News

On December 19, 2023, marking the 30th anniversary of the promulgation of the Company Law, the Seventh Session of the Fourteenth NPC Standing Committee voted to pass the newly revised Company Law, which will come into effect on July 1, 2024.

The significance of this new Company Law is profound as it further standardizes aspects such as company establishment, changes, shareholder capital contributions, corporate governance systems, and exit mechanisms. It aims to effectively prevent new legal risks and support enterprises in achieving compliant and high-quality development.

In conjunction with this revision of the Company Law, we analyzed typical legal risks faced by companies in the processes of establishment, changes, management, dissolution, and liquidation, providing insights for companies to improve their corporate governance systems under the new Company Law.

I. Legal Risk Points in Company Establishment

1. Shareholders must make capital contributions on time and in full according to the Articles of Association of the company. Otherwise, the company or other shareholders have the right to request the delinquent shareholder to fulfill their contribution obligations. Shareholders who have made timely and full contributions also have the right to demand that the delinquent shareholder bear default liability. Company creditors also have the right to demand that the delinquent shareholder bear supplementary compensation liability for debts that cannot be repaid within the contributed capital and interest scope.

2. Shareholders are not allowed to divert contributions. Any act of making false financial accounting statements to inflate profits for distribution, transferring contributions through fictitious debt relationships, or withdrawing contributions through related-party transactions constitutes diversion of contributions. In case of such diversion, the company or other shareholders have the right to demand the return of contributions from the diverting shareholder, and company creditors have the right to demand supplementary compensation for debts that cannot be repaid due to the diverted contributions.

3. Liability of promoters if the company fails to be established. If the company fails to be established, creditors have the right to request all or part of the promoters to jointly and severally bear the expenses and debts incurred in the establishment of the company. If the promoters cause harm to others in the process of establishing the company and the company fails to be established, the injured party has the right to request all promoters to jointly and severally compensate.

II. Legal Risk Points in Company Changes

4. Reduction of registered capital must comply with statutory procedures. When a company reduces its registered capital, a resolution must be made by the shareholders' meeting or the general meeting of shareholders. For limited liability companies, the resolution must be approved by shareholders holding more than two-thirds of the voting rights or by attending shareholders holding more than two-thirds of the voting rights, and assets and liabilities must be prepared.