Company Law of the People's Republic of China(1)(2)

1994.07.01



STANDING COMMITTEE OF THE NATIONAL PEOPLE'S CONGRESS



 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)



                CONTENTS



  CHAPTER ONE GENERAL PROVISIONS



  CHAPTER  TWO  ESTABLISHMENT  AND ORGANIZATIONAL  SETUP  OF  A



LIMITED



  LIABILITY COMPANY



  SECTION ONE ESTABLISHMENT



  SECTION TWO ORGANIZATIONAL SETUP



  SECTION THREE SOLELY STATE-OWNED COMPANIES



  CHAPTER  THREE  ESTABLISHMENT  AND  ORGANIZATIONAL  SETUP OF



JOINT STOCK COMPANY LIMITED



  SECTION ONE ESTABLISHMENT



  SECTION TWO SHAREHOLDER'S MEETING



  SECTION THREE BOARD OF DIRECTORS, MANAGER



  SECTION FOUR SUPERVISORY COMMITTEE



  CHAPTER  FOUR  ISSUE  AND  TRANSFER  OF SHARES OF A JOINT



STOCK LIMITED COMPANY



  SECTION ONE ISSUE OF SHARES



  SECTION TWO TRANSFER OF SHARES



  SECTION THREE LISTED COMPANIES



  CHAPTER FIVE CORPORATE BONDS



  CHAPTER SIX FINANCIAL AFFAIRS AND ACCOUNTING OF A COMPANY



  CHAPTER SEVEN MERGER AND DIVISION OF A COMPANY



  CHAPTER EIGHT BANKRUPTCY, DISSOLUTION AND LIQUIDATION



  CHAPTER NINE BRANCHES OF FOREIGN COMPANIES



  CHAPTER TEN LEGAL RESPONSIBILITIES



  CHAPTER ELEVEN SUPPLEMENTARY PROVISIONS



 CHAPTER ONE GENERAL PROVISIONS



  Article  1  The  law  is formulated  in  conformity  with



the Constitution   in   view   to   establishing  a  modern



enterprise system,   standardizing     the     organization



and operation    of companies,protecting  the  legitimate rights



and  interests    of  companies,  shareholders  and  creditors,



maintaining the   socialist  economic  order  and promoting the



development of the socialist market economy.



  Article  2  The term "company" used in this law refers to a



limited liability company or  a joint stock company limited set up



within  the  territory  of  the  People's  Republic  of  China



according to the provisions of this law.



  Article  3  A  limited liability company and a joint stock



company limited are enterprise legal persons.



  For   a   limited   liability  company,   a  shareholder



bears the  responsibility  to the company within the limit of the



amount of  investment   made  by the shareholder per se and the



company  shall bear the responsibility for its debts with all its



assets.



  For   a  joint  stock  company limited the entire capital is



divided  into  shares   of   equal   amount   and   the



shareholders bear  responsibilities  to  their company within the



scope of  the number   of  shares   they   hold  and  the



company  shall  bear responsibilities  for  its debts with all its



assets.



   Article   4   Shareholders  of  a  company, as  capital



contributor, shall  have  the  right to enjoy capital gains, take



major  policy decisions  and  choose managers in proportion to



share  of the investment they make in the company.



  A  company  shall  enjoy all legal person property rights formed



by the  investment  by  shareholders, enjoy civil rights, and bear



the civil responsibilities according to law.



  Ownership  of the State-owned property rights in a company belongs



to the State.



  Article  5  A  company shall operate independently  with  all



its assets, and be responsible for its own profits and losses.



  Under   the  macro-economic  control and regulation  by the



State, a  company  shall  have the autonomy in organizing its own



production and  operations  according to market demand so as to



raise  its economic efficiency, step up its productivity and preserve



and accrete the value of its assets.



  Article  6  A company shall institute an internal management



system that is of a clear division of power and responsibility,



a scientific  management,  and a combine mechanism of incentives



and restrictions.



  Article  7  In changing over to a company, a  State-owned



enterprise shall  first   of   all   change   its   original



operational  mechanism,  gradually   and  sysmatically  make  an



inventory of its own assets,  define  its  own property right,



clear its own credits  and debts,  appraise  its own assets and



establish a standard  internal organizational  setup according to



law and administrative decrees concerned.



  Article  8  A  limited liability company or  a joint stock



company limited shall be set up according to this law. Only those that



can meet the  requirements  as  set in this law can be registered



as limited  liability  companies  or  joint  stock  companies



limited those  that  cannot  meet  such requirements cannot be



registered as  a  limited liability company or joint stock company



limited.



  Article  9  A limited liability company established according to



this law shall include the words "limited liability" in its name.



  A  joint  stock  company limited established according to this



law shall  be  clearly  indicated as a joint stock company limited



in its



name.



