Company Law of the People's Republic of China
Company Law of the People's Republic of China
[Date of Issue：27 October 2005]
Table of Contents
Chapter One: General Provisions
Chapter Two: Establishment and Organs of Limited Liability Company
Section One. Establishment
Section Two. Organs
Section Three. Wholly State-owned Company
Chapter Three: Establishment and Organs of Joint Stock Limited Company
Section One. Establishment
Section Two. Shareholders’ general committee
Section Three. Board Of Directors And General Manager
Section Four. Board Of Supervisors
Chapter Four: Issue and Transfer of Shares of Joint Stock Limited Company
Section One. Issue Of Shares
Section Two. Transfer Of Shares
Section Three. Listed Company
Chapter Five: Company Bonds
Chapter Six: Financial and Accounting Affairs of Company
Chapter Seven: Merger and Division of Company
Chapter Eight: Bankruptcy, Dissolution and Liquidation of Company
Chapter Nine: Branch of Foreign Company
Chapter Ten: Legal Liabilities
Chapter Eleven: Supplementary Provisions
Chapter One: General Provisions
Article 1
This Law is enacted in accordance with the Constitution, inorder to meet the needs of establishing a modern enterprise system, to regulate the organization and conduct of companies, to protect the lawful rights and interests of companies as well as the shareholders and creditors thereof, to maintain social and economic order, and to promote the development of the socialist market economy.
Article 2
A company referred to herein means a limited liability company or a joint stock limited company established within China in accordance herewith.
Article 3
Limited liability companies and joint stock limited companies are enterprise legal persons.
In the case of a limited liability company, the shareholders are liable thereto to the
extent of their capital contribution, and the company is liable for its debts to the
extent of all of its assets.
In the case of a joint stock limited company, its total capital is divided into stocks of equal value, and the shareholders are liable thereto to the extent of their share holdings, and the Company is liablefor its debts to the extent of all of its assets.
Article 4
As contributors of capital, the shareholders of a company enjoythe rights of proprietors in proportion to their respective share of capital contributions to the company, such as deriving benefits from its assets, making major decisions, and selecting its management.
The company enjoys the full property rights of a legal person in respect of assets resulting from the investment by its shareholders, and enjoys civil rights and bears civil liabilities in accordance with the law.
Title to the state-owned assets in the company shall vest in the State.
Article 5
A company, with all of its assets owned by it as a legal person,shall operate autonomously and be responsible for its own profit and loss in accordance with the law.
The company shall, under the state’s macro-regulation, organize its production and operation autonomously in light of market demand,witha viewto improving economic
return and productivity, and accomplishing the preservation and increase of the
value of its assets.
Article 6
A company shall adopt an internal management system whichclearly sets out the rights and responsibilities of the relevant parties, is conducive to scientific management, and combines incentive with check and balance.
Article 7
If a state-owned enterprise is to be reorganized into a company, it must, in accordance with the conditions and requirements prescribed by national statutes and administrative regulations, change its operating mechanism, and orderly identify and verify its assets, determine the respective owners of the property rights therein, settleits creditor’s rights and liabilities, conduct assets appraisal, and set up standard internal management organs.
Article 8
The establishment of a limited liability company or a joint stocklimited company is subject to the requirements prescribed herein. An entity meeting the requirements prescribed herein may be registered as a limited liability company, or a joint stock limited company, as the case may be; an entity failing to meet the requirements prescribed herein may not be registered as a limited liability company, or a joint stock limited company, as the case may be.
Where the establishment of a company is subject to examination and approval as
required by the relevant national statutes or administrative regulations, examination and approval procedure must be carried out in accordance with the law prior to its
registration.
Article 9
The name of a limited liability company established in accordance herewith must contain the words “limited liability company”.
The name of a joint stock limited company established in accordance herewith
must contain the words “joint stock limited company”.
Article 10
The Company shall be domiciled at the place where its principal executive office is located.
Article 11
In order to establish a company, its articles of association must be prepared in accordance herewith. The articles of association of the company are binding upon the company and its shareholders,directors, supervisors and general manager.
The company’s business scope shall be prescribed by its articles of association
and be registered in accordance with the law.If an item in the Company’s business
scope is subject to any restriction prescribed by any national statute or administrati-ve regulation, approval for such item shall be obtained in accordance with the law.
The company shall conduct its business within its registered businessscope. The
Company may change its business scope by amending its articles of association inaccordance with legally prescribed procedure and registering such amendment with the company registration authority.
Article 12
A Company may invest in another limited liability company or joint stock limited company, and is liable to such company to the extent of its capital contribution.
Except for an investment company or a holding company stipulated by the State
Council, where a company is to invest in other limited liability companies or joint
stock limited companies, its cumulative investment may not exceed 50 percent of its net assets, provided that if after the investment, the capital is increased using
profit distribution received from the company in which it invested, the increased
amount shall not be included.
Article 13
A company may establish branch companies, which do not have the status of enterprise legal persons, and the civil liabilitiesthereof shall be borne by the company.
The company may establish subsidiary companies,which have the status of
enterprise legal persons and bear civil liabilities independently in accordance with
the law.
Article 14
In conducting its business, a company must abide by the law, observe industry ethics, strengthen the development of socialistspiritual civilization, and subject itself to supervision by the government and the public.
The company’s lawful rights and interests are protected by law and shall not be infringed upon.
Article 15
A company must protect the lawful rights and interests of its workers, strengthen labor protection, and achieve workplace safety.
The company shall strengthen the professional education and on the job training o its workers in various forms, so as to improve their quality.
Article 16
The workers of a company shall organize a labor union, which shall conduct union activities and safeguard the lawful rights and interests of the workers in accordance with the law. The Company shall provide the necessary conditions for its labor union to conduct its activities.
In accordance with the Constitution and other relevant national statutes, democraticmanagement in the form of workers’ assembly and other forms shall be adopted ina wholly state-owned company or a limited liability company established through investment by two or more state-owned enterprises or by two or more state-owned investment entities of other kinds.
Article 17
Activities of the elementary-level cell of the Chinese Communist Party in a company shall be conducted in accordance with the Charter of the Chinese Communist Party.
Article 18
Limited liability companies with foreign investment are subject to this Law, provided that where the provisions of national statutes governing Sino-foreign equity joint venture enterprises, Sino-foreign cooperative joint venture enterprises, and wholly foreign owned enterprises stipulate otherwise, the stipulations therein shall prevail.
Chapter Two: Establishment And Organs of A Limited Liability
Company
Section One Establishment
Article 19 The establishment of a limited liability company is subject to the following conditions:
(i) The number of shareholders meets legal requirement;
(ii) The amount of shareholders’ capital contribution reaches the minimum level prescribed by law;
(iii) The shareholders jointly prepare the articles of association;
(iv) There is a company name, and the organs meeting the requirements for a
limited liability company are established;
(v) There is a permanent place of business and there are necessary conditions
for production and operation.
Article 20
A limited liability company shall be established through joint investment by not fewer than 2 but not more than 50 shareholders.
A state authorized investment entity or state authorized department may establish wholly state-owned limited liability companies as the sole investor.
Article 21
In the case of a state-owned enterprise established before this Law becomes operative, if it meets the conditions prescribed herein for the establishment of a limited liability company, it may be reorganized into a wholly state-owned limited liability company in accordance herewith if it was established by a single investment entity, or it may be reorganized into a limited liability company pursuant to Paragraph 1 of the previous Article if it was established by more than one investment entities.
The implementing procedures and detailed measures for reorganizing state-owned enterprises into companies shall be separately prescribed by the State Council.
Article 22
The articles of association of a limited liability company shall set forth the following:
(i) its name and domicile;
(ii) its business scope;
(iii) its registered capital;
(iv) the names of its shareholders;
(v) the rights and obligations of its shareholders;
(vi) the forms and amounts of capital contribution made by shareholders;
(vii) the conditions under which the shareholders’ shares of capital contribution
may be assigned;
(viii) its organs, the manners in which they are established and their respective
powers, and the rules governing their conduct of business;
(ix) its legal representative;
(x) the causes for its dissolution and the method for its liquidation;
(xi) other matters which shareholders deem necessary to provide for.
Shareholders shall sign or impress their chops on the articles of association.
Article 23
The registered capital of a limited liability company is the amount of capital contribution actually paid up by all shareholders and registered with the company registration authority.
The registered capital of a limited liability company shall not be less than:
(i) Renminbi 500,000 Yuan if it primarily engages in production;
(ii) Renminbi 500,000 Yuan if it primarily engages in commodity wholesale;
(iii) Renminbi 300,000 Yuan if it primarily engages in commodity retail;
(iv) Renminbi 100,000 Yuan if it engages in scientific and technical development, consulting or service.
If for a specific industry, the required minimum registered capital exceeds any of the minimum levels prescribed above, such minimum requirement shall be separately prescribed by the relevant national statute or administrative regulations.
Article 24
Shareholders may contribute their capital in the form of cash, as well as in the forms of tangible goods, industrial property, non-patented technology and land use rights at certain value. If any tangible goods, industrial property, non-patented technology or land use rights are contributed as capital, they must be appraised and the property rights therein must be verified, and the contributed items may not be over-valued or under-valued. Appraisal on land use rights shall be carried out in accordance with the provisions of the relevant national statute and administrative regulations.
Where industrial property or non-patented technology is contributed as capital at certain value, its valuation shall not exceed 20 percent of the total registered capital, except where the state makes special provisions for companies utilizing high and new technologies.
Article 25
Each shareholder shall invest in full the capital contribution which he has subscribed for in accordance with the articles of association. If a shareholder makes his capital contribution in cash, he shall deposit in full the amount of such cash capital contribution into a temporary bank account opened for the contemplated limited liability company; If capital contribution is made in the form of tangible goods, industrial property, non-patented technology or land use rights, the appropriate transfer procedure for the property rights therein shall be carried out in accordance with the law.
A shareholder who fails to invest the capital contribution which he has subscribed for in accordance with the previous Paragraph is liable for breach of contract to those shareholders who have invested in full the capital contribution they have subscribed for.
Article 26
Upon investment in full of their respective capital contribution by the shareholders, a legally-prescribed capital verification institution must carry out capital verification procedure and issue a certificate.
Article 27
After a legally-prescribed capital verification institution has verified the shareholders’ full capital contribution, a representative designated by all shareholders or the agent appointed jointly thereby shall apply to the company registration authority for establishment registration and submit thereto documents such as the company registration application form, the articles of association, and the capital verification certificate, etc.
Where approval by the relevant authority is required by the relevant national statute or administrative regulations, the approval document shall be submitted at the time of applying for establishment registration.
