common
reserve fund may not fall below twenty-five percent of the registered
capital.
Article 180
The company's statutory common welfare fund is used for the collective
welfare of the company's staff and workers.
Article 181
A company shall not keep accounting books and records other than those
provided by law.
The company's assets shall not be held in an account opened in the
name of any individual.
Chapter 7 Merger and Division of A Company
Article 182
A resolution to effect the merger and division of a company shall be
passed at a meeting of the shareholders.
Article 183
The merger and division of a company limited by shares shall be
approved by the authorized department of the State Council or by the
provincial government.
Article 184
The merger of a company may take the form of either merger by
absorption or merger by the establishment of a new company.
Where one company is absorbed by another in a merger by absorption,
the absorbed company is dissolved. Where two or more companies establish a
new company in a merger by re-establishment, all merged parties are
dissolved.
In the event of a merger, the merging parties shall execute a merger
agreement and prepare a balance sheet and an inventory of property. The
company shall notify its creditors within ten days of the date of the
company's resolution to merge and shall publish public notices in a
newspaper at least three times within thirty days of the date of the
company's resolution to merge. A creditor has the right within thirty days
of receiving such notice from the company (or, for creditors who do not
receive the notice, within ninety days of the date of the first public
notice) to demand that the company repay its debts to that creditor or
provide a corresponding guarantee for such debt. A company which does not
repay its debts or provide corresponding guarantees for such debts shall
not be merged.
At the time of merger, the creditors' rights and indebtedness of each
of the merged parties shall be assumed by the company which survives the
merger or the newly established company.
Article 185
When a company is divided, its property shall be split up accordingly.
At the time a company is divided, the company shall prepare a balance
sheet and an inventory of property. The company shall notify its creditors
within ten days of the date of the company's resolution to divide and
shall publish public notices in a newspaper at least three times within
thirty days of the date of the company's resolution to divide. A creditor
has the right within thirty days of receiving such notice from the company
(or, for creditors who do not receive the notice, within ninety days of
the date of the first public notice) to demand that the company repay its
debts to that creditor or provide a corresponding guarantee for such debt.
A company which does not repay its debts or provide corresponding
guarantees for such debts shall not be divided.
Debts of the company prior to division are assumed by the
post-division companies in accordance with the agreements entered into.
Article 186
When a company needs to reduce its registered capital, it prepares a
balance sheet and an inventory of property.
The company shall notify its creditors within ten days of the date of
the company's resolution to reduce its registered capital and shall
publish public notices in a newspaper at least three times within thirty
days of the date of the company's resolution to reduce its registered
capital. A creditor has the right within thirty days of receiving such
notice from the company (or, for creditors who do not receive notice,
within ninety days of the date of the first public notice) to demand that
the company repay its debts to that creditor or provide a corresponding
guarantee for such debt.
The registered capital of a company following such capital reduction
shall not be less than the minimum levels set by law.
Article 187
When a limited liability company increases its registered capital, the
shareholders' subscription and payment of contributions for the newly
increased capital are carried out in accordance with the relevant
provisions of this Law governing payment of capital contributions for the
establishment of a limited liability company.
When a company limited by shares issues new shares in order to
increase its registered capital, the process by which shareholders
subscribe for new shares shall be carried out in accordance with the
relevant provisions of this Law governing payment for shares for the
establishment of a company limited by shares.
Article 188
When a company merges or divides and there is a change in any item in
its registration, the company shall change its registration with the
company registration authority in accordance with the law. When a company
dissolves, the company shall cancel its registration in accordance with
the law. When a new company in established, its establishment shall be
registered in accordance with the law.
When a company increases or decreases its registered capital, the
company shall carry out a change of registration with the company
registration authority.
Chapter 8 Insolvency, Dissolution and Liquidation of A Company
Article 189
In the case of a company legally declared bankrupt because it is
unable to repay debts due, the people's court shall, in accordance with
the provisions of relevant laws, organize the shareholders, relevant
organizations and relevant professional personnel to establish a
liquidation group to carry out bankruptcy liquidation procedures with
respect to the company.
