On 29 December 2023 the Standing Committee of the National People’s Congress adopted the revised Company Law at its seventh session, and the President issued Order No. 15 promulgating it. The law takes effect on 1 July 2024 and contains fifteen chapters.
The revision is not a set of isolated adjustments. Registered capital, governance structure, shareholder liability, directors’ duties and exit mechanisms all change substantively. For existing companies, the priority is not memorising provisions but scheduling amendments to articles, capital and governance.
Five-year paid-in capital
The revised law requires shareholders of a limited liability company to pay in their subscribed capital within five years of incorporation. The long-standing practice of subscribing capital with a payment date decades away will no longer be available.
How existing companies transition is to be prescribed by the State Council. Before those rules appear, companies should review subscribed amounts, paid-in progress and shareholders’ capacity, and assess whether reduction, adjustment of payment dates or new investors are needed.
Forfeiture and board calls
The revised law establishes shareholder forfeiture: where a shareholder fails to pay capital on time and remains in default after the company’s demand, the shareholder may lose the equity corresponding to the unpaid capital.
The board also has a duty to verify and call for payment. Directors who fail to perform this duty and cause loss may be liable. For directors, capital contributions become a matter requiring active verification and records, not merely a matter between shareholders.
Choice of governance structure
The revised law allows a company to establish an audit committee within the board, exercising the powers of the supervisory board, and to dispense with the supervisory board or supervisors. Joint stock companies may also adopt authorised capital and class shares.
Governance choices affect decision-making efficiency and allocation of responsibility. Companies should design them around shareholder structure, financing arrangements and listing plans rather than copying a template. Articles, rules of procedure and authorisation systems must be amended together.
Related-party transactions and corporate veil
The revised law strengthens the duties of loyalty and diligence of directors, supervisors and senior managers, and imposes clearer requirements on related-party transactions, competing businesses and self-dealing.
It also introduces horizontal veil piercing: where a shareholder uses two or more companies under its control to evade debts, those companies may be jointly liable for any one company’s debts. For groups, this requires clearer commercial substance and decision records for intra-group funding, guarantees and business arrangements.
Exit mechanisms
The revised law improves simplified and compulsory deregistration. A company with no debts, or with debts fully settled, may deregister under the simplified procedure. Where a company whose business licence has been revoked, that has been ordered closed or revoked, fails to apply for deregistration for three years, the registration authority may compulsorily deregister it.
Exit is easier, but liability does not disappear. Liquidation, debt handling, tax clearance and employee arrangements remain necessary. Shell companies that have long ceased trading should be dealt with early, before compulsory deregistration creates credit and liability problems.
A timetable for companies
First, complete amendments to articles and governance rules in the first half of 2024, specifying capital payment dates and board or audit committee arrangements. Second, review subscribed and paid-in capital and assess reduction or rescheduling. Third, establish records of board capital calls and related-party decisions. Fourth, clean up dormant entities and assess simplified deregistration or transfer.
For incorporation, articles and capital arrangements, see incorporation; for capital reduction, deregistration and exit, see M&A and exit; for long-term governance and compliance, see annual legal counsel.
This note is based on the Company Law of the People’s Republic of China adopted on 29 December 2023. It is for reference only and does not constitute legal advice.