Lex Mercatoria: - China - Company Law, 1993 › lm › china.company.law.2.1993 › ... · China-CompanyLaw,1993 18 Article6 19 An internal management mechanism shall be implemented

China - Company Law, 1993

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Contents

Contents

Company Law of the People’s Republic of China(Adopted at the Fifth Meeting of the Standing Com-mittee of the Eighth National People’s Congress onDecember 29, 1993 and promulgated by Order No.16of the President of the People’s Republic of China onDecember 29, 1993 and effective as of July 1, 1994) 1

Chapter I - General Provisions 1Article 1 . . . . . . . . . . . . . . . . . . . . . . . . . . 1Article 2 . . . . . . . . . . . . . . . . . . . . . . . . . . 1Article 3 . . . . . . . . . . . . . . . . . . . . . . . . . . 1Article 4 . . . . . . . . . . . . . . . . . . . . . . . . . . 1Article 5 . . . . . . . . . . . . . . . . . . . . . . . . . . 1Article 6 . . . . . . . . . . . . . . . . . . . . . . . . . . 2Article 7 . . . . . . . . . . . . . . . . . . . . . . . . . . 2Article 8 . . . . . . . . . . . . . . . . . . . . . . . . . . 2Article 9 . . . . . . . . . . . . . . . . . . . . . . . . . . 2Article 10 . . . . . . . . . . . . . . . . . . . . . . . . . 2Article 11 . . . . . . . . . . . . . . . . . . . . . . . . . 2Article 12 . . . . . . . . . . . . . . . . . . . . . . . . . 3Article 13 . . . . . . . . . . . . . . . . . . . . . . . . . 3Article 14 . . . . . . . . . . . . . . . . . . . . . . . . . 3Article 15 . . . . . . . . . . . . . . . . . . . . . . . . . 3Article 16 . . . . . . . . . . . . . . . . . . . . . . . . . 3Article 17 . . . . . . . . . . . . . . . . . . . . . . . . . 3Article 18 . . . . . . . . . . . . . . . . . . . . . . . . . 4

Chapter II - Incorporation and Organizational Structureof Limited Liability Companies 4

Section 1 - Incorporation 4Article 19 . . . . . . . . . . . . . . . . . . . . . . . . . 4Article 20 . . . . . . . . . . . . . . . . . . . . . . . . . 4

Article 21 . . . . . . . . . . . . . . . . . . . . . . . . . 4Article 22 . . . . . . . . . . . . . . . . . . . . . . . . . 4Article 23 . . . . . . . . . . . . . . . . . . . . . . . . . 5Article 24 . . . . . . . . . . . . . . . . . . . . . . . . . 5Article 25 . . . . . . . . . . . . . . . . . . . . . . . . . 5Article 26 . . . . . . . . . . . . . . . . . . . . . . . . . 6Article 27 . . . . . . . . . . . . . . . . . . . . . . . . . 6Article 28 . . . . . . . . . . . . . . . . . . . . . . . . . 6Article 29 . . . . . . . . . . . . . . . . . . . . . . . . . 6Article 30 . . . . . . . . . . . . . . . . . . . . . . . . . 6Article 31 . . . . . . . . . . . . . . . . . . . . . . . . . 7Article 32 . . . . . . . . . . . . . . . . . . . . . . . . . 7Article 33 . . . . . . . . . . . . . . . . . . . . . . . . . 7Article 34 . . . . . . . . . . . . . . . . . . . . . . . . . 7Article 35 . . . . . . . . . . . . . . . . . . . . . . . . . 7Article 36 . . . . . . . . . . . . . . . . . . . . . . . . . 7

