2022年2月28日
PRC Company Law is undergoing a major overhaul after five rounds of "beauty repairs" in 1999, 2004, 2005, 2013 and 2018. What does the latest consultation draft mean for limited liability companies?
In December 2021, The National People's Congress (NPC) Standing Committee issued a consultation draft (the "Draft Amendment") on the Company Law which proposes significant amendments.
It contains more than 70 amendments - half are improvements or fine-tuning to the existing provisions, while the rest are newly introduced. As explained by the NPC in an explanatory note, the main goals of the new amendments are to:
Enhancing the supervision of shareholders and management is also a notable development reflected in the Draft Amendment.
The Draft Amendment also attempts to consolidate provisions and rulings scattered in different laws or judicial practices like the Security Law, the State-owned Assets Law and various interpretations of the Company Law issued by the Supreme People’s Court (SPC).
In this article we look at the major amendment and proposed developments which will affect limited liability companies (LLCs), with an upcoming article looking at those that will affect joint stock corporations (JSCs).
Amendments proposed to try and simplify regulatory requirements include:
Amendments proposed to tighten shareholder obligations include:
Our take on the changes: Some of the proposed amendments above aren't entirely new but derived from the SPC’s third interpretations rule of the Company Law in 2011. Article 48 (acceleration of capital payment) also seems to follow the position of the SPC, as reflected in the SPC meeting minutes in 2019 addressing civil and commercial trials. There is however controversy surrounding the acceleration mechanism, as it may infringe shareholder expectation interests. Whether this clause will pass the second reading in the NPC remain to be seen.
Amendments proposed to expand director duties and liabilities include:
Amendments proposed to expand director duties and liabilities include:
Our take on the changes: Equity as capital contribution has been recognised under the SAMR Regulation on Registered Capital since 2014 subject to certain conditions. As for creditor’s right as capital contribution, it's been permissible under some local pilot programs before the Draft Amendment. However, under Article 43 of the Draft Amendment, there is one condition attached ie such creditor’s right can be evaluated. Such a requirement may in fact impose difficulty in term of license right, know-how and consultancy service. If this provision becomes the final law, we expect SAMR will need to issue more detailed implementation rules.
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