Corporate
- Major update to the PRC Company Law will take effect on 1 July 2024
On 29 December 2023, the Standing Committee of the National People's Congress issued a major update to the current PRC Company Law. The revised PRC Company Law will enter into effect on 1 July 2024.
Key changes the revised PRC Company Law will bring for PRC limited liability companies ("PRC LLCs") inter alia, the following changes:
- Reduction of the contribution schedule for full payment of the registered capital to 5 years after establishment. PRC LLCs already existing before 1 July 2024 must "gradually make adjustments" to ensure compliance with the revised PRC Company Law.
- Abolishment of the requirement of other shareholders' consent for transfer of equity interests in a PRC LLC.
- If a controlling shareholder of the company abuses shareholder rights with prejudice against the interest of the PRC LLC or other shareholders, the other shareholders may request the PRC LLC to acquire the controlling shareholder's equity interests at a reasonable price.
- Abolishment of the maximum number of members of the Board of Directors (currently, 13).
- Requirement that the Board of Directors of a PRC LLC with at least 300 employees must include employee representatives, unless there is a Supervisory Board which has employee representa-tives.
- Instead of a Supervisor or a Supervisory Board, a PRC LLC may now have an Audit Committee comprised of an unspecified number of members of the Board of Directors which then exercises the functions of the Supervisory Board.
- Increased liabilities for Directors, Supervisors and Senior Managers.
We will provide more details and input on the above in upcoming separate newsletters.
- Adapting Joint Ventures in accordance with the PRC Foreign Investment Law and the PRC Company Law
Until 31 December 2019, Sino-foreign Equity Joint Ventures ("EJV") and Sino-foreign Cooperative Joint Ventures ("CJVs") were governed by special laws, and the structure of EJVs and CJVs under these special laws was different to those of wholly foreign-owned enterprises ("WFOE") and domestic limited liability companies ("DLLCs") according to the PRC Company Law. In particular, in EJVs, the Board of Directors was the highest company authority (and not the Shareholders' Meeting as it is the case for WFOEs and DLLCs).
However, this has changed with the entry into effect of the PRC Foreign Investment Law ("FIL") on 1 January 2020. As of the same date, also the above-mentioned special laws for, inter alia, EJVs and CJVs were abolished, and the FIL (together with the PRC Company Law, the PRC Partnership Law, and so on) became the main legal basis for foreign investment in the PRC.
According to the FIL, the organization form, institutional framework and standard of conduct of existing entities, which are not consistent with the PRC Company Law or the PRC Partnership Law, will need to be changed respectively within 5 years after the FIL came into effect, that is at the latest by 31 December 2024. This has considerable impact on EJVs and CJVs. Among others, the highest company authority must be changed from the Board of Directors to the Shareholders' Meeting. All existing EJVs and CJVs should now start to adapt to the new structure, which may require comprehensive amendments to the Joint Venture Contract and the Articles of Association and re-negotiations with the Chinese joint venture partners. For more information on the FIL, please refer to our newsletter published earlier.
- Adaptation needed for the Insolvency Law
The global economic recession and the impact of COVID-19 have forced many enterprises to restructure their China business, some of them to even apply for insolvency. The current PRC Insolvency Law was promulgated 15 years ago and needs to be adapted to suit up-to-date PRC law and the current insolvency practice. Initially, a first amended draft of the Insolvency Law was supposed to be planned in 2022, which, however, has so far not yet been officially released for soliciting public comments. We expect that an official amended law draft will be released for public comments in 2024 earliest. We suggest awaiting the official release of the State Council's Legislative Work Plan for 2024 which may contain the schedule for the first amendment draft of this law.
Commercial
- Supreme People's Court Interpretation on General Provisions of the Contract Part of the PRC Civil Code Released
On 5 December 2023, the Supreme People's Court of the People's Republic of China promulgated its Interpretation on Several Issues Concerning the Application of the General Provisions of the Contract Part of the Civil Code of the PRC (the "Interpretation"). The Interpretation entered into effect at the same day of its promulgation, i.e. on 5 December 2023, and will have impact in 2024.
The Contract Part is one of the core parts, if not the most important part, of the PRC Civil Code. Contracts are relevant for and used in basically all kinds of business transactions and fields of law, and are, therefore, of paramount importance for all kinds of business operations as well as the economy as a whole. The Interpretation provides detailed and comprehensive guidance and interpretation on various topics and important issues related to the General Provisions of the Contract Part of the PRC Civil Code.
For further details on this, please see our newsletter with an overview of the Interpretation.
To view the full article please click here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
