Key concepts analysis of new Company Law

The new Company Law was recently approved. For this article, the author carried out a thorough analysis of the law to interpret it and facilitate its smooth implementation. The analysis is based on two types of books: those published by the legislature; and judicial interpretations issued by the Supreme People’s Court for understanding and application.

To prevent this article from becoming tedious, the author covers only the key legal provisions to ensure authenticity and accuracy.

This article will assist in interpreting the new law, grasping its major outcomes more clearly, sorting out the similarities and differences between the old and new provisions behind the terminology, exploring deeper reasons for the revision, and accurately grasping the trend of the times.

Establishment shareholders

The “shareholders at the time of establishment” frequently mentioned in articles 43 and 44 of the new Company Law is not a new concept, and it can also be found in the Judicial Interpretation (III) of the Company Law.

The new law explains the concept of promoters in a relatively novel manner, underlining the accuracy and standardisation of judicial terminology. A major outcome of the revised Company Law is that the shareholders at the time of establishment of a limited liability company are also defined as promoters, which expands the definition of promoters compared to traditional legal provisions and further enhances the status of shareholders and recognises their vital roles.

The law also provides that promoters can be either a person who signs the articles of association to establish a company, a subscriber making crucial contributions to the company, or a person who performs duties for the company’s establishment. The above-mentioned conditions are definitions to clarify the legal provisions.

The law explains duties relating to company establishment. It indicates that the promoters, in their own capacity, should comply with laws and regulations and the signed contract to enjoy rights.

Meanwhile, they must also assume responsibility and fulfil necessary obligations to a high quality. A promoter may, in a flexible manner, authorise other promoters to act as representatives but, whether or not the promoter is involved in organisational matters, he or she will be liable for the establishment.

This provision is more logical and reasonable, and marks a major advancement in the law. Representatives at the time of a company’s establishment, and shareholders at the time of the executive body’s establishment, are playing a more important role in the new Company Law.

Article 43

Article 43 clearly states that the “shareholders at the time of establishment of a limited liability company may enter into an establishment agreement to specify their rights and obligations during the establishment of the company”. Thus, it can be concluded that prior to establishment, a promoter agreement can also be referred to as a corporate establishment agreement.

Despite different callings, the two are conceptually consistent. They both refer to an agreement signed by promoters regarding the establishment of a company, which can be interpreted as a partnership agreement with respect to laws and regulations. As the main feature of a partnership agreement is its informality, corporate establishment agreements are also informal legal documents.

Agreements signed by the parties should fully respect their will and, at the same time, comply with legal provisions on contracts issued by the judiciary, cross-referencing each other and following the general rules.

The relativity of a partnership agreement determines its scope of legal effect; a promoter agreement is signed by all promoters, which is legally binding only between them.

The new law also provides for such legally binding effect, reflecting the constant progression of legal provisions, highlighting and distinguishing promoters’ rights and obligations, aiming to provide greater clarity for judicial interpretations.

Article 44

Article 44 specifies general rules, the treatment of companies that fail to be set up, infringement liability and agency relations.

The first paragraph states that all the adverse legal consequences arising from civil activities conducted by a shareholder of a limited liability company for the company’s development should be borne by the company and its shareholders together.

This corresponds to the first paragraph of article 3 of Judicial Interpretation (III), which implies “in the name of a company being established”.

The second paragraph of this article corresponds to the first paragraph of article 4 of the interpretation.

The third paragraph is taken from article 2 of the interpretation, which also optimises previous legal provisions.

The fourth paragraph is taken from article 5 of the interpretation and proceeds from the previous two paragraphs under which the infringer is ultimately liable for an offence.

Dai Haiying is a senior partner at W&H Law Firm.
She can be contacted by +86 139 5979 4688 or by e-mail at 921623735@qq.com