  Article  10  A company shall make the location of its main office



as its address.



  Article  11  A  company  established according  to this  law



shall



  formulate   its  articles of association that have a binding



force on the  company, its shareholders, directors,  supervisors



and managers alike.



   The   scope   of   business  shall be defined  in  the



articles of  association   and  registered according to law. If



the  scope of   business   covers   items   restricted   by



law   or administrative decrees, it shall be subject to approval



according to



law.



  A  company  shall  conduct its business  activities within



the  scope  registered.   If  a  company  has  revised  its



articles  of association  according   to  legal procedures and



registered  for alteration  with  the registration authorities, it



may change the scope  of business.



  Article  12   A  company  may invest  in  other  limited



liability



   companies   or  joint  stock  companies  limited  and bear



responsibility  to  the  companies in which it has invested in



proportion to the amount of investment it has made.



   Except    for   investment   companies   and  holding



companies as  specified  by  the  State Council, where a company



invests  in other  limited   liability  companies  or  joint



stock  companies limited,  the aggregate  amount of the investment



shall not exceed 50% of   the  net  assets of the company, not



including the capital gains of  the  latters put in by the company



from its profits gained from the latters.



  Article  13  A company may set up branches, which shall not enjoy



the



  status  of  enterprise legal persons, and the parent company



shall be responsible for civil liabilities of its branches.



  A  company  may  set up subsidiaries which shall enjoy the



status of  enterprise legal persons and be independently responsible



for their own civil liabilities.



  Article  14  In  conducting  business  operations, a company



shall abide  by  law,  observe business ethics, promote socialist



culture and ethics, and accept the supervision by the government and



the public.



  The  legitimate  rights  and interests of  a  company  shall



be



 protected by law against any infringement.



  Article  15  A  company  shall protect the legitimate  rights



and



   interests   of  its  staff  and workers, strengthen labor



protection, and ensure safe production.



  A  company  shall provide its workers with vocational education



and in  job  training  in  various forms  to  improve  their



working



quality.



  Article  16  Workers of a company shall organize a trade union



in



   accordance   with  the  law  to carry out  trade  union



activities and  protect  their  legitimate rights and interests. A



company  shall provide the  necessary conditions for activities of



its trade union.



   A   solely   State-owned   company  or  a   limited



liability  company  established   by  more  than two State-owned



enterprises or by more  than two  State-owned investment entities



shall   exercise democratic  management  in  accordance with the



provisions  of  the Constitution  and relevant  laws through the



general meetings of the staff and workers or otherwise.



  Article  17  The grassroots organizations of the Communist Party



of



  China  in  a company shall carry out their activities according



to the Constitution of the Communist Party of China.



  Article  18   This  law  applies  to  limited  liability



companies



   established   with  foreign  investment  except  otherwise



provided foreign  the  laws concerning Sino-foreign joint equity



ventures,  Sino-foreign  joint  cooperative  ventures  and foreign



enterprises.



Company Law of the People's Republic of China (2)

--------------------------------------------------------------------------------



 



 



   CHAPTER   TWO  ESTABLISHMENT  AND ORGANIZATIONAL  SETUP  OF



A LIMITED LIABILITY COMPANY



 SECTION ONE ESTABLISHMENT



  Article  19   The establishment of a limited liability company



shall be subject to the fulfillment of the following conditions:



 1. The number of shareholders tallies with that provided for by law;



  2.  The  investment  contributed  by  shareholders  reaches



the minimum amount of capital required by law;



  3.  Shareholders  participate  in the formulation of  articles



of



 association;



  4.  The  company  has a suitable name and its organizational



setup



 complies with that of a limited liability company.



  5.  The  company  has fixed production or operational  site(s)



and



 necessary conditions for production or operations.



  Article  20   A limited liability company shall be set up by



capital



   contributions  made  up  by at least two and no more than



50 shareholders. Investment  entities or departments authorized by



the State   may  set up limited liability companies with sole



State



investment.



  Article  21   A  State-owned  enterprise  set  up  before



the



  implementation   of   this  law if can fulfill the  condition



of a  limited  liability company under this law may be reorganized



into a  solely  State-owned  limited  liability company in the



case  of an investment  entity  with  a  single investor,  or



into  a limited liability  company as provided for in the first



paragraph  of   the  preceding   Article  in  the  case of an



investment entity with many investors.



   The   steps   and   specific  methods  for  State-owned



enterprises  to  convert   into  companies  shall be formulated



separately by the State Council.



