The newly revised Company Law, which has been reviewed four times in two years, has been adopted. The Company Law is the basic law under China's socialist market economy system. The current Company Law was enacted in 1993 and has been amended five times. Compared with the current Company Law, the new Company Law has been adjusted in terms of company establishment, operation, change and governance, which is the most comprehensive revision since its first promulgation in 1993. The Economic Observer will also launch a series of articles analyzing the new "Company Law" from key aspects such as capital system, corporate governance, and financial supervision.
On December 29, 2023, the newly revised Company Law of the People's Republic of China (hereinafter referred to as the "New Company Law") was deliberated and passed by the seventh meeting of the Standing Committee of the 14th National People's Congress and will come into force on July 1, 2024.
The revision of the Company Law was launched in 2020, comprehensively summarizing the legislative experience accumulated since the implementation of the Company Law in 1993, the judicial practice of the people's courts, and many issues that have been strongly reflected by the society in recent years, and adding and amending 70 articles in essence, which is a major decision and deployment made by the Party Central Committee in deepening the reform of state-owned enterprises, optimizing the business environment, strengthening the protection of property rights, and promoting the healthy development of the capital market, so as to promote the further improvement and development of the company's system and practice.
The new Company Law has made major adjustments to important corporate systems such as the company's capital system, optimizing the corporate governance structure, standardizing the responsibilities of controlling shareholders, actual controllers, and "directors, supervisors and senior executives", and simplifying the procedures for the establishment and exit of companies. These adjustments will have a significant impact on the legal liability of companies, entrepreneurs, investors and senior managers.
The issue of the subscription of the company's registered capital becomes paid-in
1. Pay in the registered capital of the company as soon as possible, if there are no paid-in conditions in the short term, it is recommended to reduce the company's capital as soon as possible in accordance with the law. Article 47 of the new Company Law stipulates that shareholders shall pay capital contributions within five years from the date of establishment of the company.
If a company that has been registered and established before the implementation of the new Company Law (July 1, 2024) has a capital contribution period of more than five years, the State Council will issue corresponding measures to gradually adjust it to less than five years.
Therefore, as far as the current established company is concerned, it is recommended that the shareholders of the company can pay in advance if they are able to pay in advance according to their own subscribed capital contribution and capital contribution capacity; if the subscribed capital contribution is large and the capital contribution capacity is insufficient, they can consider reducing the capital contribution in accordance with laws and regulations; if they are unable to complete the actual payment and cannot reduce the capital contribution due to special reasons, they can consider transferring business and personnel, property and materials after the establishment of a new company and dissolving the original company.
2. Avoid equity holding, and the nominee shareholder will bear the responsibility of capital contribution. If there is an equity holding on behalf of the shareholder and the registered capital has not been paid-in, it is recommended that the nominee shareholder (apparent shareholder) discuss the matter of the shareholder's apparent name with the anonymous shareholder (actual investor) as soon as possible, and strive to become famous as soon as possible. Otherwise, after the implementation of the new Company Law, the nominee shareholders need to bear the legal responsibility for the accelerated expiration of the company's registered capital subscribed by the company.
3. If the capital contribution is not paid, and the equity is transferred to others, the original shareholder will still bear the responsibility of making up the capital contribution. In practice, it is not uncommon for shareholders to subscribe for a large amount of registered capital. After the company is indebted, shareholders tend to transfer their equity to others in an attempt to get rid of the responsibility of capital contribution. However, after the implementation of the new Company Law, even if the equity is transferred to another person, the original shareholder still has to bear the responsibility of making up the paid-in capital contribution.
Therefore, when a shareholder intends to transfer equity to a third party other than the company's shareholders: first, it is recommended that the equity transferor conduct a corresponding investigation (legal due diligence, financial due diligence, etc.) on the third party's creditworthiness and performance ability. At the same time, based on the due diligence situation, the transferee's capital contribution obligations and liability for breach of contract are arranged accordingly in the equity transfer agreement. Secondly, it is recommended that the equity transferee thoroughly verify the true capital contribution of the transferor (including all the transferors of the transferor's predecessor). The verification content includes, but is not limited to: monetary contribution transfer certificate, non-monetary contribution transfer procedures (such as property rights registration, appraisal report, etc.), so as to avoid the corresponding liability for the transferor's false capital contribution.
Ways for major shareholders and actual controllers to protect their rights if they infringe on the interests of the company and all shareholders
In practice, the common forms of major shareholders and actual controllers using their control to harm the interests of the company and minority shareholders are: illegally occupying the company's funds, engaging in intra-industry competition with the company, engaging in related party transactions with the company and transferring funds in disguise, allowing the company to provide guarantees for it, the company making profits but refusing to pay dividends, misappropriating or diverting the raised funds for other purposes, arbitrarily and arbitrarily, making large investments without the consent of the shareholders' meeting, and so on.
1. The new Company Law adds a new legal basis for rights protection, and it is recommended to make scientific planning before litigation, determine feasible plans, and fix evidence in a timely manner.