The company registration authority shall grant registration to an applicant who meets the requirements prescribed herein and shall issue a company business license, and shall not grant registration to an applicant who fails to meet the requirements prescribed herein.
The date of issuance of a company business license shall be the establishment date for a limited liability company.
Article 28
If after the establishment of a limited liability company, it is discovered that the actual value of the tangible goods, industrial property, non-patented technology, or land use rights contributed as capital is significantly below their value fixed in the articles of association, the shareholder who contributed such item as capital shall contribute the difference in value, and the other shareholders of the company at the time it was established shall be jointly and severally liable.
Article 29
Where a branch company is to be established contemporaneous with the establishment of a limited liability company, an application for registration of such branch company shall be submitted to the company registration authority, and it shall be issued a business license.
Where a branch company is to be established after the establishment of the limited liability company, the company’s legal representative shall apply to the company registration authority for registration of such branch company, and it shall be issued a business license.
Article 30
Upon the establishment of a limited liability company, each shareholder shall be issued a capital contribution certificate, which shall set forth the following:
(i) the name of the company;
(ii) the date of registration of the company;
(iii) the company’s registered capital;
(iv) the name of the shareholder, the amount of his capital contribution, and the
date of capital contribution;
(v) the serial number and date of issuance of the capital contribution certificate.
The company’s chop shall be impressed on each capital contribution certificate.
Article 31
A limited liability company shall maintain a record of shareholders, which shall set forth the following:
(i) the name of each shareholder and the domicile thereof;
(ii) the amount of capital contribution invested by each shareholder;
(iii) the serial number of each capital contribution certificate.
Article 32
Shareholders are entitled to inspect the minutes of meetings of shareholder committee as well as the financial and accounting reports of the company.
Article 33
Shareholders shall share in the distribution of profits in proportion to their respective shares of capital contribution. Where the company is to increase its capital, its shareholders have the preemptive right to subscribe for the increased amount.
Article 34
A shareholder may not withdraw its capital contribution after registration of the company.
Article 35
Shareholders may assign in whole or part their respective shares of capital contribution amongst themselves.
Transfer of his share of capital contribution by a shareholder to anyone other than another shareholder is subject to consent by a majority of all the shareholders; shareholders who do not consent to the transfer shall purchase the share of capital contribution to be assigned, and failure by those shareholders to make such purchase is deemed to be their consent to the assignment.
Where the shareholders consent to the assignment of share of capital contribution, other shareholders have the preemptive right of purchase under same conditions.
Article 36
Upon a shareholder’s lawful assignment of his share of capital contribution, the company shall record on the record of shareholders the name of the assignee, the domicile thereof and the amount of capital assigned thereto.
Section Two Organs
Article 37
The shareholders’ committee of a limited liability company consists of all the shareholders, and the shareholders’ committee is the company’s organ of authority, and shall exercise its powers in accordance herewith.
Article 38
The shareholders’ committee shall exercise the following powers:
(i) determining the company’s operational guidelines and investment plans;
(ii) electing and replacing directors, and deciding upon matters relating to their
remuneration;
(iii) electing and replacing supervisors who represent the shareholders,and deciding upon matters relating to the remuneration of supervisors;
(iv) considering and approving reports by the board of directors;
(v) considering and approving reports by the board of supervisors or the
supervisor, as the case may be;
(vi) considering and approving annual financial budget plans and final accounting
pans of the company;
(vii) considering and approving company profit distribution plans and plans to
cover company losses;
(viii) adopting resolutions relating to increase or reduction of the company’s register
ed capital;
(ix) adopting resolutions relating to issuance of company bonds;
(x) adopting resolutions relating to assignment of share of capital contribution by a shareholder to anyone other than a shareholder of the company;
(xi) adopting resolutions relating to merger, division, change of corporate form,
dissolution and liquidation of the company;
(xii) amending the articles of association.
Article 39
Unless otherwise provided herein, the method for conducting business and voting procedure at a meeting of shareholders’ committee shall be prescribed by the articles of association.
Any resolution adopted by the shareholders’ committee relating to the company’s increase or reduction of registered capital, division, merger, dissolution or change of corporate form requires affirmative votes by shareholders representing two-thirds of the votes.
Article 40
A company may amend its articles of association. Adoption of a resolution to amend the articles of association requires affirmative votes by shareholders representing two-thirds of the votes.
Article 41
Shareholders shall exercise their voting rights at the meeting of shareholders’ committee in proportion to their respective shares of capital contribution.
Article 42
The first meeting of shareholders committee shall be called and presided over by the shareholder with the largest share of capital contribution, and shall exercise its powers in accordance herewith.
Article 43
Meetings of shareholders committee are classified as either regular meetings or interim meetings.
Regular meetings shall be timely held as prescribed in the articles of association. Shareholders representing one-fourth or more of the votes, or one-third of the directors or supervisors, may propose for an interim meeting.
Where a limited liability company has a board of directors, a meeting of shareholders committee shall be called by the board, and presided over by the chairman of the board; where the chairman is unable to perform his duties due to any special reason, the meeting shall be presided over by the vice-chairman or another director appointed by the chairman.
Article 44
In order to hold a meeting of shareholders committee, notice shall be given to all shareholders 15 days in advance.
The shareholders’ committee shall prepare minutes regarding the decisions on matters considered at the meeting of shareholders committee, which shall be signed by the shareholders attending the meeting.
Article 45
A limited liability company shall have a board of directors, which shall be composed of not fewer than 3 but not more than 13 directors.
Where a limited liability company has been established through investment by two or more state-owned enterprises, or by two or more state-owned investment entities of other kinds, there shall be representative(s) of the workers of the company on the board of directors. The representative(s) of the workers on the board shall be democratically elected by the workers of the company.
The board shall have one chairman, and may have one to two vice-chairmen. The manner in which the chairman and vice-chairman are selected shall be prescribed by the articles of association.
The chairman is the legal representative of the company.
Article 46
The board of directors is accountable to the shareholders’ committee, and shall exercise the following powers:
(i) being responsible for calling meetings of shareholders committee and
presenting reports thereto;
(ii) implementing resolutions adopted by the shareholders’ committee;
(iii) determining the company’s operational plans and investment programs;
(iv) preparing annual financial budget plans and final accounting plans of the
company;
(v) preparing profit distribution plans and plans to cover company losses;
(vi) preparing plans for increasing or reducing registered capital of the company;
(vii) drafting plans for merger, division, change of corporate form or dissolution of
the company;
(viii) determining the structure of the company’s internal management;
(ix) appointing or removing the manager (general manager) (Hereinafter referred to as the “general manager”) of the company, appointing or removing, upon the
general manager’s recommendation, deputy managers of the company and the
officer in charge of finance, and determining the remuneration for those officers;
(x) formulating the basic management scheme of the company.
Article 47
The term of the directors shall be prescribed by the articles of association, provided that each term may not exceed 3 years. A director may continue to serve his post if he is re-elected upon the expiration of his term.
Prior to expiration of a director’s term, the shareholders’ committee may not remove him without cause.
Article 48
A meeting of the board of directors shall be called and presided over by the chairman; in the event that the chairman is unable to perform his duties due to any special reason, the chairman shall appoint the vice-chairman or another director to call and preside over the meeting. One-third or more of the directors may propose for a meeting of the board.
Article 49
Unless otherwise provided herein, the method for conducting business and voting procedure at the meeting of board of directors shall be prescribed by the articles of association.
In order to hold a board meeting, notice shall be given to all directors 10 days in advance.
The board shall prepare minutes relating to the decisions on matters considered at the meeting, which shall be signed by the directors attending the meeting.
Article 50
A limited liability company shall have a general manager, to be appointed or removed by the board of directors. The general manager is accountable to the board and shall exercise the following powers:
(i) being in charge of the management of the company’s production and operation, and organizing the implementation of board resolutions;
(ii) organizing the implementation of annual operating plans and investment
programs of the company;
(iii) preparing the plan for the structure of the company’s internal management;
(iv) preparing the basic management scheme of the company;
(v) formulating detailed company rules;
(vi) recommending the appointment or removal of a deputy general manager and
the officer in charge of finance;
(vii) appointing and removing officers of the company other than those to be
appointed or removed by the board;
(viii) other powers prescribed by the articles of association or delegated by the
board.
The general manager shall be present at board meetings.
Article 51
A small-scaled limited liability company with only a few shareholders may have an executive director without establishing a board of directors. The executive director may serve concurrently as the general manager of the company.
The powers of the executive director shall be prescribed in the articles of association by reference to the provisions of Article 46 hereof.
Absent a board of directors, the executive director of a limited liability company shall be the legal representative thereof.
Article 52
A large-scaled limited liability company shall have a board of supervisors, which shall be composed of not fewer than 3 members. The board of supervisors shall elect one of its members as the person responsible for calling meetings.
The board of supervisors shall be composed of shareholders’ representative(s) and representative(s) of the workers’ of the company at an appropriate ratio to be specifically prescribed in the articles of association. The workers’ representative(s) on the board of supervisors shall be democratically elected by the workers of the company.
A small-scaled limited liability company with only a few shareholders may have one or two supervisors.
A director, the general manager and the officer in charge of finance may not serve concurrently as a supervisor.
Article 53
Each term of a supervisor shall be 3 years, and a supervisor may continue to serve his post upon expiration of his term if he is re-elected.
Article 54
The board of supervisors or the supervisor, as the case may be, shall exercise the following authorities:
(i) reviewing the financial affairs of the company;
(ii) monitoring the acts of the directors or the general manager to guard against
violation of national statutes, administrative regulations or the articles of association
in the course of performance of their duties;
(iii) requiring the directors or the general manager to make rectification when any
act thereof causes harm to company interests;
(iv) proposing for interim meetings of shareholders’ committee;
(v) other authorities prescribed by the articles of association.
The supervisors shall be present at board meetings.
Article 55
When a company considers and decides upon matters which affect the personal interests of its workers, such as their wages, benefits, production safety and labor protection, or labor insurance, it shall first hear the opinions of the labor union and the workers of the company, and invite representatives of the labor union or the workers to be present at related meetings.
Article 56
When a company considers and decides upon major matters relating to its production and operation, or formulates important rules and standards, it shall hear the opinions and suggestions of the labor union and the workers.
