Introduction to major reforms to China’s Company Law
Brian Blömer
by Brian Blömer
China has undertaken significant amendments to its Company Law, signalling crucial changes in corporate governance and business operations. These amendments, adopted by the Standing Committee of the National People’s Congress on 29 December 2023, aim to modernise the legal framework for businesses, focusing on areas like shareholder rights, corporate governance, and alignment with international practices. Implemented on 01 July 2024, the revised law has substantial implications for foreign investment regulations, compliance standards, and director liabilities, reflecting China’s intent to foster a globally competitive business environment.
Primary goals of the new legislation
The updated Company Law, effective from 01 July 2024, is designed to achieve several core objectives. It aims to increase the flexibility of corporate structures, reduce regulatory complexities, and enhance governance frameworks. By aligning with international norms, the amendments address the evolving landscape of foreign investment in China. The redefined legal structure impacts both domestic enterprises and foreign investors under the Foreign Investment Law, representing a concerted effort to boost corporate compliance and standardise business operations across China.
Changes in business formation and governance
The overhaul of China’s Company Law introduces significant changes to business formation and governance for limited liability companies (LLCs) and joint-stock companies. The revisions streamline company formation by removing the need for LLC name pre-approval, and allow simultaneous name verification and registration, speeding up the process.
Capital contribution rules are now more flexible, eliminating minimum thresholds and permitting diverse contribution methods. Corporate governance structures have also been redefined to improve efficiency, with revised Articles of Association (AoA) giving companies more freedom in setting roles for directors, boards, and supervisors. The law also enhances corporate transparency, especially in bond issuance and share capital changes.
Enhancements to shareholder rights and protections
China’s revised Company Law significantly strengthens shareholder rights, focusing on transparency, accountability, and fairness in corporate governance. Minority shareholders, who have often struggled to influence decisions, now have greater supervisory power and voting rights, especially in key transactions. Directors and supervisors must meet higher standards of care and loyalty, promoting ethical management. The law clarifies share transfer rules, particularly for publicly listed companies, and reinforces the right of first refusal to protect against ownership dilution. Stricter duties on controlling shareholders and rigorous governance standards ensure that company welfare is prioritised over personal gain.
Legal and compliance considerations
The revisions to China’s Company Law bring about significant legal implications for businesses operating within the country, particularly foreign-invested enterprises. The amendments introduce new capital requirements and a streamlined registration process for these entities, while also imposing stricter liability on directors and legal representatives to ensure diligence in capital contributions. Most importantly, the new law requires companies to contribute the registered capital within five years, compared to the previous 30-year period.
Companies established after 01 July 2024 must have shareholders contribute the registered capital within five years of establishment. Companies established before that date have until 30 June 2027 to adjust their capital timelines to the five-year limit, with full compliance required by 30 June 2032. This transition period allows existing businesses to adapt smoothly to the new regulations.
In addition to the transition period for registered capital, the law also establishes a clear timeline for businesses to transition to the other new regulations, including specific procedures for liquidation or dissolution, aimed at protecting creditor and investor interests while allowing businesses sufficient time to adjust to the new legal framework.
China's drive for a competitive business environment
The amendments to China’s Company Law mark a major shift in corporate governance, aligning with international standards. These reforms enhance corporate flexibility, reduce regulatory burdens, and strengthen governance. Key changes include simplified company formation for LLCs and joint-stock companies, improved transparency, and stronger shareholder rights.
The law imposes stricter duties on controlling shareholders and sets clear rules for share transfers to protect minority interests. For foreign enterprises, the most important developments are the new capital requirements and stricter liability on directors and legal representatives, which are key items to take into account for all businesses active in China.
GGI member firm MSA AsiaHong KongBeijing, Shanghai, Shenzhen, ChinaT: +86 21 6352 0167
Auditing & Accounting, Tax, Advisory, Corporate Finance
MSA is a full-service accounting and strategic advisory partner, who assists foreign SMEs in the Chinese market with various accounting, finance and business needs. For over a decade we have been helping foreign companies with all their business needs in China, with a focus on high quality solutions.
As a Partner at MSA, Brian leads the corporate services division. Providing guidance to enterprises navigating the Chinese market, Brian's expertise spans various areas of service, including facilitating market entry, company establishment, corporate structuring, and managing company liquidations. Contact Brian.
