Company Law draft revision to bolster confidence

A draft revision to the Company Law has been put before Chinese lawmakers for a fourth reading on Monday, which officials and experts said comes amid China's ongoing efforts to enhance its business environment and bolster investment confidence.

The draft revision, submitted to a session of the Standing Committee of the 14th National People's Congress — China's top legislature — focuses on strengthening the framework of capital contributions, as well as clarifying resolution procedures for deprivation of rights and the dissenting process for shareholders subject to deprivation.

The seventh session, which kicked off in Beijing on Monday, is scheduled to conclude on Friday.

The proposed amendments to the Company Law are essential for deepening reforms in State-owned enterprises, fostering a more enabling business climate, enhancing property rights protections and promoting sound development of the capital market, the NPC Constitution and Law Committee said.

After undergoing three rounds of deliberations and revisions, the draft revision is now in a relatively developed shape, the committee added.

The latest draft revision has further refined the capital contribution system and reinforced the obligations of shareholders, highlighted by the explicit clarification of the time limit for shareholders' capital contributions in limited liability companies and the requirement for shareholders of joint-stock companies to fully pay their subscribed capital before the establishment of the company.

By introducing these provisions, the amendments seek to enhance the integrity of capital contributions, promote responsible shareholder behavior, contribute to a more robust business environment and enhance domestic and foreign investment, said Liu Junhai, director of the Renmin University of China's Business Law Center.

Moreover, the board of directors, as stipulated by the updated draft revision, can issue notices of deprivation to shareholders who have not fulfilled their capital contribution obligations within the prescribed time frame.

Shareholders who disagree with the deprivation notice have 30 days from the receipt of the notice to file a lawsuit with the people's court, according to the draft revision.

These amendments will play a crucial role in providing a comprehensive framework for addressing noncompliance with capital contribution obligations and ensuring fair and transparent corporate governance practices, Liu added.

Meanwhile, the draft revision has taken steps to enhance workers' democratic management and better safeguard their legitimate rights and interests, such as requiring companies to consider the opinions of employees when contemplating dissolution and bankruptcy.

By aligning the law with international best practices and tailoring it to the specific needs of China's evolving economy, the draft revision aims to provide a solid foundation for companies to flourish, compete globally and contribute to the country's sustained economic growth, Liu said.

China's current Company Law was enacted in 1993 and has undergone multiple revisions, including a comprehensive revision in 2005, and the most recent revision in 2018 focusing on capital systems in companies.