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 joint stock corporations?
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. Changes introduced by the Draft Amendment aim to:
In our previous article we looked at the major amendment and proposed developments affecting limited liability companies (LLCs). In this article we look at the changes impacting Joint Stock Corporations (JSCs) introduced by the Draft Amendment.
The authorised capital system
Our take on the changes: The authorised capital system isn't exactly an innovation, but rather an assimilation of experiences from other jurisdictions like the US and Germany.
Different classes of shares
Our take on the changes: These modifications align with the rules for listing companies as stipulated by the “Administrative Measures on Preference Shares Pilot Scheme” and listing rules stipulated by the Science and Technology Innovation Board, ChiNext Market, Beijing Stock Exchange, etc. This revision provides more protections and lower enforcement risks for investors with respect to their financial investments. If NPC adopts the Draft Amendment, the investors can exercise their special shareholder rights such as repurchasing rights, liquidation preference rights, and veto rights.
Our take on the changes: This is in line with a trend we've seen more and more of other jurisdictions adopting non-denominated shares. Also affected by the revisions regarding the “authorised capital system” and the subscription capital rules, the requirement that all shares should be denominated seems redundant as the face value of the shares and the registered capital no longer substantially reflect the capital adequacy and solvency of the company.
Our take on the changes: We require further interpretations or implementing rules to help understand how this new form of JSC would be regulated. As far as the Draft Amendment is concerned, the one-person JSC is under more restrictive regulations compared to the rules governing LLCs.
Minor modifications in line with interpretations of the Company Law and anti-money laundering regulations, etc.