Chinese Law Overview in General and in the Context of Company Law November 15, 2018 – Posted in: Blog – Tags: ,

Chinese Law Overview in General and in the Context of Company Law

Current constitution which was adopted in 1982

National People’s Congress

  • It has a supreme organ of state power
    • Amend the constitution by two thirds majority
    • Promulgate legislation
    • Elect and remove highest-level officials
    • Budget determination
    • Control economic and social development planning
    • Supervises the government
  • However, since the overwhelming majority of the seats is held by the communist party and the rest are held by other groups that are also monitored by the communist party as well, the national people’s congress never cancels any government decisions. Check and balances system is weak as well as the division of powers.
  • When it is not in session, standing committee
  • National level is followed by provincial level and so on in a descending order. Provincial people’s congresses can pass laws as long as they do not contravene with the constitution and national people’s congress.

State council

  • Administrative regulations

Judicial system:

It is composed of people’s courts and special courts. Special courts include military courts, railway transport courts and maritime courts. All the other cases including civil and criminal procedures are heard in people’s courts.

  • People’s courts have a certain hierarchy, which as follows:
    • Supreme people’s court: located in Beijing. It functions as a last resort of cases in the whole China. Supervises and governs the procedure of justice in special courts, and approves death penalties.
    • High people’s courts: located in each provinces and autonomous regions.
    • Intermediate people’s courts: located in each autonomous city and municipality.
    • Basic people’s courts: these courts are at the level of towns and autonomous counties.

Chinese company law

There are two kinds of companies recognized under the company law of the People’s Republic of China: (1) Limited Liability Company (LLP) and (2) Joint Stock Limited Company (JSLC)

The following table shows the general formalities that are same in both forms of company:

Limited Liability Company Joint Stock Limited Company
To establish a company, an applicant shall submit an application for establishment registration to the relevant company registration authority. To establish a company, an applicant shall submit an application for establishment registration to the relevant authority.
Company registration authority issues business licenses of companies established under the law. the date of the issuance of the license for a company is the date of the establishment of the company. Company registration authority issues business licenses of companies established under the law. the date of the issuance of the license for a company is the date of the establishment of the company.
The location of the principle of a company is its domicile The location of the principle of a company is its domicile
The business scope of the company needs to be specified in its articles of association and registered. The business scope of the company needs to be specified in its articles of association and registered.
The legal representative shall be registered. The legal representative shall be registered.
  1. LLC

 Establishment conditions of the LLC

  • The number of shareholders meets the quorum.
  • The capital contribution subscribed to all shareholders meets the requirements of the company’s articles of association.
  • The shareholders jointly formulate the company’s articles of association.
  • The company has a name, and its organizational structure meets the requirement for a limited liability company.
  • The company has a domicile.
  • The establishment of a limited liability company is subject to the capital contribution by not more than 50 shareholders.

Articles of associations should include:

  • Name and domicile of the company
  • Business scope of company
  • Registered capital of company
  • Names of shareholders
  • Form, amount and schedule of capital contributions by the shareholders,
  • Organizations of the company and the methods of formation, authorities, and the rules of procedure
  • Legal representative of the company
  • Any other matter deemed necessary.
  1. JSLC

 Establishment conditions of the JSLC

  • The number of promoters meets the statutory quorum
  • The total share capital subscribed to by all promoters meets the requirements of the company’s articles of association
  • the issuance of shares and the preparatory work are in compliance with the law
  • The company’s articles of association is formulated by the promoters, or is adopted at the inaugural meeting if the company is established by means of stock flotation
  • The company has a name, and has established an organization structure that conforms to the requirements on a company limited by shares
  • The company has a domicile.

Articles of association should include:

  • Name and domicile of the company
  • Business scope of company
  • Form of establishment
  • Total shares, price per share, and registered capital of the company
  • Names of promoters, number of shares they have subscribed for, and forms and schedule of the capital contribution
  • Composition, authorities and rules of procedure of the board of directors
  • Legal representative of the company
  • Composition, authorities and rules of procedure of the board of supervisors
  • Methods for profit distribution of the company
  • Causes for dissolution, and methods for liquidation of the company
  • Methods of notification and public announcement by the company
  • Any other matters deemed necessary

 

Capital contribution

  • For a LLC, it was;
    • 500.000 RMB for a company engaged mainly in production and operation,
    • 500.000 RMB for a company engaged mainly in commodity wholesale,
    • 300.000 RMB for a company engaged mainly in commercial retailing,
    • 100.000 RMB for a company engaged mainly in science and technology development, consultancy or services;
  • for a JSLC, it was;
    • starting from 5 million RMB

before the amendment of the company law. However this minimum capital requirement has been removed with the 2014 amendment. The paid up capital registration system has been replaced with the subscribed capital registration system. Which means that the shareholders themselves will decide the amount and form of the capital contribution to their companies.

According to the amended company law, the registered capital should be the amount of capital contribution subscribed to by all shareholders registered with the relevant company registration authority.

Shareholders may make capital contributions in the form of monetary funds, non-monetary property, intellectual property rights and land-use rights.