Article 190
A company may dissolve in any of the following situations:
(1) pursuant to the provisions of the company's articles of
association, the term of the company has expired or one of the other
events which are grounds for dissolution has occurred;
(2) a resolution for dissolution is passed by a shareholders' meeting;
and
(3) dissolution is necessary due to a merger or division of the
company.
Article 191
A liquidation group shall be set up within fifteen days of a company
being dissolved pursuant to provisions (1) or (2) of the preceding
article. The liquidation group of a limited liability company is made up
of its shareholders. The composition of the liquidation group of a company
limited by shares is determined by a general meeting of the shareholders.
If a liquidation group to carry out liquidation procedures is not set up
within the specified time limit, the creditors may apply to the people's
court to have it designate relevant persons to form a liquidation group in
order to carry out liquidation procedures. The people's court shall accept
and hear such applications and timely designate the members of the
liquidation group in order to carry out liquidation procedures.
Article 192
A company which is ordered according to law to close down for
violating laws and administrative regulations shall be dissolved, and the
relevant responsible authority shall organize the shareholders, relevant
institutions and professional personnel to establish a liquidation group
to carry out liquidation procedures.
Article 193
During the liquidation period, the liquidation group shall exercise
the following powers:
(1) to check the company's property and separately prepare a balance
sheet and an inventory of property;
(2) to send notices to creditors or notify them by public notice;
(3) to deal with and liquidate relevant uncompleted business matters
of the company;
(4) to pay off outstanding taxes;
(5) to clear creditors' rights and indebtedness;
(6) to deal with the property remaining after the company's debts have
been repaid; and
(7) to represent the company in any civil litigation proceedings.
Article 194
The liquidation group shall, within ten days of its establishment,
send notices to creditors, and within sixty days of its establishment
publish public notices in a newspaper at least three times. A creditor
shall, within thirty days of receiving notice, report its creditors'
rights to the liquidation group, or for creditors who do not receive
notice, within ninety days of the date of the first public notice.
When reporting creditors' rights, the creditor shall provide and
explanation of matters relevant to the creditor's rights and shall provide
evidentiary materials. The liquidation group shall carry out registration
of creditors' rights.
Article 195
After checking the company's property and preparing a balance sheet
and an inventory of property, the liquidation group shall formulate a
liquidation plan and present it to a meeting of the shareholders or to the
relevant responsible authority for confirmation.
To the extent that the company is able to repay its debts, it shall
respectively pay all liquidation expenses, wages of staff and workers,
labour insurance fees and taxes owing, and shall repay the company's
debts.
The assets of the company remaining after its debts have been repaid
in accordance with the provisions of the previous clause are distributed
in proportion to the shareholders capital contributions if the company is
a limited liability company and in proportion to the number of shares held
by the shareholders if the company is a company limited by shares.
During the liquidation period, a company shall not commence any new
operational activities. The property of the company shall not be
distributed to the shareholders until the settlement provided for in the
second paragraph of this article is complete.
Article 196
After putting the company's property in order and preparing a balance
sheet and an inventory of property in connection with liquidation of the
company resulting from dissolution, the liquidation group discovers that
the company's assets are insufficient to repay the company's debts, the
liquidation group shall immediately apply to the people's court for a
bankruptcy declaration.
After a company is declared bankrupt by a ruling of the people's
court, the liquidation group shall transfer liquidation matters to the
people's court.
Article 197
After liquidation of the company is completed, the liquidation group
shall prepare a liquidation report and present it for confirmation to a
meeting of the shareholders or to the relevant responsible authority,
apply to the company registration authority for cancellation of the
company's registration and publish by public notice of the termination of
the company. Where no application is made for cancellation of the
company's registration, the company's business license is revoked by the
company registration authority and a public notice is published.
Article 198
The members of a liquidation group shall faithfully attend to their
duties and carry out their liquidation tasks in accordance with the law.
The members of a liquidation group shall not exploit their position to
accept bribes or other illegal income, nor shall they wrongfully take over
the property of the company.
The members of a liquidation group who intentionally or through gross
negligence cause losses to the company or its creditors shall be
responsible for providing compensation.
Chapter 9 Branches of Foreign Companies
Article 199
Pursuant to this Law, a foreign company may set up branches within
Chinese territory, and may engage in production and operational
activities.