Section 2 - Organizational Structure 8Article 37 . . . . . . . . . . . . . . . . . . . . . . . . . 8Article 38 . . . . . . . . . . . . . . . . . . . . . . . . . 8Article 39 . . . . . . . . . . . . . . . . . . . . . . . . . 8Article 40 . . . . . . . . . . . . . . . . . . . . . . . . . 8Article 41 . . . . . . . . . . . . . . . . . . . . . . . . . 8Article 42 . . . . . . . . . . . . . . . . . . . . . . . . . 9Article 43 . . . . . . . . . . . . . . . . . . . . . . . . . 9Article 44 . . . . . . . . . . . . . . . . . . . . . . . . . 9Article 45 . . . . . . . . . . . . . . . . . . . . . . . . . 9Article 46 . . . . . . . . . . . . . . . . . . . . . . . . . 9Article 47 . . . . . . . . . . . . . . . . . . . . . . . . . 10Article 48 . . . . . . . . . . . . . . . . . . . . . . . . . 10Article 49 . . . . . . . . . . . . . . . . . . . . . . . . . 10Article 50 . . . . . . . . . . . . . . . . . . . . . . . . . 10Article 51 . . . . . . . . . . . . . . . . . . . . . . . . . 11Article 52 . . . . . . . . . . . . . . . . . . . . . . . . . 11Article 53 . . . . . . . . . . . . . . . . . . . . . . . . . 11

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Article 54 . . . . . . . . . . . . . . . . . . . . . . . . . 11Article 55 . . . . . . . . . . . . . . . . . . . . . . . . . 12Article 56 . . . . . . . . . . . . . . . . . . . . . . . . . 12Article 57 . . . . . . . . . . . . . . . . . . . . . . . . . 12Article 58 . . . . . . . . . . . . . . . . . . . . . . . . . 12Article 59 . . . . . . . . . . . . . . . . . . . . . . . . . 12Article 60 . . . . . . . . . . . . . . . . . . . . . . . . . 13Article 61 . . . . . . . . . . . . . . . . . . . . . . . . . 13Article 62 . . . . . . . . . . . . . . . . . . . . . . . . . 13Article 63 . . . . . . . . . . . . . . . . . . . . . . . . . 13

Section 3 - Wholly State-owned Companies 13Article 64 . . . . . . . . . . . . . . . . . . . . . . . . . 13Article 65 . . . . . . . . . . . . . . . . . . . . . . . . . 13Article 66 . . . . . . . . . . . . . . . . . . . . . . . . . 14Article 67 . . . . . . . . . . . . . . . . . . . . . . . . . 14Article 68 . . . . . . . . . . . . . . . . . . . . . . . . . 14Article 69 . . . . . . . . . . . . . . . . . . . . . . . . . 14Article 70 . . . . . . . . . . . . . . . . . . . . . . . . . 14Article 71 . . . . . . . . . . . . . . . . . . . . . . . . . 15Article 72 . . . . . . . . . . . . . . . . . . . . . . . . . 15

Chapter III - Incorporation and Organizational Structureof Joint Stock Limited Companies 15

Section 1 - Incorporation 15Article 73 . . . . . . . . . . . . . . . . . . . . . . . . . 15Article 74 . . . . . . . . . . . . . . . . . . . . . . . . . 15Article 75 . . . . . . . . . . . . . . . . . . . . . . . . . 15Article 76 . . . . . . . . . . . . . . . . . . . . . . . . . 16Article 77 . . . . . . . . . . . . . . . . . . . . . . . . . 16Article 78 . . . . . . . . . . . . . . . . . . . . . . . . . 16Article 79 . . . . . . . . . . . . . . . . . . . . . . . . . 16Article 80 . . . . . . . . . . . . . . . . . . . . . . . . . 16Article 81 . . . . . . . . . . . . . . . . . . . . . . . . . 17