In view of the abuse of rights by major shareholders and actual controllers to the detriment of the rights and interests of the company and its shareholders, the new Company Law has further improved and added relevant provisions, of which only Chapter 8 "Qualifications and Obligations of the Company's Directors, Supervisors and Senior Managers" has a total of 26 legal provisions clarifying the rights and obligations of "directors, supervisors and senior executives"; The system of shareholders' right to know, the system of shareholder representative litigation, and the application of shareholders to dissolve the company provide a full range of legal basis support for the company or other shareholders to protect their rights.
Therefore, it is recommended that the company and other shareholders should make timely and full use of the legal remedies under the new Company Law to reasonably select and use the above-mentioned legal tools to protect their own rights and interests in view of the situation where the major shareholders and actual controllers harm the interests of the company and all shareholders. At the same time, it is particularly recommended that evidence be fixed in a timely manner under the professional guidance of lawyers to ensure the smooth progress of rights protection.
2. Improve the articles of association, sign the shareholders' agreement, and optimize the corporate governance mechanism. Within the company, the rights and interests of small and medium-sized shareholders can be protected by formulating or amending the articles of association and improving the company's internal governance mechanism or system construction, and preventing the abuse of rights by major shareholders and actual controllers.
For example, the articles of association of the company specifically stipulate that the convening of the shareholders' meeting must reach a minimum number of people, and set different proportions of shareholders attending the meeting according to the different importance of the matter, otherwise the meeting will be invalid, so as to protect the rights and interests of small and medium-sized shareholders; the articles of association of the company may specifically stipulate the number of small and medium-sized shareholders necessary in the board of directors; the company's audit committee or small and medium-sized shareholders may also be established to serve as directors and supervisors of the company, and supervise the daily operation and management of the controlling shareholders.
Careful selection of partners and company contributions
It is necessary to carefully select partners, try to choose partners with high reputation and strong performance ability to set up a company or increase capital and shares, and conduct corresponding background checks (such as financial due diligence and legal due diligence) on partners before the establishment of the company or capital increase and share expansion. At the same time, the promoter shareholders of the company should pay attention to urging other promoter shareholders to fully perform their capital contribution obligations, and avoid joint and several liability with the promoter shareholders who have not fully fulfilled their capital contribution obligations when the company's creditors file a lawsuit. If the existing cooperative shareholders have not paid in, it is recommended to negotiate and determine the actual payment as soon as possible, or handle the capital reduction in a timely manner.
Prudently determine the amount of subscribed capital contribution, the subscription period and the registered capital of the company. Shareholders shall, according to their actual situation, prudently determine the amount of subscribed capital contribution, the subscription period and the registered capital of the company when the company is established or participates in the capital increase and share expansion. The more the registered capital of the company, the better, that is, the larger the amount of capital subscribed by the shareholders, the greater the liability. It should be noted that even if the subscription period has not expired, the maturity of shareholders' capital contributions may be accelerated under certain circumstances, such as the company's inability to pay off its debts. At that time, the shareholders may be incurred with large debts as a result, which will affect their personal lives. According to the provisions of the new Company Law, the period for shareholders to subscribe for capital contribution is five years from the date of establishment of the company, so it is recommended that the shareholders of the company determine the registered capital by matching the statutory capital contribution period with their own capital contribution capacity.
Pay attention to the value of the company's articles of association and shareholders' agreement, and be sure to make customized designs on cooperation methods, rights and obligations. The relevant legal documents involved in the establishment of the company or the increase of capital and shares, especially the capital contribution agreement (shareholders' agreement, capital increase and share expansion agreement) and the articles of association of the company, should be drafted according to the actual situation as far as possible, and it is not recommended to use the model of the administrative department for industry and commerce and other relevant departments.
Optimize the corporate governance structure
1. An audit committee can be established and the corresponding rights and obligations can be clarified through the articles of association of the company, and the construction of the anti-fraud system of the enterprise can be optimized. The new Company Law introduces the audit committee system, which is conducive to optimizing the corporate governance mechanism and strengthening the anti-fraud of enterprises.
2. The nominal "directors, supervisors and senior executives" should resign as soon as possible. The new Company Law as a whole strengthens and adds provisions on the responsibilities and obligations of "directors, supervisors and senior executives". Therefore, for the current existence of "directors, supervisors and senior executives", it is recommended that such members resign in a timely manner and go through the industrial and commercial change registration, so as to avoid joint and several liability for the company's debts or certain illegal acts of shareholders at that time.
Attach importance to the role and value of the company's articles of association
1. Customized design of the company's articles of association to protect the special interests of shareholders. The articles of association of the company are the unanimous expression of intention among the shareholders, which is binding on the company, shareholders, directors, supervisors and senior managers, and is an indispensable legal document in the process of the establishment and change of the company. The articles of association are also legal documents that directly regulate the relationship between shareholders and shareholders, between shareholders and management, and between the founding team and investors.