Under this Law, "foreign company" means a company registered and
established outside Chinese territory in accordance with the law of a
foreign country.
Article 200
To set up a branch or branches within Chinese territory, a foreign
company shall file an application with the responsible Chinese
authorities, and present its company's articles of association, the
company's registration certificate issued by its home country and other
relevant documents. After receiving approval, the company shall register
with the company registration authority as provided by law and obtains a
business license.
The approval procedures for branches of foreign companies are
separately provided for in regulations issued by the State Council.
Article 201
A foreign company which establishes a branch within Chinese territory
shall appoint a representative or agent in charge of the branch and
allocate to the branch appropriate funds for the operational activities it
is engaged in.
Where it is necessary to provide for a minimum amount of operational
funds for branches of foreign companies, separate regulations are issued
by the State Council.
Article 202
The branch of a foreign company shall indicate in its name the
nationality of the foreign company and whether it has limited or unlimited
liability.
The articles of association of the foreign company shall be available
at its branches.
Article 203
A foreign company is a foreign legal person and its branches
established within Chinese territory do not have the status of Chinese
legal persons.
A foreign company assumes civil liability for the operational
activities of its branches within Chinese territory.
Article 204
A branch of a foreign company established with approval and engaging
in business activities within Chinese territory shall abide by the laws of
China and shall not harm the social and public interests of China. Its
legitimate rights and interests shall be protected by the laws of China.
Article 205
When a foreign company withdraws its branches from Chinese territory,
it shall repay its debts according to law and carry out liquidation in
accordance with the provisions of the relevant company liquidation
procedures set out in this Law. Until such debts are repaid, the property
of the branch shall not be transferred outside of Chinese territory.
Chapter 10 Legal Liabilities
Article 206
A company which violates this Law by falsely reporting its registered
capital when registering, presenting false documentation or employing
other deceptions to conceal important facts in order to obtain
registration of the company shall be ordered to remedy the situation. A
company that falsely reports its registered capital shall be fined at
least five per cent and no more than ten per cent of the amount of the
registered capital falsely reported. A company that presents false
documentation or employs other deceptions to conceal important facts shall
be fined at least CNY 10,000 and no more than CNY 100,000. In serious
cases, the company's registration shall be canceled. If the violation
constitutes a criminal offence, criminal liability shall be investigated
in accordance with the law.
Article 207
A company which prepares a false prospectus, share subscription
application or corporate bond offer procedure in connection with the issue
of shares or corporate bonds shall be ordered to halt such issue and
return all funds raised together with interest, and is fined an amount of
at least one per cent and no more than five per cent of the amount of the
funds illegally raised. If the violation constitutes a criminal offence,
criminal liability shall be investigated in accordance with the law.
Article 208
A promoter or shareholder who does not pay cash or property in kind or
does not transfer property rights, so making a false capital contribution
and committing fraud against creditors and the general public, shall be
ordered to remedy his wrongs and is fined at least five per cent and no
more than ten per cent of the capital which he falsely contributed. If the
violation constitutes a criminal offence, criminal liability shall be
investigated in accordance with the law.
Article 209
A promoter or shareholder who illicitly withdraws his capital
contribution after the establishment of the company shall be ordered to
correct his wrongs and is fined at least five per cent and no more than
ten per cent of the capital contribution illicitly withdrawn. If the
violation constitutes a criminal offence, criminal liability shall be
investigated in accordance with the law.
Article 210
A company which, without having obtained approval as provided by this
Law from the relevant responsible authority, arbitrarily issues shares or
corporate bonds is ordered to halt such issue and return all funds raised
together with interest, and shall be fined at least one per cent and no
more than five per cent of the amount of the funds illegally raised. If
the violation constitutes a criminal offence, criminal liability shall be
investigated in accordance with the law.
Article 211
A company which violates this Law by keeping accounting books and
records other than those provided for by law shall be ordered to remedy
the situation and shall be fined at least CNY 10,000 and no more than CNY
100,000. If the violation constitutes a criminal offence, criminal
liability shall be investigated in accordance with the law.