Article 82 . . . . . . . . . . . . . . . . . . . . . . . . . 17Article 83 . . . . . . . . . . . . . . . . . . . . . . . . . 17Article 84 . . . . . . . . . . . . . . . . . . . . . . . . . 17Article 85 . . . . . . . . . . . . . . . . . . . . . . . . . 18Article 86 . . . . . . . . . . . . . . . . . . . . . . . . . 18Article 87 . . . . . . . . . . . . . . . . . . . . . . . . . 18Article 88 . . . . . . . . . . . . . . . . . . . . . . . . . 18Article 89 . . . . . . . . . . . . . . . . . . . . . . . . . 18Article 90 . . . . . . . . . . . . . . . . . . . . . . . . . 18Article 91 . . . . . . . . . . . . . . . . . . . . . . . . . 19Article 92 . . . . . . . . . . . . . . . . . . . . . . . . . 19Article 93 . . . . . . . . . . . . . . . . . . . . . . . . . 19Article 94 . . . . . . . . . . . . . . . . . . . . . . . . . 19Article 95 . . . . . . . . . . . . . . . . . . . . . . . . . 20Article 96 . . . . . . . . . . . . . . . . . . . . . . . . . 20Article 97 . . . . . . . . . . . . . . . . . . . . . . . . . 20Article 98 . . . . . . . . . . . . . . . . . . . . . . . . . 20Article 99 . . . . . . . . . . . . . . . . . . . . . . . . . 21Article 100 . . . . . . . . . . . . . . . . . . . . . . . . 21Article 101 . . . . . . . . . . . . . . . . . . . . . . . . 21

Section 2 - Shareholders’ General Meetings 21Article 102 . . . . . . . . . . . . . . . . . . . . . . . . 21Article 103 . . . . . . . . . . . . . . . . . . . . . . . . 21Article 104 . . . . . . . . . . . . . . . . . . . . . . . . 22Article 105 . . . . . . . . . . . . . . . . . . . . . . . . 22Article 106 . . . . . . . . . . . . . . . . . . . . . . . . 22Article 107 . . . . . . . . . . . . . . . . . . . . . . . . 22Article 108 . . . . . . . . . . . . . . . . . . . . . . . . 22Article 109 . . . . . . . . . . . . . . . . . . . . . . . . 23Article 110 . . . . . . . . . . . . . . . . . . . . . . . . . 23Article 111 . . . . . . . . . . . . . . . . . . . . . . . . . 23

Section 3 - Board of Directors, and Manager 23Article 112 . . . . . . . . . . . . . . . . . . . . . . . . . 23

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Article 113 . . . . . . . . . . . . . . . . . . . . . . . . . 23Article 114 . . . . . . . . . . . . . . . . . . . . . . . . . 24Article 115 . . . . . . . . . . . . . . . . . . . . . . . . . 24Article 116 . . . . . . . . . . . . . . . . . . . . . . . . . 24Article 117 . . . . . . . . . . . . . . . . . . . . . . . . . 24Article 118 . . . . . . . . . . . . . . . . . . . . . . . . . 24Article 119 . . . . . . . . . . . . . . . . . . . . . . . . . 25Article 120 . . . . . . . . . . . . . . . . . . . . . . . . 25Article 121 . . . . . . . . . . . . . . . . . . . . . . . . 25Article 122 . . . . . . . . . . . . . . . . . . . . . . . . 25Article 123 . . . . . . . . . . . . . . . . . . . . . . . . 25

Section 4 - Supervisory Board 26Article 124 . . . . . . . . . . . . . . . . . . . . . . . . 26Article 125 . . . . . . . . . . . . . . . . . . . . . . . . 26Article 126 . . . . . . . . . . . . . . . . . . . . . . . . 26Article 127 . . . . . . . . . . . . . . . . . . . . . . . . 26Article 128 . . . . . . . . . . . . . . . . . . . . . . . . 26

Chapter IV - Issue and Transfer of Shares of Joint StockLimited Companies 27

Section 1 - Issue of Shares 27Article 129 . . . . . . . . . . . . . . . . . . . . . . . . 27Article 130 . . . . . . . . . . . . . . . . . . . . . . . . 27Article 131 . . . . . . . . . . . . . . . . . . . . . . . . 27Article 132 . . . . . . . . . . . . . . . . . . . . . . . . 27Article 133 . . . . . . . . . . . . . . . . . . . . . . . . 27Article 134 . . . . . . . . . . . . . . . . . . . . . . . . 28Article 135 . . . . . . . . . . . . . . . . . . . . . . . . 28Article 136 . . . . . . . . . . . . . . . . . . . . . . . . 28Article 137 . . . . . . . . . . . . . . . . . . . . . . . . 28Article 138 . . . . . . . . . . . . . . . . . . . . . . . . 28Article 139 . . . . . . . . . . . . . . . . . . . . . . . . 29Article 140 . . . . . . . . . . . . . . . . . . . . . . . . 29