   Article  22  The  articles  of  association  of a limited



liability company shall specify clearly:



 1. Name and address of the company;



 2. Scope of business of the company;



 3. Registered capital of the company;



 4. Names of shareholders;



 5. Rights and obligations of shareholders;



 6. Forms and amount of investment made by shareholders;



 7. Conditions for shareholders to transfer their investment;



  8. The  organizations  of  the  company  and  the  methods



of



   establishment,   their  powers  and functions and rules of



procedures for meetings;



 9. Legal representative of the company;



   10.Grounds   for   dissolution  of   the   company  and



liquidation methods; and



     11.Other     matters    deemed    necessary    by



shareholders.Shareholders  should  sign  and seal the articles of



association of the company.



  Article  23  The  registered  capital is  the  total  amount



of



  investment   paid  in  by  all the shareholders registered



with the registration department.



  The  amount  of  registered capital should not be less than



the amount specified below:



   1.   for    a    company   mainly   engaging   in



production operations, RMB500,000;



 2. for a company mainly engaging in wholesales, RMB500,000;



 3. for a company mainly engaging in retail sales, RMB300,000;



  4. for  a company engaging in technology development,  consulting



and



 services, RMB100,000.



  If   the   minimum   amount  of  registered  capital  of



a limited  liability   company  of  a  given trade should be



higher than  those provided  for in the preceding paragraph, it



shall be determined separately by law or administrative decrees.



  Article  24  Shareholders may make their investment in cash, in



kind,



  in  industrial  property  rights, in non-patented technology or



land use rights  must be correctly assessed and verified in value



terms without  any  over  or under-valuation. The assessment of



land  use rights   in  value  shall be made according to law or



administrative



decrees.



    The    amount   of   industrial   property   rights



or non-patented  technology in value shall not exceed 20 percent of



the total  value  of  the  registered  capital  of a limited



liability company,  except otherwise  provided  for  by the State



for the use of  high and new technology.



   Article   25   Shareholders  shall  pay  in  full  their



subscribed  capital  contributions   as   specified  in   the



articles   of association.  In  cases  of  making  investment



in  cash,   the contribution in  cash should  be deposited in



full into a temporal account   opened  by the proposed limited



liability  company  in a bank.  In  cases  of  using investment



in    kind,   industrial  property   rights,    non-patented



technology  or land  use  rights, the procedures for transfer of



the property rights shall be completed according to law.



  Shareholders   who   fail   to  pay  in  the  subscribed



amount of  investment  as  provided for in the preceding paragraph



should be liable to breach of contract.



  Article  26   After  all  the shareholders  have  paid  in



their



  investment,   the   investment   shall  be  verified  by



a  legal   investment   verification   institution   and   a



certificate shall  be produced by the institution.



  Article  27  After  all the investment paid in by shareholders



is



   verified,    a   representative   designated   or   an



agent commonly  commissioned  by  all  the  shareholders shall



apply  for registration  of establishment of the company with the



registration  department   with   an  application   form  for



registration,   the  articles    of   association,  investment



verification  documents and  other documents of the company.



  If   an  examination  and approval procedure is required by



law or  administrative   decrees,  the  document  of  approval



should  be  submitted    when    the   applications   for



establishment and registration are filed.



  The  company  registration  department should grant registration



if all  the  requirements  provided  for by this law are met and



issue business  licenses  but  if the requirements provided for by



this law are not met, the registration shall be refused.



  The   date  of  issue of the company business license shall be



the date of establishment of the limited liability company.



  Article  28   After  the  establishment  of  a  limited



liability



  company,   if   the   actual  value  of  the  investment



in kind,  industrial property rights, non-patented technology or land



use rights  are  found to be apparently lower than the values set



for in  the  articles  of association of the company, the shortage



shall be   made good  by the shareholder(s) concerned with  the



other shareholder bearing joint responsibility.



  Article  29  If a limited liability company sets up branches  at



the



  time  of its establishment, it should apply for registration



to obtain business licenses for the branches.



  If  a  limited  liability company sets up a branch or branches



after its  establishment, the legal representative of the company



shall apply for  registration   of  the  branch  of  branches



to  obtain business license(s).



  Article  30  After  the  establishment,  a limited liability



company  shall   issue   certificates   of   investment   to



shareholders.A certificate of investment should specify clearly:



 1. Name of the company;



 2. Date of registration of the company;



 3. Registered capital of the company;



  4.  Names  of shareholder, amount of investment paid in and the



date of payment; and



 5. Serial  number  and date of issue  of  the  certificates  of



  investment.Certificates  of  investment shall be affixed with the



seal of the company.



  Article  31  A limited liability company should keep a list  of



its



 shareholders with the following specified items:



 1. Names or both names and address of shareholders;



 2. Amount of investments paid in by the shareholders;



 3. Serial number of the certificates of investment.



  Article  32  Shareholders of a company have the right to  review



the



   minutes   of  meetings  of  shareholders and the  financial



and accounting statements of their company.