In addition to the mandatory provisions of the Company Law, there are many matters that can be freely agreed upon in the articles of association, such as not distributing dividends in accordance with the proportion of capital contribution, not subscribing to capital contributions in priority, "other functions and powers of the shareholders' meeting" other than those stipulated in the Company Law, not exercising voting rights in accordance with the proportion of capital contribution, "the manner of deliberation and voting procedures of the shareholders' meeting" other than those stipulated in the Company Law, and "the manner of deliberation and voting procedures of the board of directors" other than those stipulated in the Company Law. Restricting the pre-emptive subscription rights of some shareholders in the event of equity transfer, depriving some shareholders of their right to consent in the event of equity transfer, and the right of inheritance after the death of a natural person shareholder.
Therefore, it is recommended that the shareholders of the company design or revise the articles of association according to the actual situation, and try to ensure that the articles of association are targeted, adaptable and complete.
2. When there is a major change in the actual situation of the company, the articles of association should be amended in a timely manner and the industrial and commercial change registration should be handled. The articles of association of a company shall, at least completely, stipulate the necessary matters listed in the Company Law, and when the articles of association are amended, the industrial and commercial change registration shall be carried out in a timely manner. At the same time, the institutional design of the articles of association will also have a practical impact on the company's operation, such as the shareholders' meeting and the board of directors to clarify the proportion of voting rights in the approval of relevant major decision-making matters, and the management method of the company's seal and license, etc., which can be clarified by shareholders in the company's articles of association.
The company's capital reduction and dissolution (deregistration) must follow the legal procedures
1. When reducing the company's capital, it must be carried out in strict accordance with the procedures stipulated in the law and the articles of association, otherwise it is easy to constitute an illegal capital reduction, and the shareholders and responsible directors, supervisors and senior executives will bear the liability for compensation.
In practice, the main reasons for the company's capital reduction are to eliminate the huge capital contribution obligation, to cover the company's losses, and to reduce the capital due to the withdrawal of shareholders.
Regardless of the reason for the capital reduction, it is recommended that the company's capital reduction should be carried out in strict accordance with the provisions of the law and the articles of association, and every link in the capital reduction must be done well (including but not limited to the board of directors formulating the capital reduction plan, the shareholders' meeting making a resolution on the capital reduction, preparing the balance sheet and property list, notifying creditors and making announcements, amending the articles of association, registering the capital reduction, etc.), otherwise it is very easy to be identified as an illegal capital reduction, and the shareholders and the responsible directors, supervisors and senior executives will be liable for compensation at that time.
In addition, it should also be noted that in the case of targeted capital reduction, some courts hold that unless otherwise agreed by all shareholders or the articles of association, it should be unanimously agreed by all shareholders, otherwise the corresponding resolution on targeted capital reduction will not be established or invalid. Therefore, when the company reduces its capital, it must pass the capital reduction resolution in strict accordance with the law and the articles of association.
2. When the company is dissolved (deregistered), it should be carried out in strict accordance with the provisions of the law and the articles of association, especially the liquidation must be done, otherwise the shareholders and directors may be liable for compensation.
In practice, the main circumstances of a company's deregistration are the company's bankruptcy, revocation of business license, order to close, revocation or other reasons (mainly due to the occurrence of dissolution reasons stipulated in the articles of association of the company, or the occurrence of reasons for dissolution stipulated in the articles of association, such as the expiration of the business term, the company's losses reaching the conditions stipulated in the articles of association, the company's resolution to dissolve, etc.). According to the current Company Law, the company shall be liquidated before the company is dissolved and deregistered.
Therefore, it is recommended that the shareholders and directors of the company shall carry out the liquidation and cancellation of the company in a timely manner in strict accordance with the provisions of the law and the articles of association, otherwise even if the company is successfully deregistered, the shareholders and directors cannot be exempted from the liability for compensation for improper liquidation.
For the liquidation procedure, the statutory steps are: establishing a liquidation group, notifying and announcing creditors, liquidating the company's property, preparing the balance sheet and property list, preparing and implementing the liquidation plan, preparing the liquidation report and submitting it to the shareholders' meeting or the court for confirmation, and registration cancellation (including tax cancellation, industrial and commercial cancellation, bank account cancellation, and seal destruction) within 15 days from the date of the occurrence of the cause of dissolution.
Among them, the current Company Law is different from the new Company Law with regard to the composition of the members of the liquidation group. The current Company Law stipulates that the liquidation group of a limited company shall be composed of shareholders, and the liquidation group of a joint-stock company shall be composed of directors or members determined by the general meeting of shareholders. The new Company Law stipulates that the liquidation group of a limited company and a joint-stock company shall be composed of directors, unless the articles of association or the resolution of the shareholders' meeting elect another person.
3. There is a risk in simple cancellation, and if you evade debts through simple cancellation, you may be associated with shareholders.
The new Company Law adds a new provision for simplified deregistration, that is, if a company does not incur debts during its existence, or has paid off all its debts, it may deregister the company through simplified procedures in accordance with the provisions with the commitment of all shareholders. However, it should be noted that if the shareholders do not incur debts during the existence of the company before the deregistration, or if the promise to pay off all the debts is untrue, they shall be jointly and severally liable for the debts before the deregistration.
Therefore, it is recommended that shareholders must notify the known creditors and make an announcement in a timely manner before the deregistration, and reach an agreement on the disposal of debts, otherwise even if the company is successfully deregistered, it may still be jointly and severally liable for the company's debts.