Article 141 . . . . . . . . . . . . . . . . . . . . . . . . 29Article 142 . . . . . . . . . . . . . . . . . . . . . . . . 29

Section 2 - Transfer of Shares 29Article 143 . . . . . . . . . . . . . . . . . . . . . . . . 29Article 144 . . . . . . . . . . . . . . . . . . . . . . . . 29Article 145 . . . . . . . . . . . . . . . . . . . . . . . . 29Article 146 . . . . . . . . . . . . . . . . . . . . . . . . 30Article 147 . . . . . . . . . . . . . . . . . . . . . . . . 30Article 148 . . . . . . . . . . . . . . . . . . . . . . . . 30Article 149 . . . . . . . . . . . . . . . . . . . . . . . . 30Article 150 . . . . . . . . . . . . . . . . . . . . . . . . 30

Section 3 - Listed Companies 30Article 151 . . . . . . . . . . . . . . . . . . . . . . . . 30Article 152 . . . . . . . . . . . . . . . . . . . . . . . . 30Article 153 . . . . . . . . . . . . . . . . . . . . . . . . 31Article 154 . . . . . . . . . . . . . . . . . . . . . . . . 31Article 155 . . . . . . . . . . . . . . . . . . . . . . . . 31Article 156 . . . . . . . . . . . . . . . . . . . . . . . . 31Article 157 . . . . . . . . . . . . . . . . . . . . . . . . 32Article 158 . . . . . . . . . . . . . . . . . . . . . . . . 32

Chapter V - Company Bonds 32Article 159 . . . . . . . . . . . . . . . . . . . . . . . . 32Article 160 . . . . . . . . . . . . . . . . . . . . . . . . 32Article 161 . . . . . . . . . . . . . . . . . . . . . . . . 32Article 162 . . . . . . . . . . . . . . . . . . . . . . . . 33Article 163 . . . . . . . . . . . . . . . . . . . . . . . . 33Article 164 . . . . . . . . . . . . . . . . . . . . . . . . 33Article 165 . . . . . . . . . . . . . . . . . . . . . . . . 33Article 166 . . . . . . . . . . . . . . . . . . . . . . . . 34Article 167 . . . . . . . . . . . . . . . . . . . . . . . . 34Article 168 . . . . . . . . . . . . . . . . . . . . . . . . 34Article 169 . . . . . . . . . . . . . . . . . . . . . . . . 34

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Article 170 . . . . . . . . . . . . . . . . . . . . . . . . 34Article 171 . . . . . . . . . . . . . . . . . . . . . . . . 35Article 172 . . . . . . . . . . . . . . . . . . . . . . . . 35Article 173 . . . . . . . . . . . . . . . . . . . . . . . . 35

Chapter VI - Financial Affairs and Accounting of Compa-nies 35Article 174 . . . . . . . . . . . . . . . . . . . . . . . . 35Article 175 . . . . . . . . . . . . . . . . . . . . . . . . 35Article 176 . . . . . . . . . . . . . . . . . . . . . . . . 36Article 177 . . . . . . . . . . . . . . . . . . . . . . . . 36Article 178 . . . . . . . . . . . . . . . . . . . . . . . . 36Article 179 . . . . . . . . . . . . . . . . . . . . . . . . 37Article 180 . . . . . . . . . . . . . . . . . . . . . . . . 37Article 181 . . . . . . . . . . . . . . . . . . . . . . . . 37

Chapter VII - Merger and Divisions of Companies 37Article 182 . . . . . . . . . . . . . . . . . . . . . . . . 37Article 183 . . . . . . . . . . . . . . . . . . . . . . . . 37Article 184 . . . . . . . . . . . . . . . . . . . . . . . . 37Article 185 . . . . . . . . . . . . . . . . . . . . . . . . 38Article 186 . . . . . . . . . . . . . . . . . . . . . . . . 38Article 187 . . . . . . . . . . . . . . . . . . . . . . . . 38Article 188 . . . . . . . . . . . . . . . . . . . . . . . . 38

