On October 27, at the 18th session of the Standing Committee of the 10th National People's Congress, China's top legislature adopted the Draft of the Amendment of the Corporate Law.
Over a decade ago, China was undergoing a transformation from a planned economy system to a market economy when the law circles started a heated discussion on corporate legislation. Therefore, the Corporate Law effective in 1994 is unavoidably invested with relatively more color of administrative intervention.
For the past 11 years, the implementation of the Corporate Law has played a significant role in regulating the organization and behavior of corporations, protecting the lawful rights of companies, shareholders and creditors, driving and promoting the reform of state-owned enterprises, and establishing the socialist market economic system.
However, during the 11 years of implementation of the Corporate Law, there have been great changes in our economic life, particularly at a time when China has entered into the WTO, state-owned enterprises have made great achievements in establishing a modern enterprise system, the stock market has emerged and evolved to the now ever developing and growing, the socialist market economic system has come into being fundamentally. All these changes require further amendments to the Corporate Law.
These amendments to the Corporate Law are relatively comprehensive. Huang Jianchu, director of Department of Economic Law in Legislative Affairs Commission of the Standing Committee of the National People's Congress, said when introducing the amendments to the Corporate Law that corporations now employ a modern enterprise system with the capital system at its core, and work as the main wealth creators of the modern society.
The newly revised Corporate Law has reduced the amount limit on corporate capital, enhanced the proportion of intangible assets investment and, at the same time, relaxed restraints on external investment by corporations, and admitted the legal status of one-man company legally for the first time. All these are comparatively major arrangements in the corporate legal system.
The newly revised Corporate Law has consummated relevant regulations on governance structure and internal mechanism of a corporation so as to enhance the overall governance effect inside a company.
It is clearly prescribed that the company is the corporate legal person, which possesses independent corporate property, enjoys property rights of a legal person and assumes responsibility for liability; the legal representative of a company, which can be the board chairman, executive director or manager of the corporation, shall be decided according to the rules of the company; the rules of the company can decide the proportion of shareholders' dividend of a limited company, etc.
The effectiveness of the rules of a company is prior to that of prescriptions of relevant laws in the event that prescriptions in the rules of a company do not accord with relevant laws on these issues.
It's prescribed that directors of a listed company who are correlated to enterprises that are involved in the resolution made by the board meeting of the listed company are not allowed to use their voting rights as well as use voting rights on behalf of other directors on the resolution.
A board meeting can be held when more than half of the non-affiliated directors are present, and the resolution made by the board meeting must be approved by more than half of the non-affiliated directors. If less than three non-affiliated directors attend the board meeting, the issue should be submitted to shareholders' meeting of the listed company for discussion.
It's also prescribed in the new Corporate Law that if a listed company's purchases, its sales of significant assets or its guaranteed amount within a year have surpassed 30 percent of its total assets, the resolution should be made by the shareholders' meeting and approved by two thirds of the shareholders present at the meeting.
In addition, the new Corporate Law prescribes that listed companies can have independent directors according to the needs so as to further strengthen the role played by the corporate directors, supervisors and senior managers, making it clearly that directors, supervisors and senior managers who have broken the provisions in the rules of the company and caused damages to the company should undertake the corresponding liabilities.
In order to safeguard the fair order of transactions, the newly revised Corporate Law has also added some technical arrangements. For example, the law has endowed shareholders with the duty to go over the accounts of the company, which is a very important clause aiming at enlarging the employee's rights to know and protecting the interests of small and medium shareholders. With shareholders endowed with the right to audit the accounts, the supervision to senior managers by shareholders has thus got strengthened.
On the protection of the interests of employees, the law makes it clear that the labor union should be organized and operated according to the statutes of Labor Union Law and its legal interests should be safeguarded accordingly; the company has the duty to provide necessary conditions to its labor union to exercise activities. Meanwhile, the labor union of the company should represent the employees to sign collective contracts on the employees' welfare, insurance, etc., and it is prescribed that the company must sign labor contracts with its employees as prescribed in the law.
As far as the focused one-man company is concerned, the newly revised Corporate Law also enlists this kind of company into its adjustment viewing the practical situation of China and the general practices in foreign countries. Meanwhile, the law has also prescribed some preventive measures against the malpractices of such companies. For example, one natural person, who is permitted to establish one limited company only, is prohibited to set up unlimited companies without any limits. Another example is that the minimum contribution amount of a limited company now has reduced to RMB30,000 while the minimum registered amount for a natural person is no less than RMB100,000, which is to be paid up just in one time according to the law.