Article 57
A person in any of the following categories may not serve as a director, supervisor, or the general manager of a company:
(i) without civil capacity or with limited civil capacity;
(ii) having been sentenced to prison for the following crimes, and completion of thesentence being less than 5 years ago: embezzlement, bribery, conversion of
property, misappropriation of property, sabotage of social economic order; or havingbeen deprived of political rights as a result of a criminal conviction, and completionof such sanction being less than 5 years ago;
(iii) having served as a director, the factory chief, or the general manager of a
company or enterprise which underwent bankruptcy liquidation as a result of mismanagement, and being personally responsible for such bankruptcy, and completion ofthe bankruptcy liquidation being less than 3 years ago;
(iv) having served as the legal representative of a company or enterprise whose business license was revoked due to its violation of law, and being personally responsible for such revocation, and such revocation occurring less than 3 years ago;
(v) in default of personal debt of a significant amount.
If the company elects or appoints a director or supervisor or employs the general manager in violation of the above Paragraph, such election, appointment or employment is invalid.
Article 58
No public servant may concurrently serve as a director, supervisor or the general manager of a company.
Article 59
A directors, supervisor, or the general manager shall abide by the articles of association, faithfully perform their duties, and safeguard the interests of the company, and may not abuse their positions and authorities at the company for private gain.
A directors, supervisor, or the general manager may not abuse their authorities by accepting bribes or generating other illegal income, and may not convert company property.
Article 60
A director or the general manager may not misappropriate company funds or loan company funds to other people.
A director or the general manager may not deposit company assets into an account in his own name or in any other individual’s name.
A director or the general manager may not give company assets as security for the debt of a shareholder or any other individual.
Article 61
A director or the general manager may not engage in the same business as the company in which he serves as a director or the general manager either for his own account or for any other person’s account, or engage in any activity detrimental to company interests. If a director or the general manager engages in any of the above mentioned business or activity, any income so derived shall be turned over to the company.
Unless otherwise provided in the articles of association or otherwise agreed by the shareholders’ committee, a director or the general manager may not execute any contract or engage in any transaction with the company.
Article 62
Unless required by law or consented to by the shareholders’ committee, a director, supervisor, or the general manager may not disclose the company’s confidential information.
Article 63
If a director, supervisor or the general manager causes detriment to the company while performing his duties in violation of any national statute, administrative regulation or the articles of association, he shall be liable for the loss so caused.
Section Three Wholly State-owned Companies
Article 64
A wholly state-owned company referred to herein means a limited liability company established through sole investment by a state authorized investment entity or state authorized department.
Companies designated by the State Council to produce special products or in special industries shall adopt the form of a wholly state-owned company.
Article 65
The articles of association of a wholly state-owned company may be formulated by the state authorized investment entity or state authorized department in accordance with the provisions hereof, or may be prepared by its board of directors and submitted to the state authorized investment entity or state authorized department for approval.
Article 66
A wholly state-owned company shall not have a shareholders’ committee, and the state authorized investment entity or state authorized department shall authorize the board of directors to exercise part of the authorities of the shareholders’ committee, and to decide on major matters of the company, provided that matters such as merger, division or dissolution of the company, capital increase or reduction by the company, and issue of company bonds must be decided by the state authorized investment entity or state authorized department.
Article 67
(Amended) The Supervisory Committee of a wholly State-owed Company shall comprise personnel appointed by the State Council or agencies or departments, and staff representative(s). There shall be no fewer than three supervisors. The Supervisory Committee shall exercise the authorities enumerated in Items (i) and (ii) of Paragraph 1 of Article 54 hereof, as well as other authorities granted by the State Council.
The supervisors shall be present at the meetings of board of directors.
A director, the manager and the person in charge of finance shall not serve as a supervisor concurrently.
Article 68
A wholly state-owned company shall have a board of directors, which shall perform its duties in accordance with the provisions of Article 46 and Article 66 hereof. Each term of the board of directors shall be 3 years.
There shall be not fewer than 3 but not more than 9 members on the board, to be appointed or replaced by the state authorized investment entity or state authorized department according to the terms of the board. There shall be representative(s) of the workers on the board. The workers’ representative(s) on the board shall be democratically elected by the workers.
The board of directors shall have a chairman, and if needed, a vice-chairman. The chairman and vice-chairman shall be appointed by the state authorized investment entity or state authorized department from the board members.
The chairman of the board is the legal representative of the company.
Article 69
A wholly state-owned company shall have a general manager, to be appointed or removed by the board of directors. The general manager shall perform his duties in accordance with the provisions of Article 50 hereof.
If approved by the state authorized investment entity or state authorized department, a board member may serve concurrently as the general manager.
Article 70
Absent approval by the state authorized investment entity or state authorized department, the chairman, vice-chairman, a director, or the general manager may not serve concurrently as the person in charge of any other limited liability company, joint stock limited company or any other business organization.
Article 71
In the case of assignment of the assets of a wholly state-owned company, the state authorized investment entity or state authorized department shall carry out examination and approval, and the formalities for transfer of property rights shall be carried out in accordance with the relevant national statutes and administrative regulations.
Article 72
A large-scaled wholly state-owned company with sound operating and management system and good operating condition may be authorized by the State Council to exercise the proprietor’s rights in respect of its assets.
Chapter Three: Establishment And Organs Of A Joint Stock Limited Company
Section One Establishment
Article 73
The establishment of a joint stock limited company is subject to the following conditions:
(i) The number of sponsors meets legal requirement;
(ii) The amount of capital stocks subscribed for by the sponsors and publicly placed reaches the legally-prescribed minimum capital level;
(iii) The issue of its shares and the preparation for its establishment comply with the law;
(iv) The sponsors prepare the articles of association,and such articles of
association are adopted by the establishment meeting;
(v) There is a company name, and the organs complying with the requirements fora joint stock limited company are established;
(vi) There is a permanent place of business and there are necessary conditions forproduction and operation.
Article 74
A joint stock limited company may be established either by sponsorship or public share offer.
Establishment by sponsorship means establishment of the company through subscription by the sponsors for all the shares to be issued by the company.
Establishment by public share offer means establishment of the company through subscription by sponsors for part of the shares to be issued by the company, and public placement of the remaining shares.
Article 75
In order to establish a joint stock limited company, there shall be not fewer than 5 sponsors, half of whom shall be domiciled in China.
In the case of reorganization of a state-owned enterprise into a joint stock limited company, there may be fewer than 5 sponsors, provided that such joint stock limited company shall be established by public share offer.
Article 76
Sponsors of a joint stock limited company must subscribe for the shares as required and conduct preparations for the establishment of the company in accordance herewith.
Article 77
Establishment of a joint stock limited company is subject to approval by the department authorized by the State Council, or the People’s Government at the provincial level.
Article 78
The registered capital of a joint stock limited company shall be the total amount of share capital which is paid in and registered with the company registration authority.
The minimum registered capital of a joint stock limited company may not be less than Renminbi 10,000,000 Yuan. Where the minimum level of registered capital required for a joint stock limited company exceeds the minimum level prescribed above, such minimum level shall be separately prescribed by the relevant national statutes and administrative regulations.
Article 79
The articles of association of a joint stock limited company shall set forth the following:
(i) its name and domicile;
(ii) its business scope;
(iii) the method for its establishment;
(iv) the total number of shares of the company, the value of each share, and the
registered capital of the company;
(v) the names of the sponsors and the number of shares they have subscribed for;
(vi) the rights and obligations of shareholders;
(vii) the composition of the board of directors, its authorities, term, and rules of
conducting business;
(viii) its legal representative;
(ix) the composition of the board of supervisors, its authorities, term, and rules of
conducting business;
(x) the method for company profit distribution;
(xi) the causes for its dissolution and the method for its liquidation;
(xii) the method for giving notice and making public announcement;
(xiii) other matters which the shareholders’ general committee deems necessary to provide for.
Article 80
A sponsor may contribute his share capital in the form of cash, or in the form of tangible goods, industrial property, non-patented technology or land use rights at certain value. If share capital is contributed in the form of tangible goods, industrial property, non-patented technology or land use rights, they must be appraised and the property rights therein must be verified, whereupon the value thereof shall be converted into shares. The contributed items may not be overvalued or undervalued. The appraisal of land use rights shall be carried out in accordance with the provisions of the relevant national statutes and administrative regulations.
The value of the industrial property and non-patented technology contributed as share capital by the sponsors shall not exceed 20 percent of the total registered capital.
Article 81
In the case of reorganizing a state-owned enterprise into a joint stock limited company, conversion of state assets into shares through under-valuation, sale of state assets at low price, or distribution of state assets to individuals without compensation are strictly prohibited.
Article 82
In the case of establishing a joint stock limited company by sponsorship, upon the sponsors’ full subscription in writing for the shares to be issued as prescribed in the articles of association, the sponsors shall promptly pay the share proceeds in full; where tangible goods, industrial property, non-patented technology or land use rights are contributed in lieu of money, the property rights therein shall be transferred in accordance with legally prescribed procedures.
Upon full contribution of the share capital which the sponsors have subscribed for, they shall elect members to the board of directors and the board of supervisors, and the board of directors shall apply for establishment registration by submitting the document approving the establishment of the company, the articles of association, and the capital verification certificate, etc. to the company registration authority.
Article 83
In the case of establishing a joint stock limited company by public share offer, the shares subscribed for by the sponsors shall be not less than 35 percent of the total number of shares of the company, and the remaining shares shall be openly offered to the public.
Article 84
In offering shares to the public, the sponsors shall deliver an application for public share offer to the securities regulatory authority under the State Council, and submit thereto the following main documents:
(i) the document approving the establishment of the company;
(ii) the articles of association;
(iii) the operating forecast report;
(iv) the names of the sponsors, the number of shares they have subscribed for,
the nature of their share capital contribution, and the capital verification certificate;
(v) the prospectus;
(vi) the name and address of the depository bank for the share proceeds;
(vii) the name of the underwriter and related agreements.
Without approval by the securities regulatory authority under the State Council, the sponsors my not offer shares to the public.
Article 85
Upon approval by the securities regulatory authority under the State Council, a joint stock limited company may offer shares to the public overseas, and the detailed procedure shall be specially prescribed by the State Council.
Article 86
The securities regulatory authority under the State Council shall approve an application for public share offer which meets the requirements prescribed herein; and shall not approve any application for public share offer which fails to meet the requirements prescribed herein.
If it is discovered that an approval given is not in compliance with the requirements prescribed herein, it shall be revoked. Where no share has been placed, such share offer shall be terminated; where shares have been placed, the subscribers may demand that the sponsors return the share proceeds paid, together with the interest thereon as if they have been deposited in a bank for a like period.
Article 87
The prospectus shall be accompanied with the articles of association prepared by the sponsors, and shall set forth the following:
(i) the number of shares subscribed for by the sponsors;
(ii) the par value and issuing price of each share;
(iii) the total number of bearer share certificates issued;
(iv) the rights and obligations of the subscribers;
(v) the commencing time and expiration time of the share offer, and a statement that in the event the shares have not be placed in full upon the expiration time, the subscribers may revoke their share subscriptions.
