Key Changes in China’s Amended Company Law: A Detailed Analysis by Elfie Wang

The long-awaited amended Company Law (New Company Law) in China has finally been enacted, bringing about significant changes that will impact investors and companies alike. The new amendments, effective from 1 July 2024, are the most substantial since the establishment of China’s company law regime in 1993.

One of the most significant changes introduced by the New Company Law concerns shareholders’ capital contribution commitments. The total contributions that shareholders agree to make to a company, known as Registered Capital, will now have stricter requirements. Shareholders will be required to make capital contributions within 5 years after a company is established, with specified contribution dates in the company’s articles of association.

Existing companies with high outstanding Registered Capital will also need to adjust to meet the new timeline provided by the law. Failure to comply with the contribution timeline may result in fines, emphasizing the importance of adhering to the new requirements.

Furthermore, the New Company Law introduces measures to enhance transparency and accountability in capital contributions. Companies are now required to publicize the paid-in capital of each shareholder through the National Enterprise Credit Information Publicity System, with penalties for non-compliance.

The law also empowers the board of directors to demand capital contributions from shareholders who fail to fulfill their obligations within a specified grace period. Failure to make contributions may result in forfeiture of a defaulting shareholder’s equity interest, with consequences for the company and other shareholders.

Overall, the New Company Law signifies a shift in the governance structure of companies in China, placing greater emphasis on compliance and accountability. Investors and companies are advised to review their capital contribution schedules and make necessary adjustments to ensure compliance with the new requirements.

As further details and implementation measures are expected to be formulated by the State Council, it is crucial for companies to stay informed and prepared for any changes that may arise. The evolving landscape of the New Company Law will require proactive measures from investors and companies to navigate the new regulatory environment effectively.