The newly revised Company Law has these highlights: cleaning up "zombie companies" and clarifying the capital contribution period of existing companies
On July 1, 2024, Premier Li Qiang of the State Council signed a State Council Order to promulgate the "Regulations of the State Council on the Implementation of the Registered Capital Registration and Management System of the Company Law of the People's Republic of China", which will come into effect on the date of promulgation. Recently, the heads of the Ministry of Justice and the State Administration for Market Regulation answered questions from reporters on relevant issues.
Q: Please briefly introduce the background of the promulgation of the Regulations.
Answer: The CPC Central Committee and the State Council attach great importance to improving the modern enterprise system with Chinese characteristics and continuously optimizing the business environment. On December 29, 2023, the Seventh Session of the Standing Committee of the Fourteenth National People's Congress adopted the revised Company Law of the People's Republic of China, which will come into effect on July 1, 2024. The new Company Law has made adjustments to the company's registered capital subscription system in response to the problems of "too long subscription period", "sky-high subscription" and "shell companies" that affect transaction security, damage the interests of creditors and disrupt the market order in the practice of the company's registered capital subscription system. It stipulates that the subscription amount subscribed by all shareholders of a limited liability company shall be paid in full within 5 years from the date of establishment of the company in accordance with the provisions of the company's articles of association, and the promoters of a joint-stock company shall pay the full amount of the shares they subscribed before the establishment of the company. At the same time, it is stipulated that if the subscription period of a company registered and established before the implementation of the new Company Law exceeds the prescribed period, it shall be gradually adjusted to within the prescribed period; for companies with obvious abnormalities in the subscription period and amount, the company registration authority may require them to make timely adjustments in accordance with the law; and authorize the State Council to formulate specific implementation measures. When deliberating and approving the new Company Law, the Standing Committee of the National People's Congress clearly required that specific implementation measures should be formulated as soon as possible and implemented simultaneously with the new Company Law on July 1, 2024. In order to implement the new Company Law and the requirements of the Standing Committee of the National People's Congress, the State Administration for Market Regulation, based on in-depth research, soliciting opinions from relevant parties and publicly soliciting opinions from the society, studied and drafted and submitted to the State Council the "Regulations of the State Council on the Implementation of the Registered Capital Registration and Management System of the Company Law of the People's Republic of China". During the legislative review, the Ministry of Justice widely solicited opinions from relevant central units and provincial people's governments, conducted field research together with the State Administration for Market Regulation, held seminars and expert seminars to listen to opinions and suggestions, repeatedly studied key issues, and revised and formed the draft of the "Regulations".
Q: What is the overall idea behind the formulation of the Regulations?
Answer: First, we should adhere to a problem-oriented approach, focus on the application of the new "Company Law" to existing companies, and improve the relevant institutional arrangements during the transition period; second, we should adhere to a steady approach, take into account the unified implementation of the law and the actual situation of existing companies, reasonably clarify the time limit requirements for existing companies to adjust the capital contribution period, and promote a smooth transition of the reform of the company's registered capital registration management system; third, we should adhere to overall planning and coordination, supplement and improve relevant regulations within the framework of the new "Company Law", and at the same time do a good job in connecting with administrative regulations such as the "Interim Regulations on the Public Disclosure of Enterprise Information".
Question: What are the key provisions for implementing the new Company Law’s requirements for existing companies to adjust their capital contribution periods?
Answer: In order to promote the smooth implementation of the new "Company Law", eliminate the concerns of existing companies about the uncertainty of adjusting the capital contribution period, and reserve more time for existing companies to adjust the capital contribution period, the "Regulations" are based on the current number of existing companies and capital contribution situation in my country, and combined with the opinions and suggestions of relevant parties. A transition period of three years has been set for the adjustment of the capital contribution period for existing companies. Specifically: First, if the remaining subscribed capital contribution period of a limited liability company exceeds 5 years from July 1, 2027, it shall adjust its remaining subscribed capital contribution period to within 5 years before June 30, 2027, and shareholders shall pay the subscribed capital contribution in full within the adjusted subscribed capital contribution period; second, the promoters of a joint-stock company shall pay the share money in full according to their subscribed shares before June 30, 2027. In addition, under the premise of complying with the basic principles and requirements of the new Company Law, the Regulations make exceptional arrangements for the adjustment of the capital contribution period of existing companies involving national interests or major public interests, stipulating that if the production and operation of a company involves national interests or major public interests, and the relevant competent departments of the State Council or the provincial people's governments put forward opinions, the market supervision and administration department of the State Council may agree to its capital contribution according to the original capital contribution period.
Question: What are the main regulations regarding abnormal capital contributions by companies?