Where assets of the company are held in an account opened in the name
of an individual, illegal income shall be confiscated and there shall be
fine of at least the same amount and less than five times the amount of
the illegal income. If the violation constitutes a criminal offence,
criminal liability shall be investigated in accordance with the law.
Article 212
If a company furnishes to shareholders or the general public financial
statements which are false or which conceal important facts, the personnel
in charge of the matter who have direct responsibility and other personnel
with direct responsibility shall be fined at least CNY 10,000 and no more
than CNY 100,000. If the violation constitutes a criminal offence,
criminal liability shall be investigated in accordance with the law.
Article 213
If in violation of this Law, state assets are converted into shares or
sold at a low price or given to individuals without compensation, the
personnel in charge of the matter who have direct responsibility and other
personnel with direct responsibility are subject to administrative
sanctions in accordance with the law. If the violation constitutes a
criminal offence, criminal liability shall be investigated in accordance
with the law.
Article 214
If a director, supervisor or manager exploits his position to accept
bribes or other illegal income or to take property of the company
wrongfully, the illegal income is confiscated, he shall be ordered to
return the company's property and he is subject to sanctions by the
company. If the violation constitutes a criminal offence, criminal
liability shall be investigated in accordance with the law.
If a director or manager misappropriates company funds or takes
company funds and lends them to another, he shall be ordered to return
the funds to the company, is subject to sanctions by the company, and
turns over to the company all income obtained. If the violation
constitutes a criminal offence, criminal liability shall be investigated
in accordance with the law.
When a director or manager in violation of this Law uses the company's
assets to provide a guarantee for the debts of its shareholders or other
individuals, he is ordered to cancel the guarantee, is responsible
according to law for providing compensation, and turns over to the company
all income derived from the illegal provision of the guarantee. If the
circumstances are serious, he shall be subject to sanctions by the
company.
Article 215
If a director or manager in violation of this Law operates for himself
or on behalf of another a business in the same line of business as the
company in which he holds a position, in addition to turning over all
income obtained, he shall be subject to sanctions by the company.
Article 216
If a company does not make allocations to its statutory common reserve
fund or its statutory common welfare fund in accordance with this Law, the
company shall be ordered to make up the exact amount which should have
been allocated and shall be subject to a fine of at least CNY 10,000 and
no more than CNY 100,000.
Article 217
In the event of a merger, division, reduction of registered capital
or liquidation, if the company does not send notice to or publish public
notices for its creditors in accordance with the provisions of this Law,
the company shall be ordered to remedy the situation and shall be subject
to a fine of at least CNY 10, 000 and no more than CNY 100,000.
If at the time of liquidation, a company conceals its property, makes
false entries on its balance sheet or its inventory of property, or
distributes the company's property before repaying its debts, the company
shall be ordered to remedy the situation and shall be subject to a fine of
at least one per cent and no more than five per cent of the assets
concealed or the debts not repaid before distribution. The personnel in
charge of the matter who have direct responsibility and the other
personnel with direct responsibility shall be subject to a fine of at
least CNY 10,000 and no more than CNY 100,000. If the violation
constitutes a criminal offence, criminal liability shall be investigated
in accordance with the law.
Article 218
If a liquidation group does not file a liquidation report with the
company registration authority in accordance with the provisions of this
Law, or the liquidation report conceals important facts or contains
significant omissions, the wrongs shall be ordered to be remedied.
If a member of the liquidation group exploits his position for corrupt
or improper ends, obtains illegal income or wrongfully takes over assets
belonging to the company, he shall be ordered to return the company's
property, the illegally obtained income shall be confiscated, and he shall
be fined at least the amount of and no more than five times the amount of
the income illegally obtained. If the violation constitutes a criminal
offence, criminal liability shall be investigated in accordance with the
law.
Article 219
If an institution responsible for assessing, verifying, or examining
and certifying assets provides false documentation, its unlawful income is
confiscated and it is subject to a fine of at least the amount of and no
more than five times the amount of the unlawful income. The institution
shall also be ordered to cease doing business, and the certification of
the qualifications of the personnel directly responsible shall be revoked
by the relevant responsible authority. If the violation constitutes a
criminal offence, criminal liability shall be investigated in accordance
with the law.