Article 88
In a public share offer, the sponsors shall make the prospectus available to the public and prepare the share subscription form. The share subscription form shall contain the items listed in the previous Article, and a subscriber shall fill in the following: the number of shares subscribed for, the amount of share proceeds, and his or her domicile, and shall sign or impress his chop on the form. A subscriber shall pay the share proceeds according to the number of shares he has subscribed for.
Article 89
The sponsors’ share offer to the public shall be underwritten by a securities underwriter established in accordance with the law, and an underwriting agreement shall be executed.
Article 90
When conducting public share offer, the sponsors shall execute an agreement with a bank for deposit of share proceeds.
The depository bank shall collect and hold the share proceeds in accordance with the agreement, and issue receipts to subscribers who have paid their share proceeds, and is obligated to provide to the relevant authority a certificate for receipt of share proceeds.
Article 91
After the proceeds from issue of the shares are paid in full, the share capital must be verified by a legally-prescribed capital verification institution and a certificate shall be issued thereby. Within 30 days, the sponsors shall hold and preside over the establishment meeting, which is composed of the subscribers.
If the issued shares are not fully placed upon expiration of the time limit prescribed in the prospectus, or the sponsors fail to hold the establishment meeting within 30 days of full payment of the proceeds from issue of the shares, the subscribers may demand that the sponsors return the share proceeds paid, together with the interest thereon as if they have been deposited in a bank for a like period.
Article 92
The sponsors shall notify each subscriber of the date of the establishment meeting or make a public announcement for such meeting 15 days in advance. The establishment meeting may not be held unless attended by subscribers representing at least half of the shares.
The establishment meeting shall exercise the following authorities:
(1) considering the report on pre-establishment activities prepared by the sponsors;
(2) adopting the articles of association;
(3) electing members of the board of directors;
(4) electing members of the board of supervisors;
(5) verifying expenses incurred for the establishment of the company;
(6) verifying the value of the assets contributed by the sponsors in lieu of share
proceeds;
(7) where an event of force majeure or any material change in operating condition affecting the company’s establishment has occurred, a resolution not to establish
the company may be adopted.
A resolution adopted at the establishment meeting on any of the matters mentionedin the previous Paragraph requires affirmative votes by subscribers representing at
least half of the votes attending the meeting.
Article 93
Upon payment of the share proceeds or delivery of the items as contribution of share capital in lieu of share proceeds, the sponsors and subscribers may not withdraw their share capital, except where the shares issued are not fully placed in time, the sponsors fail to hold the establishment meeting in time, or the establishment meeting adopts a resolution not to establish the company.
Article 94
Within 30 days of the completion of the establishment meeting, the board of directors shall apply for establishment registration by submitting to the company registration authority the following:
(i) the approval document issued by the relevant authority;
(ii) the minutes of the establishment meeting;
(iii) the articles of association;
(iv) the financial auditing report on pre-establishment activities;
(v) the capital verification certificate;
(vi) the names and domiciles of members of the board of directors and the board of supervisors;
(vii) the name and domicile of the legal representative.
Article 95
The company registration authority shall decide whether to grant registration to the joint stock limited company within 30 days of receipt of the application for establishment registration. Where the application meets the requirements prescribed herein, registration shall be granted and the company shall be issued a business license; where the application fails to meet the requirements prescribed herein, registration shall not be granted.
The date on which the business license is issued shall be the date of the company’s establishment. Upon establishment, the company shall make a public announcement.
If established through public share offer, upon establishment and registration, the joint stock limited company shall submit to the securities regulatory authority under the State Council a report on the share offer activities for filing.
Article 96
Where a branch company is to be established contemporaneous with the establishment of a joint stock limited company, an application for registration of such branch company shall be submitted to the company registration authority, and it shall be issued a business license.
Where a branch company is to be established after the joint stock limited company’s establishment, the company’s legal representative shall apply to the company registration authority for registration of such branch company, and it shall be issued a business license.
Article 97
The sponsors of a joint stock limited company shall bear liabilities as follows:
(i) in the event of failure to establish the company, being jointly and severally liablefor the debts and expenses incurred as a result of the pre-establishment activities;
(ii)in the event of failure to establish the company, being jointly and severally liablefor the return of share proceeds paid by the subscribers, together with the interest thereon as if they have been deposited in a bank for a like period.
(iii) if the company’s interest is harmed in the course of its establishment due to the negligence of the sponsors, being liable to the company for damages.
Article 98
Where a limited liability company is to be converted into a joint stock limited company, the requirements for establishing a joint stock limited company prescribed herein shall be met, and the conversion shall be carried out in accordance with the procedure for the establishment of a joint stock limited company prescribed herein.
Article 99
Where conversion of a limited liability company to a joint stock limited company is approved in accordance with the law, the total value of the converted shares shall be equivalent to the company’s net assets value. Where conversion of a limited liability company to a joint stock limited company is approved in accordance with the law, and its shares are offered to the public for the purpose of increasing capital, such share offer shall be carried out in accordance with the provisions herein governing public share offer.
Article 100
Where conversion of a limited liability company to a joint stock limited company is approved in accordance with the law, the creditor’s rights and liabilities of the original company shall be assumed by the joint stock limited company resulting from the conversion.
Article 101
A joint stock limited company shall maintain its articles of association, the record of shareholders, the minutes of meetings of shareholders’ general committee, and its financial and accounting reports on the company’s premises.
Section Two： Shareholders’ General Committee
Article 102
The shareholders’ General Committee of a joint stock limited company is composed of all shareholders. The shareholders’ general committee is the company’s organ of authority, and shall exercise its authorities in accordance herewith.
Article 103
The shareholder’s general committee shall exercise the following authorities:
(i) determining the company’s operational guidelines and investment plans;
(ii) electing and replacing members of the board of directors, and deciding upon matters relating to their remuneration;
(iii) electing and replacing members of the board of supervisors who are the shareholders’ representatives, and deciding upon matters relating to the remuneration of the supervisors;
(iv) considering and approving reports by the board of directors;
(v) considering and approving reports by the board of supervisors;
(vi) considering and approving annual financial budget plans and final accounting plans of the company;
(vii) considering and approving profit distribution plans and plans to cover company losses;
(viii) adopting resolutions regarding increase or reduction of registered capital by the company;
(ix) adopting resolutions on the issue of bonds by the company;
(x) adopting resolutions on merger, division, change of corporate form, dissolution and liquidation of the company;
(xi) amending the articles of association.
Article 104
The shareholders’ general committee shall hold an annual meeting each year. An interim meeting of the shareholders’ general committee shall be held within 2 months upon the occurrence of any of the following circumstances:
(i) The number of directors falls below the number prescribed herein or below two-thirds of the number prescribed in the articles of association;
(ii) The company’s losses which are not covered have reached one-third of the
total amount of the share capital;
(iii) Shareholders holding at least 10 percent of the company’s stocks make a
request;
(iv) The board of directors deems necessary;
(v) The board of supervisors proposes for such a meeting.
Article 105
A meeting of shareholders general committee shall be called by the board of directors in accordance with herewith, and shall be presided over by the chairman of the board. Where the chairman is unable to perform his duties due to any special reason, the meeting shall be presided over by the vice-chairman appointed by the chairman or another director appointed by the chairman. In order to hold a meeting of shareholders’ general committee, notice concerning the matters to be considered at the meeting shall be given to each shareholder 30 days in advance. An interim meeting of shareholders’ general committee may not adopt any resolution on matters not stated in the notice.
Where the company has issued bearer share certificates, a public notice concerning matters set forth in the previous Paragraph shall be made 45 days prior to the meeting.
When attending a meeting of shareholders’ general committee, holders of bearer share certificates shall deposit such certificates at the company from the 5th day prior to the meeting until the closing of the meeting.
Article 106
When a shareholder attends the meeting of shareholders’ general committee, each share he holds is entitled to one vote.
A resolution adopted by the shareholders’ general committee requires affirmative votes by a majority of the votes held by shareholders attending the meeting. The shareholders’ general committee’s adoption of a resolution for merger, division or dissolution of the company requires affirmative votes by at least two-thirds of the votes held by shareholders attending the meeting.
Article 107
An amendment to the articles of association requires affirmative votes by at least two-thirds of the votes held by shareholders attending the meeting of shareholders’ general committee.
Article 108
A shareholder may attend a meeting of shareholders’ general committee by proxy, the proxy holder shall present the proxy statement issued by the shareholder to the company, and shall exercise his voting rights to the extent authorized by the proxy.
Article 109
The shareholders’ general committee shall prepare minutes regarding the decisions on matters considered at the meeting, which shall be signed by the directors attending the meeting. The minutes shall be maintained together with the record containing signatures of the shareholders attending the meeting and the proxy statements.
Article 110
A shareholder is entitled to inspect the articles of association, the minutes of meetings of shareholders’ general committee and the financial and accounting reports of the company, and is entitled to make a proposal or inquiry concerning the company’s operation.
Article 111
Where a resolution adopted by the shareholders’ general committee or the board of directors violates the relevant national statutes or administrative regulations, or infringes on the rights and interests of the shareholders, a shareholder is entitled to bring a suit to the People’s Court to enjoin such illegal act or infringing act.
Section Three： Board Of Directors And General Manager
Article 112
A joint stock limited company shall have a board of directors, which shall be composed of not fewer than 5 but not more than 19 members.
The board of directors is accountable to the shareholders’ general committee, and shall exercise the following authorities:
(i) being responsible for calling meetings of shareholders’ general committee, and presenting reports thereto;
(ii) implementing resolutions adopted by the shareholders’ general committee;
(iii) determining the company’s operating plans and investment programs;
(iv) preparing annual financial budget plans and final accounting plans of the company;
(v) preparing the company’s profit distribution plans and plans to cover company losses;
(vi) preparing plans for increasing or reducing registered capital by the company, and plans to issue company bonds;
(vii) drafting plans for merger, division or dissolution of the company;
(viii) determining the structure of the company’s internal management;
(ix) appointing or removing the general manager of the company; appointing or removing, upon the general manager’s recommendation, deputy general managers of the company and the officer in charge of finance; and determining the remuneration for those officers;
(x) formulating the company’s basic management scheme.
Article 113
The board of directors shall have a chairman, and may have one or two vice-chairmen. The chairman and vice-chairman shall be elected by the board of directors through affirmative votes by a majority of the directors.
The chairman is the legal representative of the company.
Article 114
The chairman shall exercise the following authorities:
(i) presiding over meetings of shareholders’ general committee, and calling and presiding over meetings of the board of directors;
(ii) supervising the implementation of resolutions adopted by the board of directors;
(iii) signing the share certificates and bond certificates of the company.