Chapter VIII - Bankruptcy, Dissolution and Liquidation ofCompanies 39Article 189 . . . . . . . . . . . . . . . . . . . . . . . . 39Article 190 . . . . . . . . . . . . . . . . . . . . . . . . 39Article 191 . . . . . . . . . . . . . . . . . . . . . . . . 39Article 192 . . . . . . . . . . . . . . . . . . . . . . . . 39Article 193 . . . . . . . . . . . . . . . . . . . . . . . . 39Article 194 . . . . . . . . . . . . . . . . . . . . . . . . 40Article 195 . . . . . . . . . . . . . . . . . . . . . . . . 40Article 196 . . . . . . . . . . . . . . . . . . . . . . . . 40

Article 197 . . . . . . . . . . . . . . . . . . . . . . . . 40Article 198 . . . . . . . . . . . . . . . . . . . . . . . . 41

Chapter IX - Branches of Foreign Companies 41Article 199 . . . . . . . . . . . . . . . . . . . . . . . . 41Article 200 . . . . . . . . . . . . . . . . . . . . . . . . 41Article 201 . . . . . . . . . . . . . . . . . . . . . . . . 41Article 202 . . . . . . . . . . . . . . . . . . . . . . . . 41Article 203 . . . . . . . . . . . . . . . . . . . . . . . . 41Article 204 . . . . . . . . . . . . . . . . . . . . . . . . 42Article 205 . . . . . . . . . . . . . . . . . . . . . . . . 42

Chapter X - Legal Liability 42Article 206 . . . . . . . . . . . . . . . . . . . . . . . . 42Article 207 . . . . . . . . . . . . . . . . . . . . . . . . 42Article 208 . . . . . . . . . . . . . . . . . . . . . . . . 42Article 209 . . . . . . . . . . . . . . . . . . . . . . . . 43Article 210 . . . . . . . . . . . . . . . . . . . . . . . . 43Article 211 . . . . . . . . . . . . . . . . . . . . . . . . . 43Article 212 . . . . . . . . . . . . . . . . . . . . . . . . 43Article 213 . . . . . . . . . . . . . . . . . . . . . . . . 43Article 214 . . . . . . . . . . . . . . . . . . . . . . . . 43Article 215 . . . . . . . . . . . . . . . . . . . . . . . . 44Article 216 . . . . . . . . . . . . . . . . . . . . . . . . 44Article 217 . . . . . . . . . . . . . . . . . . . . . . . . 44Article 218 . . . . . . . . . . . . . . . . . . . . . . . . 44Article 219 . . . . . . . . . . . . . . . . . . . . . . . . 45Article 220 . . . . . . . . . . . . . . . . . . . . . . . . 45Article 221 . . . . . . . . . . . . . . . . . . . . . . . . 45Article 222 . . . . . . . . . . . . . . . . . . . . . . . . 45Article 223 . . . . . . . . . . . . . . . . . . . . . . . . 45Article 224 . . . . . . . . . . . . . . . . . . . . . . . . 46Article 225 . . . . . . . . . . . . . . . . . . . . . . . . 46Article 226 . . . . . . . . . . . . . . . . . . . . . . . . 46Article 227 . . . . . . . . . . . . . . . . . . . . . . . . 46

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Article 228 . . . . . . . . . . . . . . . . . . . . . . . . 46

Chapter XI - Supplementary Provisions 46Article 229 . . . . . . . . . . . . . . . . . . . . . . . . 46Article 230 . . . . . . . . . . . . . . . . . . . . . . . . 47

Metadata 48SiSU Metadata, document information . . . . . . . . . 48

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Company Law of the People's Republic of China1

(Adopted at the Fifth Meeting of the StandingCommittee of the Eighth National People'sCongress on December 29, 1993 and promulgatedby Order No.16 of the President of the People'sRepublic of China on December 29, 1993 andeffective as of July 1, 1994)

Chapter I - General Provisions2

Article 13

This Law is formulated in accordance with the Constitution of4

the People's Republic of China in order to meet the needs ofestablishing a modern enterprise system, to standardize the or-ganization and activities of companies, to protect the legitimaterights and interests of companies, shareholders and creditors,to maintain the socio-economic order and to promote the de-velopment of the socialist market economy.

