On December 29, 2023, the 7th meeting of the 14th National People’s Congress Standing Committee voted to pass the newly revised Company Law (“New Company Law”). The New Company Law will come into effect on July 1, 2024.
The relevant amendments to the New Company Law are mainly confused in the following aspects:
Improve the company’s registered capital system
To further improve the company’s registered capital system, the New Company Law makes provisions in the following seven aspects:
- Improve the registration system for subscribed registered capital. The shareholder contribution period of a limited liability company shall not exceed five years. According to the opinions of the State Administration for Market Regulation, the State Council is authorized to formulate specific measures to establish a transition period for companies that have been registered and established before the implementation of the New Company Law and whose contribution period of the subscribed registered capital has exceeded the period specified in this Law, requiring them to gradually adjust their contribution period to within the period specified in this Law.
- Introducing an authorized capital system in the joint stock limited company, allowing the articles of association of the company or shareholders’ meeting to authorize the board of directors to issue shares, while requiring the promoters to fully pay the subscribed contribution under the shares, not only facilitates the establishment of the company, improves financing flexibility, but also reduces issues such as registered capital virtualization.
- It is stipulated that a joint stock limited company may issue preferred and inferior shares, special voting shares, restricted shares, and other types of shares.
- Allow the company to choose between nominal or non-nominal shares in accordance with the articles of association.
- Allow the company to use capital reserves to offset losses in accordance with regulations.
- Establish a simplified capital reduction system, which will allow companies to compensate for losses by reducing registered capital in accordance with regulations, but not distributing to shareholders, nor exempting shareholders from the obligation to pay capital contributions or share payments.
- Establish a system for shareholders to lose their rights if they fail to pay their subscribed capital contributions on time, and a system for shareholders to accelerate the expiration of their subscribed capital, and also stipulate the responsibilities of the transferor and transferee after the transfer of equity.