  Article  33  Shareholder  shall get dividends in proportion to



the



  amount   of   investment   they have made.  If a  company



wants to  increase   its  capital,  its shareholders have  the



priority of subscription.



  Article  34   Shareholders  are  not  allowed  to  withdraw



their



 investment after the registration of the company.



  Article  35  Shareholders may transfer to each other all or  part



of



 their investment.



  For  transferring  the  investment  to other  people other



than other  shareholders   of  the company, a shareholder must



get the consent  of  the  simple  majority of the shareholders.



Shareholders who disapprove of the transfer should buy the shares of



investment to be  transferred. If  they fail to buy the shares,



it shall be regarded as approval of the transfer.



   For  the  investment  shares  having  been approved to be



transferred, other  shareholders  shall  have the priority for the



purchase under the same conditions.



  Article  36   After  a  shareholder  has  transferred  its



investment



   according  to  law,  the  company shall record the name(s)



and address(es)  of   the  transferee(s)  and  the  amount  of



investment transferred in the list of shareholders.



 SECTION TWO ORGANIZATIONAL SETUP



   Article  37  The  meeting  of  shareholders  of a limited



liability company  shall   be  made up of all shareholders. The



meeting   of  shareholders  shall   be   the  authoritative



organization  of  the company  and exercises its powers according to



this law.



  Article  38  The  meeting  of  shareholders  shall  exercise



the



 following powers:



  1.  To  decide  upon the operation policies and investment plans



of the company.



  2.  To  elect and replace directors and decide on matters



relating to remuneration to directors.



  3.  To  elect  and  replace  the  supervisors  who  are



the



   representatives   of   shareholders  and decide  on  the



payment to supervisors.



 4. To examine and approve the reports by the board of directors.



   5.   To   examine   and   approve  the  reports  by



the supervisory committee or individual supervisors.



  6.  To  examine  and approve the annual financial and budget



plan and financial accounting plan of the company.



   7.   To   examine   and   approve  the   plans   for



company's profit distribution and losses recovery.



   8.   To  pass  resolutions on the increase  or  decrease



of registered capital.



 9. To pass resolutions on the issue of bonds.



   10.  To  pass  resolutions on the  transfer  of investment



by shareholders to people other than shareholders.



  11. To  pass resolutions on issues as merger, division, change



in



  corporate  form,  dissolution  and liquidation and other affairs



of the company.



 12. To revise the articles of association of the company.



  Article  39  Methods  of discussion and voting procedures of



the meeting of  shareholders shall be provided for in the articles



of association except otherwise provided for by this law.



   The   resolution   on   the  increase  or  decrease  of



registered capital,  division,  merger,  dissolution  or change of



corporate  form  of    the   company   must  be  agreed  by



shareholders representing two-thirds of the voting rights.



  Article  40  A company may revise its articles of  association.



The



  resolution  on  the  revision of the articles of association



must be agreed  by  shareholders representing over two-thirds  of



the voting rights.



  Article  41  In a meeting of shareholders, the voting rights shall



be



  exercised   in   proportion  to  the  amount of investment



made by shareholders.



  Article  42 The first meeting of the  shareholders shall  be



convened



  and  presided over by the shareholder whose capital contribution



is the largest. Such shareholder shall exercise its rights according



to the provisions of this law.



  Article  43   Meetings  of  shareholders shall  be divided



into regular meetings and irregular meetings.



  Regular  meetings  shall be called according to the provisions



of the  articles  of  association  of  the company. Irregular



meetings may  be  called  upon  the  motion  by shareholders who



represent  over one-fourth  of  the  voting rights or by  over



one-third of the directors  or supervisors.



  If  a  limited liability company has a board of directors,



the meeting  of  shareholders shall be called 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 the duty due to  special reasons, the meetings shall be



presided  over by a vice-chairman of the board of directors or a



director designated by the chairman of the board of directors.



  Article  44  If a meeting of shareholders is to be held, notice



shall



 be given to all the shareholders 15 days before the meeting is held.



   The   meeting   of   shareholders  shall  keep  minutes



on matters discussed and to be signed by shareholders present.



  Article  45  The  board of directors of a limited liability



company



 shall be made up of 3 to 13 persons.



  For  a  board  of  directors  established by at least two



State owned  enterprises   or  by  at  least two State owned



investment entities,  members   of   its  board  of directors



should  include representatives  of workers, who are to be elected



by the  workers through democratic processes.



  A   board  of  directors shall have a chairman and may have one



to two  vice-chairmen.   The  method of election of the  chairman



and vice- chairmen  of  the  board of directors shall be provided



for in the articles of association of the company.



   The   chairman  of  the  board of directors is the legal



representative of the company.