Article 25

The term “company” as mentioned in this Law refers to a limited6

liability company or a joint stock limited company incorporatedwithin the territory of the People's Republic of China in accor-dance with this Law.

Article 37

A “limited liability company” or “ joint stock limited company” is8

an enterprise legal person.

In the case of a limited liability company, shareholders shall9

assume liability towards the company to the extent of their re-

spective capital contributions, and the company shall be liablefor its debts to the extent of all its assets.

In the case of a joint stock limited company, is total capital shall 10

be divided into equal shares, shareholders shall assume liabilitytowards the company to the extent of their respective shares,and the company shall be liable for its debts to the extent of allits assets.

Article 4 11

The shareholders of a company shall, in their capacity of con- 12

tributors of capital, enjoy such rights of owners as benefitingfrom assets of the company, making major decisions and se-lecting managerial personnel in accordance with the amount oftheir respective capital investment in the company.

A company shall enjoy the right to the entire property of the legal 13

person formed by the investments of the share holders and shallpossess civil rights and bear the civil liabilities in accordancewith the law.

The ownership of State-owned assets in a company shall vest 14

in the State.

Article 5 15

A company shall, with all its legal person assets, operate in- 16

dependently and be responsible for its own profits and lossesaccording to law.

A company shall, under the macro-adjustment and control of 17

the State, organize its production and operation independentlyin accordance with market demand for the purpose of raisingeconomic benefits and labor productivity and maintaining andincreasing the value of its assets.

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Article 618

An internal management mechanism shall be implemented19

within companies, which is characterized by clear definitionof powers and responsibilities, scientific management andcombination of encouragement and restraint.

Article 720

State-owned enterprises restructured to form companies must21

transform their operating mechanism, gradually produce an in-ventory of their assets and verify their funds, delimit their prop-erty rights, clear off their claims and debts, evaluate their assetsand establish a standard internal management mechanism inaccordance with the conditions and requirements set by laws,administrative rules and regulations.

Article 822

Incorporation of limited liability companies or joint stock limited23

companies must meet the conditions stipulated by the presentLaw. Companies meeting the conditions set by this Law shallbe registered as limited liability companies or joint stock limitedcompanies; while companies failing to meet the conditions setby this Law shall not be registered as limited liability companiesor joint stock limited companies.

Where laws or administrative rules and regulations provide that24

incorporation of companies must be subject to examination andapproval, the procedures of examination and approval shall becompleted according to law prior to the registration of such com-panies.

Article 925

A limited liability company established according to this Law 26

must clearly indicate the words “limited liability company” in itsname.

A joint stock limited company established according to this Law 27

must clearly indicate the words “joint stock limited company” inits name.

Where laws or administrative rules and regulations provide that 28

incorporation of companies must be subject to examination andapproval, the procedures of examination and approval shall becompleted according to law prior to the registration of such com-panies.

Article 10 29

A company's domicile shall be the place where its main admin- 30

istrative organization is located.

Article 11 31

Articles of association must be formulated in accordance with 32

this Law when a company is incorporated. A company's arti-cles of association shall have binding force on the company, itsshareholders, directors, supervisors and managers.

A company's scope of business shall be defined in its articles 33

of association and registered in accordance with the law. Itemswithin the company's “scope of business” that are subject to re-strictions under laws, administrative rules and regulations shallbe approved in accordance with the law.

Companies shall engage in business activities within their reg- 34

istered scope of business. A company may change its scope of





business by amending its articles of association in accordancewith statutory procedures and making such amendments reg-istered with the Company Registration authority.

Article 1235

A company may invest in other limited liability companies or36

joint stock limited companies and shall assume liability towardsthe company so invested in to the extent of such capital contri-butions.

In case a company, other than an investment company or a37

holding company as specified by the State Council, invests inother limited liability companies or joint stock limited compa-nies, the aggregated amount of such investments shall not ex-ceed fifty percent of its net assets; after the initial investment,the increase therein resulting from capitalization of the profit de-rived form the company invested in shall not be included.

Article 1338

A company may establish branches, which shall not possess39

the status of enterprise legal persons and whose civil liabilitiesshall be borne by the company.

