China New Corporate Law & Foreign Travel Risks

Today on the International Trade Resources Podcast, our host Kim Kirkendall is joined by Steven Huang of Zhong Lu Law Firm to discuss 2024 changes to the corporate law in China and the implications for foreign companies, especially regarding capital contributions, increased liabilities for directors, the role of legal representatives, and supervisory boards.  It is important to note with this new law companies should review and update their Articles of Association (AOA). 

First, Kim and Steven break down the key points of the new corporate law which affects both existing and new foreign companies in China, with no grandfathering clause. The five main changes include new capital contribution rules, increased liabilities for the board of directors and shareholders, changes in the role of the legal representative, new supervisory rules, and amendments to the articles of association.

Next, they explore the stricter rules for capital contributions established by the new law, reverting somewhat to earlier practices. Companies now have a maximum of five years to fully contribute their registered capital, with existing companies having an additional three-year grace period to comply. Steven discusses how this might affect existing companies. This is aimed at preventing abuses where companies set high registered capital amounts without actual contributions.

The new law also imposes additional responsibilities on directors to ensure capital contributions are made timely. Directors can be personally liable for not calling for capital contributions from shareholders. Additionally, shareholders may face accelerated capital contribution demands from creditors if the company has debts and is not fully funded.

Next, Steven explains the role and liabilities of legal representatives. The new law expands the scope of who can be a legal representative and introduces an automatic termination mechanism for legal representatives which can be very helpful for companies who have had challenges removing LR in the past. 

Lastly, Kim and Steven discuss a major concern for foreign companies: the potential liquidation of the company. Liquidation can be challenging to manage, and the new law includes a change to the liquidation committee that increases the complexity. The registered group responsible for managing the process of winding down the company, settling its debts, and distributing any remaining assets.

Listen now and learn about new corporate laws in China and how the complexity is impacting travel for executives into China!

KEY TAKEAWAYS:

• Background on the new law
• The additional responsibilities on directors including in regards to capital contributions
• The impact the new law has on shareholders liability
• An inside look at the role and liabilities of legal representatives

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