If an institution responsible for assessing, verifying, or examining
and certifying assets, as a result of negligence, prepares a report which
contains important omissions, the institution shall be ordered to remedy
the situation. If the circumstances are relatively serious, it shall be
subject to a fine of at least the amount of and no more than three times
the amount of the income received. The institution shall also be ordered
to cease doing business, and the certification of the qualifications of
the personnel directly responsible shall be revoked by the relevant
responsible authority.
Article 220
If the relevant department authorized by the State Council approves an
application for the establishment of a company which does not meet the
requirements of this Law or approves an application for an issue of shares
which does not meet the requirements of this Law, and the circumstances
are serious, the personnel in charge of the matter who have direct
responsibility and other personnel with direct responsibility shall be
subject to administrative sanctions in accordance with the law. If the
violation constitutes a criminal offence, criminal liability shall be
investigated in accordance with the law.
Article 221
If the securities administration departments of the State Council
grant approval for share offers, listings of shares and issues of bonds
which do not meet the requirements of this Law, and the circumstances are
serious, the personnel in charge of the matter who have direct
responsibility and other personnel with direct responsibility are subject
to administrative sanctions in accordance with the law. If the violation
constitutes a criminal offence, criminal liability shall be investigated
in accordance with the law.
Article 222
If the company registration authority registers a company which does
not meet the registration requirements of this Law, and the circumstances
are serious, the personnel in charge of the matter who have direct
responsibility and other personnel with direct responsibility shall be
subject to administrative sanctions in accordance with the law. If the
violation constitutes a criminal offence, criminal liability shall be
investigated in accordance with the law.
Article 223
If a higher level department orders the company registration authority
to register a company which does not meet the registration requirements of
this Law, or covers up an unlawful registration, the personnel in charge
of the matter who have direct responsibility and such other persons with
direct responsibility shall be subject to administrative sanctions in
accordance with the law. If the violation constitutes a criminal offence,
criminal liability shall be investigated in accordance with the law.
Article 224
A company not lawfully registered as a limited liability company or a
company limited by shares which falsely makes use of the title "limited
liability company" or "company limited by shares" is ordered to remedy the
situation or is canceled. It may also shall be subject to a fine of at
least CNY 10,000 and no more than CNY 100,000. If the violation
constitutes a criminal offence, criminal liability shall be investigated
in accordance with the law.
Article 225
A company which without justification fails to commence business more
than six months after establishment or ceases to do business for more than
six consecutive months after commencing business, has its business license
revoked by the company registration authority.
When items in a company's registration have changed, and the company
fails to carry out a change of registration as required by this Law, the
company shall be ordered to register such changes within a certain time
period, and if the company fails to do so, it shall be subject to a fine
of at least CNY 10,000 and no more than CNY 100,000.
Article 226
If a foreign company in violation of the provisions of this Law,
arbitrarily establishes a branch or branches within Chinese territory, it
shall be ordered to remedy the situation or to close down, and may shall
be subject to a fine of at least CNY 10,000 and no more than CNY 100,000.
Article 227
If the responsible authority whose duty it is to process approvals
pursuant to this Law fails to grant approval to an application which meets
the requirements of this Law or the company registration authority fails
to register a company whose application meets the requirements of this
Law, the interested party may apply for reconsideration according to law
or may bring an administrative suit.
Article 228
If a company which violates the provisions of this Law shall be
subject to civil claims for compensation and to payment of fines and
penalties, but has insufficient assets, it first assumes responsibility
for payment of the civil claims.
Chapter 11 Supplementary Articles
Article 229
Companies registered and established prior to the effective date of
this Law pursuant to laws, administrative regulations, local regulations
and pursuant to the "Standard Opinion on Limited Liability Companies" or
the "Standard Opinion on Companies Limited by Shares" issued by the
relevant responsible department of the State Council continue to exist.
Those companies not completely satisfying the requirements of this Law
shall meet the requirements of this Law within the specified time limit.
Specific methods for implementation of this Law are to be set out in
separate regulations issued by the State Council.
Article 230
This Law comes into effect on July 1, 1994.
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