Chinese Company Law: Corporate Governance and the 2023 Revision
The Company Law of the People’s Republic of China (中华人民共和国公司法) was first enacted in 1993 and has undergone substantial revisions in 2005, 2013, 2018, and most significantly in 2023 with effect from 1 July 2024. The Law provides the legal framework for the establishment, governance, and dissolution of companies in China, reflecting the evolution of China’s economic system from a state-planned economy to a market-oriented socialist system. The Company Law applies to all companies incorporated in China, including both domestic enterprises and foreign-invested enterprises.
Types of Companies
The Company Law recognises two principal types of companies. The limited liability company (LLC) (有限责任公司) under Articles 23–65 is a company in which shareholders assume liability limited to their respective capital contributions, with the company bearing liability for its debts to the extent of all of its assets. LLCs are the most common corporate form in China, suitable for small and medium-sized enterprises, and may have between one and fifty shareholders. The company limited by shares (CLS) (股份有限公司) under Articles 76–156 is a company in which the total capital is divided into equal shares, with shareholders assuming liability limited to the number of shares they hold. CLSs are typically larger enterprises and may be listed on stock exchanges. The Law also recognises the wholly state-owned company, a special form of LLC where the state, acting through the State-owned Assets Supervision and Administration Commission (SASAC), is the sole shareholder.
The 2023 Revision
The 2023 revision of the Company Law, adopted by the Standing Committee of the National People’s Congress on 29 December 2023, represents the most comprehensive reform since 2005. The revision modernises corporate governance structures, strengthens shareholder protection, enhances compliance obligations, and introduces mechanisms to address long-standing deficiencies in China’s corporate legal framework. Key reforms include the modernisation of corporate governance through clearer allocation of powers among the shareholder meeting, board of directors, board of supervisors, and management, with listed companies now required to establish independent directors and audit committees. The revision introduces more flexible rules for the establishment of audit committees that may replace the supervisory board, offering companies greater choice in governance structures.
The 2023 revision relaxes capital contribution requirements by reducing the minimum registered capital for CLSs and clarifying the rules for capital contribution in kind. For LLCs, shareholders must make full payment of their capital contributions within five years of incorporation, a provision designed to address the problem of “phantom capital” while maintaining flexibility. The revision introduces enhanced rules for capital verification and imposes personal liability on directors who fail to ensure timely capital contributions. The revision also introduces a substantive class action mechanism (股东代表诉讼) enabling shareholders to bring derivative actions against directors, supervisors, and senior management for misconduct, building on the 2005 revision that first introduced derivative actions and appraisal rights for dissenting shareholders in major corporate transactions.
Corporate Governance Structure
The Company Law establishes a tripartite governance structure. The shareholder meeting (股东会) is the highest authority of the company, exercising powers including amending the articles of association, electing and replacing directors and supervisors, approving annual financial budgets and final accounts, deciding on increases or decreases in registered capital, and resolving on merger, division, dissolution, or transformation. The board of directors (董事会) is the executive organ responsible for implementing shareholder meeting resolutions, formulating operational plans, and managing daily operations. The board of supervisors (监事会) exercises oversight over the directors and senior management, examining company financial affairs, supervising compliance with laws and the articles of association, and requiring directors and managers to correct actions detrimental to company interests. The management (经理) handles day-to-day business operations under the direction of the board of directors. For companies with a Communist Party organisation, the Law explicitly recognises the Party’s role in guiding corporate governance and ensuring compliance with state policies, reflecting the principle that Party leadership is integral to corporate operations.
Shareholder Rights and Protection
The Company Law provides extensive shareholder rights. Shareholders enjoy the right to participate in profit distribution, to vote at shareholder meetings in proportion to their capital contribution or shareholding, to appoint and remove directors and supervisors, to access company records and financial information, and to transfer their shares. Minority shareholders receive special protection through the right to require the company to repurchase their shares in cases of major asset transfers or where the company fails to distribute profits for five consecutive years despite having distributable profits. Shareholders holding one per cent or more of shares in a CLS may bring derivative actions (派生诉讼) against directors, supervisors, or others for damage caused to the company. The 2023 revision significantly expands the scope of derivative actions and introduces the possibility of double derivative actions — actions brought by shareholders of a parent company in respect of wrongs committed against a subsidiary.
Role of the State Administration for Market Regulation
The State Administration for Market Regulation (SAMR) is the principal state authority responsible for company registration, regulation, and supervision. SAMR administers the Company Registration System, maintaining the National Enterprise Credit Information Publicity System, processing company incorporations, alterations, and dissolutions, and enforcing compliance with the Company Law and related regulations. SAMR has delegated certain registration and supervisory functions to local Administrations for Market Regulation at the provincial and municipal levels.
Registered Capital System Reform
The 2005 revision introduced a minimum registered capital requirement of RMB 30,000 for LLCs and RMB 5 million for CLSs. The 2013 revision fundamentally reformed the system by abolishing minimum capital requirements for most companies and replacing the paid-in capital system with a subscribed capital system (认缴资本制), under which shareholders determine the amount and schedule of capital contributions in the articles of association without requiring immediate payment. However, concerns about excessive subscribed capital and insufficient paid-in capital led the 2023 revision to reintroduce a five-year maximum contribution period for LLCs and specific minimum capital requirements for certain regulated industries.
Foreign-Invested Enterprises
The Foreign Investment Law (2019), effective 1 January 2020, eliminated the three separate laws governing foreign-invested enterprises — the Sino-Foreign Equity Joint Venture Law, the Sino-Foreign Contractual Joint Venture Law, and the Wholly Foreign-Owned Enterprise Law — and subjected foreign-invested enterprises to the unified Company Law regime. Foreign-invested enterprises established before the Foreign Investment Law came into effect were granted a five-year transition period to adjust their corporate structures to comply with the Company Law. This reform eliminated the regulatory distinctions between domestic and foreign companies, creating a level playing field and simplifying the legal framework for foreign investment in China.
Director and Supervisor Liability
The 2023 revision substantially increases the liability of directors, supervisors, and senior management for corporate compliance failures. Directors owe duties of loyalty and diligence to the company, must avoid conflicts of interest, may not misappropriate company property or accept bribes, and are prohibited from unauthorised competition with the company. Directors who fail to ensure compliance with laws and regulations, including those relating to environmental protection, tax, labour, and data security, face personal liability for damages suffered by the company or third parties. The revision also clarifies the liability of controlling shareholders and actual controllers who exercise de facto control over company affairs.