Answer: In response to the current problems of some existing companies having too long subscription periods and too high registered capital, which are inconsistent with the actual situation and even contrary to common sense, the Regulations, in accordance with the requirements of the new Company Law, stipulate that if a company's subscription period and registered capital are obviously abnormal, the company registration authority may conduct research and judgment based on the company's business scope, operating conditions, shareholders' investment capacity, main projects, asset scale, etc. If it is determined that the principles of authenticity and rationality are violated, it may require timely adjustments in accordance with the law.
Q: What obligations does a company need to fulfill when adjusting its capital contribution period? What consequences will it face if it fails to fulfill its obligations as required?
Answer: According to the new "Company Law" and the "Provisional Regulations on Enterprise Information Disclosure", the "Regulations" specify the company's obligations to adjust the capital contribution period and other related obligations: First, if a company adjusts the amount of capital subscribed and paid by shareholders, the method of capital contribution, the capital contribution period or the number of shares subscribed by the promoters, it shall be disclosed to the public in accordance with the law; second, the company registration authority shall supervise and inspect the company's public disclosure of subscription and actual payment, and implement classified supervision according to the company's credit risk status; third, if a company fails to adjust the capital contribution period and registered capital in accordance with these regulations, the company registration authority shall order it to correct it; if it fails to correct it within the time limit, the company registration authority shall make special marks in the national enterprise credit information disclosure system and disclose it to the public. In addition, if the shareholders or promoters of the company fail to perform the actual payment obligations in accordance with the law, or the company fails to disclose relevant information in accordance with the law, it shall be punished in accordance with the relevant provisions of the new "Company Law" and the "Provisional Regulations on Enterprise Information Disclosure".
Question: What detailed provisions have been made regarding the compulsory company cancellation system in the new Company Law?
Answer: In order to clean up "zombie companies" that are in name only and better promote the implementation of the company's registered capital registration management system, the "Regulations" have detailed the provisions on compulsory company cancellation in the new "Company Law": First, if a company has not applied to the company registration authority for cancellation of its company registration within 3 years from the date its business license was revoked, it was ordered to close or it was revoked, the company registration authority may announce it through the National Enterprise Credit Information Publicity System, and the announcement period shall not be less than 60 days; second, during the announcement period, if relevant departments, creditors and other interested parties raise objections to the company registration authority, the cancellation procedure shall be terminated; third, if there is no objection after the expiration of the announcement period, the company registration authority may cancel the company registration and make a special mark in the National Enterprise Credit Information Publicity System.
Q: The Regulations require listed companies to set up an audit committee within the board of directors in their articles of association in accordance with the Company Law and State Council regulations. What are the main considerations?
Answer: The new Company Law stipulates that a joint-stock company may set up an audit committee in the board of directors in accordance with the provisions of the company's articles of association to exercise the powers of the board of supervisors, without setting up a board of supervisors or supervisors. my country's capital market first introduced the audit committee system in the governance structure of listed companies in 2001. The 2018 CSRC's "Corporate Governance Guidelines for Listed Companies" identified the audit committee as a mandatory institution for listed companies. At present, all listed companies have set up audit committees. The audit committee has played a positive role in strengthening the company's internal control and financial information supervision. In April 2023, in order to further optimize the independent director system of listed companies, the General Office of the State Council issued the "Opinions on the Reform of the Independent Director System of Listed Companies", which clearly requires that the board of directors of listed companies should set up an audit committee. In order to implement the requirements of the new Company Law and the "Opinions on the Reform of the Independent Director System of Listed Companies", the "Regulations" clearly stipulate that listed companies shall, in accordance with the Company Law and the provisions of the State Council, stipulate in the company's articles of association that an audit committee be set up in the board of directors, and specify the composition, powers and other matters of the audit committee. In the next step, the CSRC will issue supporting system rules to refine the composition, powers and other provisions of the audit committee of listed companies, and provide specific guidance and guarantees for the operation and better functioning of the audit committee of listed companies.
Q: What other work will be focused on after the Regulations come into effect?
Answer: The State Administration for Market Regulation will work with relevant departments to implement the Regulations: First, carry out publicity and interpretation. In full combination with local realities, strengthen policy interpretation on the official website of the market supervision department, service hall, registration interface, etc. through the formulation of service guides, brochures, video animations, etc., to help enterprises accurately grasp the requirements of the Regulations and solve the difficulties and problems encountered in the registration process. Second, introduce supporting regulations. Accelerate the formulation of regulations such as the implementation measures for company registration, and make detailed provisions on the specific circumstances in which production and operation involving national interests or major public interests can be capitalized according to the original capital contribution period, the specific identification and handling of obvious abnormalities in registered capital, and the company's separate book management system; revise the supporting regulations for enterprise information disclosure, and improve the relevant requirements for enterprise information disclosure and credit supervision. Third, provide relevant guarantees. Transform and upgrade the registration and registration system of business entities and the national enterprise credit information disclosure system, improve the registration application documents and material specifications, continuously optimize the registration and registration process, improve registration efficiency, and continuously improve the company's service experience and satisfaction.