The vice-chairman shall assist the chairman in his work. Where the chairman is unable to exercise his authorities, the vice-chairman appointed by the chairman shall exercise such authorities in his capacity.
Article 115
The term of directors shall be prescribed by the articles of association, provided that each term shall not exceed 3 years. A director may continue to serve his post if he is re-elected upon the expiration of his term.
Prior to the expiration of a director’s term, the shareholders’ general committee may not remove him without cause.
Article 116
The board of directors shall hold meetings at least twice a year, and notice shall be given to all directors 10 days in advance.
Where an interim meeting of the board of directors is to be held, the method and time limit for notification for calling the interim meeting may be prescribed separately.
Article 117
A meeting of the board of directors may not be held unless attended by at least half of the directors. A resolution adopted by the board of directors requires affirmative votes by a majority of all the directors.
Article 118
A meeting of the board of directors shall be attended by each director in person. Where a director is unable to attend the meeting for cause, he may issue a written proxy entrusting another director to attend in his behalf, and the proxy shall set forth the scope of authorization.
The board of directors shall prepare minutes regarding the decisions on matters considered at the meeting, which shall be signed by the directors attending the meeting and the person preparing the minutes.
The directors shall be responsible for resolutions adopted by the board of directors. Where a resolution of the board violates any national statutes, administrative regulations or the articles of association, and causes the company to incur serious loss, those directors participating in the adoption of the resolution are liable to the company for damages. Provided, however, if a director is proven to have dissented at the vote adopting such resolution and such dissension was noted in the minutes, then the director may be exempt from liability.
Article 119
A joint stock limited company shall have a general manager, to be appointed or removed by the board. The general manager is accountable to the board and shall exercise the following authorities:
(i) being in charge of managing the company’s production and operation, and
organizing the implementation of resolutions adopted by the board;
(ii) organizing the implementation of annual operating plans and investment
programs of the company;
(iii) drafting the plan for the structure of the company’s internal management;
(iv) drafting the basic management scheme of the company;
(v) formulating detailed rules of the company;
(vi) recommending for appointment or removal of the deputy general managers andthe officer in charge of finance;
(vii) appointing and removing officers of the company other than those to be appointed or removed by the board;
(viii) other authorities prescribed by the articles of association and delegated by theboard.
The general manager shall be present at board meetings.
Article 120
In light of the needs of the company, the board of directors may authorize the chairman to exercise part of the authorities of the board when it is not in session.
The board of directors of the company may decide that a board member is to serve concurrently as the general manager.
Article 121
When a company considers and decides upon matters which affect the personal interests of its workers, such as workers’ wages, benefits, production safety and labor protection, or labor insurance, it shall first hear the opinions of the labor union and the workers of the company, and invite representatives of the labor union or the workers to be present at related meetings.
Article 122
When a company considers and decides upon major matters relating to its production and operation, or formulates important rules and standards, it shall hear the opinions and suggestions of the labor union and the workers.
Article 123
The directors and the general manager shall abide by the articles of association, faithfully perform their duties, and safeguard the interests of the company, and may not abuse their positions and authorities at the company for private gain.
The provisions from Article 57 to Article 63 hereof setting forth the circumstances in which a person may not serve as a director or the general manager, and the obligations and responsibilities of the directors and the general manager shall apply to the directors and general manager of a joint stock limited company.
Section Four： Board Of Supervisors
Article 124
A joint stock limited company shall have a board of supervisors, which shall be composed of not fewer than 3 members. The board of supervisors shall elect one member to serve as the person responsible for calling meetings.
The board of supervisors shall be composed of the shareholders’ representative(s) and representative(s) of the workers of the company in an appropriate ratio to be prescribed by the articles of association. The workers’ representative(s) on the board of supervisors shall be democratically elected by the workers of the company.
A director, the general manager and the officer in charge of finance may not serve concurrently as a supervisor.
Article 125
Each term of a supervisor shall be three years, and a supervisor may continue to serve his post at the expiration of his term if he is re-elected.
Article 126
The board of supervisors shall exercise the following authorities:
(i) reviewing the financial affairs of the company;
(ii) monitoring the acts of the directors or the general manager to guard against violation of national statutes, administrative regulations or the articles of association inthe course their performance of duties;
(iii) requiring the directors or the general manager to make rectification when any
act thereof harms company interests;
(iv) proposing for interim meetings of shareholders’ general committee.
(v) other authorities prescribed by the articles of association.
The supervisors shall be present at board meetings.
Article 127
The method for conducting business and voting procedure for the board of supervisors shall be prescribed by the articles of association.
Article 128
A supervisor shall perform his supervisory duties faithfully in accordance with the provisions of national statutes, administrative regulations, and the articles of association.
The provisions from Article 57 to Article 59 hereof and from Article 62 to Article 63 hereof setting forth the circumstances in which a person may not serve as a supervisor, and the obligations and responsibilities of supervisors shall apply to the supervisors of a joint stock limited company.
Chapter Four: Issue And Transfer Of Shares Of A Joint Stock
Limited Company
Section One： Issue Of Shares
Article 129
The capital of a joint stock limited company shall be divided into shares, and all the shares shall be of equal value.
Shares of the company are represented by share certificates. A share certificate is a certificate issued by the company certifying the share held by a shareholder.
Article 130
When shares are issued, the principles of openness, fairness, and equity shall be followed, and each share in the same class must have the same rights and receive the same interests.
For shares issued at the same time, each share shall be issued on the same conditions and at the same price. All entities or individuals subscribing for shares shall pay the same price for each share.
Article 131
The issuing price per share may be at par value, or above par value, but may not be below par value.
The pricing of shares issued at above par value is subject to approval by the securities regulatory authority under the State Council.
The premium resulting from issuance of shares at a price above par value shall be allocated to the company’s capital reserve fund.
The detailed regulatory measures concerning issuance of shares at a premium shall be prescribed by the State Council separately.
Article 132
A share certificate shall be in paper form or in other forms prescribed by the securities regulatory authority under the State Council.
A share certificate shall set forth the following major items:
(i) the name of the company;
(ii) the company’s date of registration and establishment;
(iii) the class and par value of the shares and the number of shares represented;
(iv) the serial number of the share certificate.
The share certificate shall be signed by the chairman of the board, and the
company’s chop shall be impressed thereon.
Share certificates held by the sponsors shall be marked with the words Sponsors’ Share.
Article 133
Share certificates issued by the company to its sponsors, state authorized investment institutions, or legal persons shall be registered share certificates bearing the names of such sponsors, institutions, or legal persons, and may not be registered under any other names or in the names of their legal representatives.
Share certificates issued to the public may be in the form of either registered share certificates or bearer share certificates.
Article 134
A company issuing registered share certificates shall maintain a record of shareholders, which shall set forth the following:
(i) the name and domicile of each shareholder;
(ii) the number of shares held by each shareholder;
(iii) the serial numbers of share certificates held by each shareholder;
(iv) the date on which each shareholder acquired his shares.
A company issuing bearer share certificates shall record the number of such sharecertificates, their serial numbers and their issuing dates.
Article 135
The State Council may make separate stipulations relating to a company’s issuance of shares of classes other than those prescribed herein.
Article 136
Upon registration and establishment, a joint stock limited company shall promptly deliver the share certificates to its shareholders officially. Prior to registration and establishment, the company may not deliver any share certificate to its shareholders.
Article 137
Issuance of new shares by a company is subject to the following conditions:
(i) Previously issued shares have been fully subscribed for, and at least one year has passed since the previous share issue;
(ii) The company has been profitable consecutively for the most recent three years,and is able to pay dividends to its shareholders;
(iii) The financial and accounting documents of the company contain no
misrepresentation for the most recent three years;
(iv) the company’s projected profit rate reaches the interest rate of bank deposits for a like period.
Where the company distributes its current year profit in the form of new shares, issuance of such shares are exempt from the restriction prescribed in Item (ii) of theprevious Paragraph.
Article 138
Where a company is to issue new shares, the shareholder’s general committee shall adopt a resolution concerning the following:
(i) the classes and number of the new shares;
(ii) the issuing price of the new shares;
(iii) the commencing and ending dates of issuance of the new shares;
(iv) the classes and number of new shares issued to the existing shareholders.
Article 139
Upon adoption of a resolution by the shareholders’ general committee to issue new shares, the board of directors shall apply to the department authorized by the State Council or the People’s Government at the provincial level for approval. Where the new shares are offered to the public, approval by the securities regulatory authority is required.
Article 140
When a company is approved to issue new shares to the public, it shall make public the prospectus for the issue of new shares, its financial and accounting statements and subsidiary statements, and shall prepare the subscription form.
If the company offers new shares to the public, such share offer shall be underwritten by a lawfully established securities underwriter, and the company shall execute an underwriting agreement therewith.
Article 141
In issuing new shares, a company may determine the pricing scheme in light of the sustainable profitability of the company and the appreciation of the company’s assets.
Article 142
Upon full receipt of the share proceeds from the company’s newly issued shares, the company shall carry out amendment registration with the company registration authority and shall make a public announcement.
Section Two： Assignment Of Shares
Article 143
Shares held by a shareholder may be assigned in accordance with the law.
Article 144
Assignment of shares by a shareholder must be carried out at a lawfully established securities exchange.
Article 145
Assignment of registered share certificates is effected by the shareholder’s endorsement thereof or by other methods prescribed by the relevant national statutes or administrative regulations.
In the case of assignment of registered share certificates, the company shall record the assignee’s name and domicile on the record of shareholders.
Recording change of shareholders on the record of shareholders referred to in the previous Paragraph may not be carried out for a period of 30 days prior to the holding of a meeting of shareholders’ general committee, or 5 days prior to the record date for the purpose of dividend distribution determined by the company.
Article 146
Assignment of bearer share certificates takes effect upon delivery thereof by the shareholder to the assignee at a lawfully established securities exchange.
Article 147
Shares of a company held by its sponsors may not be assigned for a period of 3 years commencing from the date of the company’s establishment.
The directors, supervisors and general manager of the company shall report to the company the number of the company’s shares held thereby, and may not assign such shares while they are in office.
Article 148
A state authorized investment institution may assign shares held by it in accordance with the law, and may also purchase shares held by other shareholders. The authority of approval for, and regulatory measures concerning, such assignment or purchase of shares shall be separately prescribed by the relevant national statutes or administrative regulations.
Article 149
A company may not purchase its own shares, except in the case of share cancellation for the purpose of reducing the company’s capital, or in the case of merger with another company holding shares of the company.
