NZBRiC and Sparks Partners are partnering together to bring you the key updates to the Company Law in China which will come into effect on 1 July, 2024. These updates are relevant to all the companies whether your company has a long-standing presence in China, is a recent entrant, or is in the process of establishing a legal entity. The key changes involved are; changes to the due date for capital contributions, changes to the supervisor and supervisory board, increase responsibilities to shareholders, directors and company officers (including shadow shareholders and directors who exercise real control). Here are the key highlights of the upcoming amendments (this is not an exhaustive list):

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1. Capital Contribution Period: The maximum duration for capital contributions has shifted from a pledge system to five years. Companies must assess their circumstances when deciding on amount of capital injections, reductions, or deregistrations.

2. Shareholder Responsibilities: Failure to timely pay registered capital may result in the forfeiture of shareholder rights. Directors now bear the responsibility of enforcing capital contributions if shareholders default.

3. Debt Repayment: In cases of debt default, companies or creditors can demand advance contributions from shareholders with outstanding capital payments, meaning an earlier crystallization of shareholders liabilities.

4. Audit Committees: Limited liability companies can form audit committees comprising directors and remove the role of supervisors. Small-scale entities may opt out of having supervisors with unanimous shareholder consent.

5. Role Changes: The position of "executive director" will be eliminated. The legal representative will have the dual role as a director or manager, with resigning from one role considered resignation from all.

6. Duty of Loyalty and Diligence: Clearer guidelines have been established for the loyalty and diligence expected from Directors, Supervisors, and Senior Management.

7. Restrictions and Liabilities: Stricter regulations on voting rights, conflicts of interest, and non-compete clauses apply to directors, senior management, and even supervisors. Personal liabilities have been expanded to cover losses resulting from associated party transactions.

8. Governance: The importance of managing the powers of company directors and managers through delegation and the company's articles of association.

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Stay ahead of the curve by delving into the full article detailing these law changes. Click here for more comprehensive insights.