Upon repurchase of its shares pursuant to the previous Paragraph, the company shall cancel such shares within 10 days, and carry out amendment registration in accordance with the relevant national statutes or administrative regulations, and shall make a public announcement.
The company may not accept its own shares as the collateral under a security arrangement.
Article 150
If a registered share certificate is stolen, lost or destroyed, the shareholder may petition a People’s Court for the invalidation thereof through the public notice procedure prescribed in the Civil Procedural Law of the People’s Republic of China.
After the People’s Court has invalidated such share certificate through the public notice procedure, the shareholder may apply to the company for re-issuance of a certificate for the share.
Section Three： Listed Companies
Article 151
A Listed company referred to herein means a joint stock limited company whose issued shares have been approved by the State Council or the securities regulatory authority authorized by the State Council to be listed and traded on a securities exchange.
Article 152
A joint stock limited company applying for listing of its shares shall meet the following requirements:
(i) The company’s shares have been issued to the public with approval by the securities regulatory authority under the State Council;
(ii) The amount of total share capital of the company is at least Renminbi 50,000,000 Yuan;
(iii) The company has been in operation for at least three years, and has been profitable consecutively for the most recent three years; where the company is reorganized from a former state-owned enterprise in accordance with the law, or newly established after the implementation hereof, with its principal sponsor being a large-scaled or medium-scaled state-owned enterprise, the required period may be countedcontinuously;
(iv) There are at least 1,000 shareholders each of whom holds shares with face value of not less than Renminbi 1,000 Yuan, and the shares issued to the public amount to at least 25 percent of the total number of shares of the company; and where the amount of total share capital of the company exceeds Renminbi 400,000,000 Yuan, the shares issued to the public amount to at least 15 percent of the total number of shares of the company;
(v) The company has not engaged in any material illegal act for the most recent three consecutive years, and the financial and accounting reports thereof contain no misrepresentation;
(vi) Other requirements prescribed by the State Council.
Article 153
The application by a joint stock limited company for listing of its shares shall be submitted to the State Council or the securities regulatory authority authorized thereby for approval, and the relevant documents shall be submitted in accordance with the applicable national statutes and administrations regulations.
The State Council or the securities regulatory authority authorized thereby shall approve an application for listing of shares which meets the requirements prescribed herein; and shall not approve any application which fails to meet the requirements prescribed herein.
Upon approval of its application for listing of shares, the company approved for listing shall make public its share listing report, and shall maintain its application documents at a designated place for inspection by the public.
Article 154
The shares of a company approved for listing shall be listed in accordance with the provisions of applicable national statutes and administrative regulations.
Article 155
Upon approval by the securities regulatory authority under the State Council, the shares of a company may be listed abroad, and the detailed measures shall be specially prescribed by the State Council.
Article 156
A listed company shall make public its financial conditions and operating conditions at regular intervals in accordance with the relevant national statutes and administrative regulations, and shall make public its financial and accounting reports semiannually in each fiscal year.
Article 157
The securities regulatory authority under the State Council shall suspend the trading of a listed company in any of the following circumstances:
(i) Matters such as the total share capital or the composition of equity ownership
of the company have changed so that the company no longer meets the requirements for listing;
(ii) The company fails to make public its financial condition as required, or has
made misrepresentations in its financial and accounting reports;
(iii) The company has engaged in material illegal act;
(iv) The company has been suffering losses for the most recent three consecutive years.
Article 158
Where a listed company is in a circumstance set forth in either Item (ii) or (iii) of the previous Article, and after investigation, it is confirmed that the circumstance is serious, or the listed company is in a circumstance set forth in either Item (i) or (iv) and has not been able to eliminate such circumstance within a prescribed time limit, and hence no longer meets the requirements for listing, the securities regulatory authority under the State Council shall issue a decision to de-list its shares.
Where the company is to be dissolved pursuant to a resolution, is ordered to cease its operation by the relevant authority in charge in accordance with the law, or is declared bankrupt, the securities regulatory authority under the State Council shall issue a decision to de-list its shares.
Chapter Five: Company Bonds
Article 159
For the purpose of financing production and operation, a joint stock limited company, a wholly state-owned company or a limited liability company established through investment by two or more state-owned enterprises or two or more state authorized investment entities may issue company bonds in accordance herewith.
Article 160
Company bonds referred to herein means a form of security which is issued by a company in accordance with legally prescribed procedure, and which provides that the principal thereof and interest thereon shall be paid at specified times.
Article 161
In order to issue company bonds, the following requirements must be met:
(i) The net assets of the company shall be not less than Renminbi 30,000,000 Yuan in the case of a joint stock limited company, and not less than Renminbi 60,000,000 Yuan in the case of a limited liability company;
(ii) The cumulative value of company bonds shall not exceed 40 percent of the company’s net assets;
(iii) The average distributable profit for the most recent three years is sufficient to pay one year’s interest on the company bonds;
(iv) The proceeds received shall be invested in a manner consistent with state industrial policy;
(v) The interest rate on the bonds shall not exceed the level of interest rate set bythe State Council;
(vi) Other requirements prescribed by the State Council.
The proceeds from issuance of company bonds shall be used for the purpose approved by the approval authority, and may not be used to cover losses and non-operating expenditures.
Article 162
No additional company bonds may be issued in any of the following circumstances:
(i) Company bonds previously issued have not been fully subscribed for;
(ii) The fact that the company is in default of any of the previously issued company bonds or company debt or is late in payment of principal and interest has occurred, and is currently existing.
Article 163
Where a joint stock limited company or limited liability company is to issue company bonds, its board of directors shall prepare a plan and the shareholders’ committee shall adopt a resolution on such matter.
Where a wholly state-owned company is to issue company bonds, the decision shall be made by the state authorized investment entity or state authorized department.
After a resolution has been adopted or a decision has been made pursuant to the previous two Paragraphs, the company shall apply to the securities regulatory authority under the State Council for approval.
Article 164
The overall volume of company bonds issue shall be determined by the State Council. In examining and approving application for company bonds issue, the securities regulatory authority under the State Council may not extend its approval beyond the volume set by the State Council.
The securities regulatory authority under the State Council shall approve an application for company bonds issue which complies with the provisions hereof, and shall not approve an application which fails to comply with the provisions hereof.
Where it has been discovered that an approval given for company bonds issue is not in compliance with the provisions hereof, such approval shall be revoked. If the company bonds have not been issued, the issue shall be terminated; if the company bonds have been issued, the issuing company shall return the proceeds paid by the subscribers together with the interest thereon as if they have been deposited in a bank for a like period.
Article 165
For an application to the securities regulatory authority under the State Council for company bonds issue, the following documents shall be submitted:
(i) the company’s registration certificate;
(ii) the articles of association of the company;
(iii) the plan for company bonds offer;
(iv) the assets appraisal report and capital verification report.
Article 166
Upon approval of an application for company bonds issue, the plan for company bonds offer shall be made public.
The plan for company bonds offer shall set forth the following major items:
(i) the name of the company;
(ii) the total value of the bonds and the par value of each bond;
(iii) the rate of interest on the bonds;
(iv) the time limit and method for payment of the principal of and interest on the bonds;
(v) the commencing and ending date of the bonds issue;
(vi) the net assets value of the company;
(vii) the total value of issued and outstanding company bonds;
(viii) the underwriter of the company bonds.
Article 167
In the case of company bonds issue, a company must state on each bond certificate the name of the company, the par value of the bond, interest rate, and repayment period, and the bond certificate shall be signed by the chairman of the board, and the company’s chop shall be impressed thereon.
Article 168
Company bonds may be classified as either registered bonds or bearer bonds.
Article 169
If a company has issued bonds, it shall maintain a record of bondholders.
If registered bonds are issued, the following shall be recorded on the company’s record of bondholders:
(i) the name and domicile of each bondholder;
(ii) the dates on which the bondholders acquired the bonds and the serial numbersof the bond certificates;
(iii) the total value of the bonds, the par value of each bond, the interest thereon, the term thereof and method for payment of principal and interest;
(iv) the date of issue of the bonds.
If bearer company bonds are issued, the company’s record of bondholders shall
record the total value of such bonds, the interest rate thereon, the term thereof and the method for repayment, and the date of issue and the serial numbers of the bond certificates.
Article 170
Company bonds may be assigned. Assignment of company bonds shall be carried out at a lawfully established securities exchange.
The assignment price of company bonds shall be agreed upon between the assignor and the assignee.
Article 171
Assignment of registered bonds is effected by the bondholder’s endorsement of the bonds or by other methods prescribed by the relevant national statutes or administrative regulations.
In the case of assignment of registered bonds, the company shall record the assignee’s name and domicile on the record of bondholders.
Assignment of bearer bonds takes effect upon delivery thereof by the bondholder to the assignee at a lawfully established securities exchange.
Article 172
Upon adoption of a resolution by the shareholders’ general committee, a listed company may issue bonds which are convertible to its shares, and it shall prescribe the specific method for such conversion in the plan for company bonds offer.
In order to issue convertible company bonds, an application shall be submitted to the securities regulatory authority under the State Council for approval. In order to issue convertible company bonds, in addition to meeting the requirements for issue of bonds, the company shall also meet the requirements for issue of shares.
In the case of issue of convertible company bonds, the face of the bond certificate shall be marked with the word “Convertible,” and the number of convertible company bonds shall be specified in the company’s record of bondholders.
Article 173
Where convertible company bonds are issued, the company shall exchange its shares for the bonds held by the bondholders using the prescribed method of conversion, provided that the bondholders have the option on whether or not to convert their bonds.
Chapter Six: Financial And Accounting Affairs Of Company
Article 174
A company shall establish its financial and accounting system in accordance with the relevant national statutes, administrative regulations and the stipulations of the finance authority under the State Council.
Article 175
A company shall prepare its financial and accounting reports at the end of each fiscal year, which shall be reviewed and verified in accordance with the law.
The financial and accounting reports shall include the following financial and accounting statements and subsidiary statements:
(i) balance sheet;
(ii) income statement;
(iii) statement of cash flow;
(iv) explanation of financial conditions;
(v) statement of profit distribution;
Article 176
A limited liability company shall deliver its financial and accounting reports to each shareholder within the time limit prescribed by the articles of association.
The financial and accounting reports of a joint stock limited company shall be available at the company’s premises for shareholders’ inspection as from the 20th day prior to the annual meeting of shareholders’ general committee.
A joint stock limited company established through public share offer shall make public its financial and accounting reports.
Article 177
In distribution of its current year after-tax profit, a company shall allocate 10 percent to its statutory reserve fund, 5 to 10 percent to its statutory welfare fund. Allocation to the company’s statutory reserve fund may be waived once the cumulative amount of funds therein exceeds 50 percent of the company’s registered capital.
Where the statutory reserve fund is not sufficient to cover the company’s loss from the previous year, the current year profit shall be used to cover such loss before allocation is made to the statutory reserve fund and the statutory welfare fund pursuant to the previous Paragraph.
After allocation to the statutory reserve fund has been made from the after-tax profit of the company, and upon adoption of a resolution by the shareholders’ committee, allocation may be made to the discretionary reserve fund.
After the company has covered its losses, and made allocation to the reserve funds and statutory welfare fund, the remainder of the profit shall be distributed to the shareholders in proportion to their capital contribution in the case of a limited liability company, and in proportion to their share holdings in the case of a joint stock limited company.
If the shareholders’ committee or the board of directors, in violation of the previous Paragraph, distributes profit to the shareholders before covering company losses and making allocation to company statutory reserve fund and statutory welfare fund, the profit so distributed must be returned to the company.
Article 178
The premium received by a joint stock limited company through issuance of shares at prices above par value in accordance herewith, as well as other incomes to be allocated to the capital reserve fund as stipulated by the finance authority under the State Council, shall be allocated to the capital reserve fund.
Article 179
The reserve funds of the company shall be used to cover company losses, expand its production and operation, or be converted to the company’s increased capital.
Where a joint stock limited company, upon adoption of a resolution by the shareholders’ general committee, is to convert the reserve funds into company capital, new shares shall be distributed to the shareholders in proportion to their original share holdings, or the par value of each share shall be increased. Provided, however, upon conversion of statutory reserve fund into capital, the amount remaining in the statutory reserve fund may not fall below 25 percent of the registered capital.
Article 180
The statutory welfare fund allocated by the company shall be used for the collective welfare of the workers thereof.
Article 181
The company may not establish any separate accounting book besides the accounting books prescribed by law. The company’s assets may not be deposited into any account established under an individual’s name.
Chapter Seven: Merger And Division Of Company
Article 182
If a company is to undergo merger or division, its shareholders’ committee shall adopt a resolution.
Article 183
The merger or division of a joint stock limited company is subject to approval by the department authorized by the State Council or the People’s Government at the provincial level.
Article 184
Companies may be merged in two forms, i.e. merger by absorption and merger by consolidation.
One company absorbing another company is merger by absorption, and the company being absorbed shall be dissolved. Merger of two or more Companies through establishment of a new company is a consolidation, and the companies being consolidated shall be dissolved.
In a merger of companies, the companies shall execute a merger agreement, and prepare their respective balance sheets and schedules of assets. The companies shall notify their creditors within 10 days of adoption of merger resolutions, and shall publish a notice at least 3 times in a newspaper within 30 days. Creditors are entitled to claim full payment of the debts of the companies or require the provision of appropriate assurances within 30 days of receipt of the notice, or within 90 days of publication of the first notice if such creditors did not receive the notice. The companies may not be merged unless debts are fully paid or appropriate assurances are provided.
Once the companies are merged, the creditor’s rights and debtor’s liabilities of the merged companies shall be assumed by the surviving company or the newly formed company after merger.
Article 185
Where a company is to undergo division, its assets shall be divided accordingly.
In dividing the company, a balance sheet and a schedule of assets shall be prepared. The company shall notify its creditors within 10 days of adoption of a division resolution, and shall publish a notice at least 3 times in a newspaper within 30 days. Creditors are entitled to claim full payment of the company’s debts or require the provision of appropriate assurances within 30 days of receipt of the notice, or within 90 days of publication of the first notice if such creditors did not receive the notice. The company may not be divided unless debts are fully paid or appropriate assurances are provided.
The liabilities of the company prior to its division shall be assumed by the companies resulting from the division according to the agreement reached among them.
Article 186
Where a company needs to reduce its registered capital, a balance sheet and a schedule of assets must be prepared.
The company shall notify its creditors within 10 days of adoption of a resolution to reduce its registered capital, and shall publish a notice at least 3 times in a newspaper within 30 days. Creditors are entitled to claim full payment of the company’s debts or require the provision of appropriate assurances within 30 days of receipt of the notice, or within 90 days of publication of the first notice if such creditors did not receive the notice.
After capital reduction, the company’s registered capital may not fall below the statutory minimum capital level.
Article 187
When a limited liability company is to increase its registered capital, after subscription for the newly increased capital, the shareholders shall make capital contribution in accordance with the provisions hereof concerning capital contribution for the establishment of a limited liability company.
When a joint stock limited company is to issue new shares for the purpose of increasing its registered capital, the shareholders’ subscription for the new shares shall be carried out in accordance with the provisions hereof concerning payment of share proceeds for the establishment of a joint stock limited company.
Article 188
In the case of merger or division of a company, where any registered item requires change, amendment registration shall be carried out with the company registration authority in accordance with the law; where the company is dissolved, company de-registration shall be carried out in accordance with the law; where a new company is established, establishment registration shall be carried out in accordance with the law.
Where a company is to increase or reduce its registered capital, a amendment registration shall be carried out with the company registration authority in accordance with the law.
Chapter Eight: Bankruptcy, Dissolution and Liquidation Of Company
Article 189
Where a company is adjudged bankrupt in accordance with the law due to its failure to repay debts when due, the People’s Court shall organize the shareholders, the relevant authorities and professionals to establish a liquidating committee to carry out the company’s bankruptcy liquidation in accordance with the provisions of the applicable laws.
Article 190
A company may be dissolved in any of the following circumstances:
(i) the term of operation prescribed by the company’s articles of association has expired, or any other cause for dissolution prescribed by the company’s articles of association has occurred;
(ii) the shareholders’ committee has adopted a resolution for dissolution;
(iii) dissolution is required due to merger or division of the company.
Article 191
Where a company is to be dissolved pursuant to Item (i) or (ii) of the previous Article, a liquidating committee shall be formed within 15 days; the liquidating committee of a limited liability company shall be composed of its shareholders, and members of the liquidating committee of a joint stock limited company shall be determined by the shareholders’ general committee; where the company fails to form a liquidating committee to carry out liquidation within the prescribed time limit, its creditors may petition the People’s Court to appoint the relevant persons to form a liquidating committee to carry out liquidation. The People’s Court shall accept such petition, and promptly appoint members of the liquidating committee to carry out liquidation.
Article 192
Where the company is ordered to terminate due to its violation of law or administrative regulations, the company shall be dissolved, and the relevant department in charge shall organize the shareholders, the relevant authority and related professionals to form a liquidating committee to carry out liquidation.
Article 193
The liquidating committee shall exercise the following authorities in the course of liquidation:
(i) identifying the company’s assets, and preparing a balance sheet and a scheduleof assets respectively;
(ii) notifying creditors through notice or public announcement;
(iii) handling the company’s ongoing businesses which are related to liquidation;
(iv) making full payment of taxes owed;
(v) identifying the company’s creditor’s rights and debtor’s liabilities;
(vi) disposing of the remaining assets after full payment of company debts;
(vii) participating in civil actions on behalf of the company.
Article 194
The liquidating committee shall notify creditors within 10 days of its establishment, and shall make a public announcement in a newspaper at least 3 times within 60 days. Creditors shall file their creditor’s rights with the liquidating committee within 30 days of receipt of the notice, and within 90 days of publication of the first notice if such creditors did not receive the notice.
In filing for creditor’s rights, the creditors shall state the relevant matters relating to the creditor’s rights, and provide supporting materials. The liquidating committee shall record such creditor’s rights.
Article 195
After identifying the company’s assets and preparing the balance sheet and schedule of assets, the liquidating committee shall prepare a liquidating plan, which shall be submitted to the shareholders’ committee or the relevant authority for ratification.
Where the company’s assets are sufficient for payment of company debts, such assets shall be paid out in the following order: payment of liquidating expenses, payment of wages and expenses for labor insurance of the workers, payment of taxes owed, and payment of company debts.
After payments have been made in accordance with the previous Paragraph, the remaining assets shall be distributed to the shareholders in proportion to their shares of capital contribution in the case of a limited liability company, and in proportion to their share holdings in the case of a joint stock limited company.
In the course of liquidation, the company may not conduct new business. Before payments have been made in accordance with Paragraph 2 above, the assets of the company may not be distributed to the shareholders.
Article 196
Where a company commences liquidation due to its dissolution, and after identification of company assets and preparation of the balance sheet and schedule of assets, the liquidating committee discovers that the company does not have sufficient assets to fully repay company debts, the liquidating committee shall immediately file a bankruptcy application with the People’s Court.
Once the company is adjudged bankrupt by a ruling of the People’s Court, the liquidating committee shall transfer the liquidating affairs to the People’s Court.
Article 197
Upon completion of a company’s liquidation, the liquidating committee shall prepare a liquidating report, which shall be submitted to the shareholders’ committee or the relevant authority for ratification, and upon ratification, the liquidating committee shall submit such report to the company registration authority to apply for company de-registration, and make a public announcement of the company’s termination. Where the company fails to apply for company de-registration, the company registration authority shall revoke its business license and make a public announcement.
Article 198
Members of the liquidating committee shall faithfully perform their duties and carry out their liquidating obligations in accordance with the law.
Members of the liquidating committee may not abuse their authorities by accepting bribes or receiving other illegal income, and may not misappropriate company assets.
A committee member who causes loss to the company or its creditors due to his intentional misconduct or gross negligence shall be liable for damages.
Chapter Nine: Branch Of Foreign Company
Article 199
Foreign companies may establish branches within China to conduct business in accordance herewith.
A foreign company referred to herein means a company registered and established outside China under foreign laws.
Article 200
In order to establish a branch within China, a foreign company must submit an application to the Chinese authority in charge, together with the relevant documents such as its articles of association, the company registration certificate issued in its home country, etc. Upon approval, it shall carry out registration with the company registration authority and be issued a business license. www.legaltranz.com
The examination and approval procedure for branches of foreign companies shall be separately prescribed by the State Council.
Article 201
In order to establish a branch within China, a foreign company must appoint a representative or agent in charge of such branch within China, and fund its branch as appropriate in light of the nature of its intended business.
Where operation of certain branches of foreign companies is subject to a minimum level of funding, such level shall be prescribed by the State Council separately.
Article 202
The branch of a foreign company shall identify the nationality and form of liability in its name.
The branch of a foreign company shall maintain the articles of association of such foreign company on its premises.
Article 203
A foreign company is a foreign legal person, and its branch established within China does not have the status of a Chinese legal person.
A foreign company shall bear civil liabilities in respect of the business conducted by its branch within China.
Article 204
While conducting business within China, the branch of a foreign company established after approval must abide by Chines law, and may not harm the public interest of China, and its lawful rights and interests are protected by Chinese law.
Article 205
When a foreign company cancels its branch within China, such company must fully repay the debts thereof in accordance with the law and carry out liquidation in accordance with the provisions hereof concerning company liquidation procedure. The company may not transfer the assets of such branch abroad prior to full repayment of its debts.
Chapter Ten: Legal Liabilities
Article 206
In the case of company registration, where an applicant obtains company registration in violation hereof by making false statement of registered capital, submitting false certificates or by concealing material facts through other fraudulent means, the company shall be ordered to make rectification, and in case false statement of registered capital was made, the company shall be fined not less than 5 percent but not more than 10 percent of the amount of registered capital falsely stated; the company submitting false certificates or concealing material facts shall be fined not less than 10,000 Yuan but not more than 100,000 Yuan; where the circumstances are serious, the company registration shall be revoked. Where such action constitutes a crime, criminal liability shall be imposed in accordance with the law.
Article 207
In the case of issue of company shares or bonds, where the prospectus, subscription form, or plan for company bonds offer is falsely prepared, the issuing activities shall be ordered to cease, and an order shall be issued for the return of the proceeds received together with interest thereon, and a fine of not less than 1 percent but not more than 5 percent of the proceeds illegally received shall be imposed. Where such action constitutes a crime, criminal liability shall be imposed in accordance with the law.
Article 208
In the case of capital contribution, where the sponsors or shareholders falsify capital contribution by failing to pay money, to deliver tangible goods or to transfer property rights, thus defrauding the creditors or the public, rectification shall be ordered, and such persons shall be fined not less than 5 percent but not more than 10 percent of the amount of capital contribution falsified. Where such action constitutes a crime, criminal liability shall be imposed in accordance with the law.
Article 209
Where the sponsors or shareholders of a company withdraw their capital contribution after the establishment of the company, they shall be ordered to make rectification, and such persons shall be fined not less than 5 percent but not more than 10 percent of the amount of capital contribution withdrawn. Where such action constitutes a crime, criminal liability shall be imposed in accordance with the law.
Article 210
Where a company issues company shares or bonds on its own without approval by the appropriate authorities provided for herein, the issuing activities shall be ordered to cease, and the proceeds received, together with interest thereon, shall be returned, and a fine of not less than 1 percent but not more than 5 percent of the proceeds illegally received shall be imposed. Where such action constitutes a crime, criminal liability shall be imposed in accordance with the law.
Article 211
Where a company, in violation hereof, establishes another set of accounting books besides those prescribed by law, it shall be ordered to make rectification, and the company shall be fined not less than 10,000 Yuan but not more than 100,000 Yuan. Where such action constitutes a crime, criminal liability shall be imposed in accordance with the law.
Where company assets are deposited into an account established under an individual’s name, the illegal gain shall be confiscated, and a fine of not less than 2 times but not more than 5 times of the illegal gain shall be imposed. Where such action constitutes a crime, criminal liability shall be imposed in accordance with the law.
Article 212
Where a company provides to its shareholders and the public financial and accounting reports which are false or which conceal material facts, a fine of not less than 10,000 Yuan but not more than 100,000 Yuan shall be imposed on the supervisor directly in charge and the other person(s) directly responsible. Where such action constitutes a crime, criminal liability shall be imposed in accordance with the law.
Article 213
Where, in violation hereof, state-owned assets are converted into shares at low prices or sold to individuals at low prices, or distributed to individuals without compensation, administrative penalty shall be imposed on the supervisor directly in charge and the other person(s) directly responsible. Where such action constitutes a crime, criminal liability shall be imposed in accordance with the law.
Article 214
Where the directors, supervisors, or the general manager abuse their authorities by accepting bribes or receiving other illegal income, or convert company assets, any such illegal gain shall be confiscated, and they shall be ordered to return the company assets and shall be disciplined by the company. Where such action constitutes a crime, criminal liability shall be imposed in accordance with the law.
Where a director or the general manager misappropriates company funds or loan company funds to third parties, he shall be ordered to return the company funds and shall be disciplined by the company, and the income derived from such transaction shall be turned over to the company. Where such action constitutes a crime, criminal liability shall be imposed in accordance with the law.
Where, in violation hereof, the directors or the general manager gives company assets as security for the personal debts of any director of the company or any other person, the security arrangement shall be ordered to be canceled, and such persons shall be held liable for damages in accordance with the law, and the income derived from the illegal provision of security shall be turned over to the company. Where the circumstance is serious, such persons shall be disciplined by the company.
Article 215
Where, in violation hereof, a director or the general manager engages in the same business as the company either for his own account or for another person’s account, in addition to turning over any income so derived to the company, such person may also be disciplined by the company.
Article 216
Where a company fails to make allocation to the statutory reserve fund and statutory welfare fund in accordance herewith, such company shall be ordered to make full allocation to the required funds, and a fine of not less than 10,000 Yuan but not more than 100,000 Yuan may be levied on the company.
Article 217
Where a company fails to notify creditors through notice or public announcement in accordance herewith while carrying out merger, division, reduction of registered capital, or liquidation, it shall be ordered to make rectification, and the company shall be fined not less than 10,000 Yuan but not more than 100,000 Yuan.
Where in the course of liquidation, the company conceals its assets, makes false statements in its balance sheet or schedule of assets, or distributes company assets prior to full repayment of company debts, it shall be ordered to make rectification, and the company shall be fined not less than 1 percent but not more than 5 percent of the value of the concealed assets, or the value of the assets distributed prior to full repayment of company debts. A fine of not less than 10,000 Yuan but not more than 100,000 Yuan shall be imposed on the supervisor directly in charge and the other person(s) directly responsible. Where such action constitutes a crime, criminal liability shall be imposed in accordance with the law.
Article 218
Where the liquidating committee fails to submit the liquidating report to the company registration authority in accordance herewith, or conceals any material fact or makes any material omission in the liquidating report submitted, it shall be ordered to make rectification.
Where a member of the liquidating committee abuses his authority to engage in fraudulent activity for private gain, to obtain illegal income or convert company assets, such member shall be ordered to return the company assets, and the illegal income shall be confiscated, and such member may be fined not less than 2 times but not more than 5 times the illegal income. Where such action constitutes a crime, criminal liability shall be imposed in accordance with the law.
Article 219
Where an institution conducting assets appraisal, capital verification, or testing and verification provides a false certificate, the illegal income so derived shall be confiscated, and a fine of not less than 2 times but not more than 5 times the illegal income shall be imposed, and the relevant authority in charge may order such institution to cease operation, and revoke the qualification certificates of the persons directly responsible. Where such action constitutes a crime, criminal liability shall be imposed in accordance with the law.
Where an institution conducting assets appraisal, capital verification or testing and verification provides a report with material omission due to its negligence, it shall be ordered to make rectification, and where the circumstance is relatively serious, a fine of not less than 2 times but not more than 3 times the income so derived shall be imposed, and the relevant authority in charge may order such institution to cease operation, and revoke the qualification certificates of the persons directly responsible.
Article 220
Where the relevant authority in charge authorized by the State Council approves an application for the establishment of a company which fails to meet the requirements prescribed herein, or approves an application for issue of shares which fails to meet the requirements prescribed herein, and the circumstance is serious, administrative penalty shall be imposed on the supervisor directly in charge and the other person(s) directly responsible in accordance with the law. Where such action constitutes a crime, criminal liability shall be imposed in accordance with the law.
Article 221
Where the securities regulatory authority under the State Council approves an application for share offer, share listing, or bonds issue which fails to meet the requirements prescribed herein, and the circumstance is serious, administrative penalty shall be imposed on the supervisor directly in charge and the other person(s) directly responsible in accordance with the law. Where such action constitutes a crime, criminal liability shall be imposed in accordance with the law.
Article 222
Where the company registration authority grants registration to an application which fails to meet the requirements prescribed herein, and the circumstance is serious, administrative penalty shall be imposed on the supervisor directly in charge and the other person(s) directly responsible in accordance with the law. Where such action constitutes a crime, criminal liability shall be imposed in accordance with the law.
Article 223
Where the department in charge of the company registration authority compels it to grant registration to an application which fails to meet the requirements prescribed herein, or engages in cover up for an illegal registration, administrative penalty shall be imposed on the supervisor directly in charge and the other person(s) directly responsible in accordance with the law. Where such action constitutes a crime, criminal liability shall be imposed in accordance with the law.
Article 224
Where an entity passes itself off as a limited liability company or joint stock limited company while not registered as such in accordance with the law, it shall be ordered to make rectification or such entity shall be closed down, and a fine of not less than 10,000 Yuan but not more than 100,000 Yuan may be imposed. Where such action constitutes a crime, criminal liability shall be imposed in accordance with the law.
Article 225
Where a company fails to commence operation for more than 6 months without proper cause, or suspends operation on its own without proper cause for more than 6 consecutive months after commencement of operation, the company registration authority shall revoke its company business license.
Where the company fails to carry out amendment registration in accordance herewith when a registered item of the company has changed, it shall be ordered to register within a prescribed time limit, and where the company has not carried out registration after expiration of the time limit, a fine of not less than 10,000 Yuan but not more than 100,000 Yuan shall be imposed.
Article 226
Where, in violation hereof, a foreign company establishes a branch within China without approval, it shall be ordered to make rectification, or such branch shall be ordered to terminate, and a fine of not less than 10,000 Yuan but not more than 100,000 Yuan may be imposed.
Article 227
Where a relevant authority performing approval function hereunder fails to approve an application which meets conditions prescribed by law, or the company registration authority fails to grant registration to an application which meets conditions prescribed by law, the affected party may apply for administrative review or institute an administrative action in accordance with the law.
Article 228
Where a company violates of this Law, and is therefore liable for civil damages as well as for an administrative fine or criminal fine, and its assets are not sufficient to cover both, its assets shall first be used to cover the civil liability for damages.
Chapter Eleven: Supplementary Provisions
Article 229
(Amended) Companies registered and established prior to the implementation of this Law, in accordance with law, administrative regulations, local regulations, and the Standard Opinions Concerning Limited Liability Companies and the Standard Opinions Concerning Joint Stock Limited Companies formulated by the relevant authority in charge under the State Council, shall remain in existence, provided that those companies which do not meet all the conditions prescribed herein shall meet such conditions within the time limit prescribed. Detailed implementing measures shall be formulated by the State Council separately.
In the case of a Joint Stock Limited Liability Company in the high and new technology category, the ratio of capital contribution in the form of industrial technology and non-patented proprietary technology by sponsors as a percentage of registered capital, the conditions for issuance of new shares or initial public offering shall be separately stipulated by the State Council.
Article 230
This Law shall become operative as of July 1, 1999