A company may establish subsidiaries, which shall possess the40

status of enterprise legal persons, and shall independently bearcivil liabilities according to law.

Article 1441

A company must, when engaging in business activities, abide42

by the law, observe professional ethics, strengthen the con-struction of socialist culture and ideology and accept supervi-sion of the government and the public.

The legitimate rights and interests of companies shall be pro- 43

tected by the law and shall be inviolable.

Article 15 44

Companies must protect the lawful rights and interests of their 45

staff and workers, and strengthen labor protection so as toachieve safety in production.

Companies shall apply various forms to strengthen professional 46

education and on-the-job training of their staff and workers soas to improve their quality.

Article 16 47

Company's staff and workers shall, in accordance with the law, 48

organize a trade union to carry out the trade union activitiesand protect the lawful rights and interests of the staff and work-ers. The company shall provide its trade union with conditionsnecessary for carrying out its activities.

Wholly State-owned companies and limited liability companies 49

invested in and established by two or more State-owned en-terprises or by two or more other State-owned investment enti-ties shall, through staff and workers' congresses or other forms,practice democratic management in accordance with the provi-sions of the Constitution and relevant laws.

Article 17 50

The grass-root organizations of the Communist Party of China 51

in companies shall carry out their activities in accordance withthe Constitution of the Communist Party of China.





Article 18 52

The present Law shall apply of limited liability companies with53

foreign investment. Where laws concerning Chinese-foreignequity joint ventures, Chinese-foreign contractual joint venturesand foreign-funded enterprises provide otherwise, such provi-sions shall prevail.

Chapter II - Incorporation and Organizational54

Structure of Limited Liability Companies

Section 1 - Incorporation55

Article 1956

The following conditions must be fulfilled for the incorporation57

of a limited liability company:

(1) the number of shareholders conforms to the statutory num-58

ber;

(2) the capital contributions of the shareholders reach the statu-59

tory minimum amount of capital;

(3) the shareholders have jointly formulated the articles of as-60

sociation of the company;

(4) the company has a name and an organizational structure61

established in compliance with the requirements for a limitedliability company; and

(5) there are fixed premises and necessary conditions for pro-62

duction and operation.

Article 2063

A limited liability company shall be jointly invested in and incor-64

porated by not less than two and not more than fifty sharehold-ers.

State-authorized investment institutions or departments autho- 65

rized by the State may independently invest in and establishwholly State-owned limited liability companies.

Article 21 66

If State-owned enterprises established prior to the implementa- 67

tion of this Law comply with the conditions stipulated in this Lawfor the incorporation of limited liability companies, they may,in the case of enterprises with a single investing entity, be re-structured as wholly State-owned limited liability companies inaccordance with this Law, or in the case of enterprises with mul-tiple investing entities, be restructured as limited liability compa-nies as specified in the first paragraph of the preceding Article.

The implementation procedures and specific measures for re- 68

structuring State-owned enterprises as companies shall be for-mulated separately by the State Council.

Article 22 69

The articles of association of limited liability companies shall 70

specify the following particulars:

(1) the name and domicile of the company; 71

(2) the scope of business of the company; 72

(3) the registered capital of the company; 73

(4) the names or titles of the shareholders; 74

(5) the rights and obligations of the shareholders; 75

(6) themethod and amount of capital contributions by the share- 76





holders;

(7) the conditions for transfer of capital contributions by share-77

holders;

(8) the organization of the company, its method of creation,78

functions and powers and the rules of procedure;

(9) the legal representative of the company;79

(10) the reasons for dissolution of the company and method of80

liquidation; and

(11) other items which the shareholders deem necessary to be81

specified.

The shareholders shall sign and affix their seals to the com-82

pany's articles of association.

Article 2383

The registered capital of a limited liability company shall be84

the amount of the paid-up capital contributions of all its share-holders as registered with the Company Registration Author-ity.

The registered capital of a limited liability company shall be no85

less than the following minima:

(1) RMB 500 000 yuan for a company engaged mainly in pro-86

duction and operation;

(2) RMB 500 000 yuan for a company engaged mainly in com-87

modity wholesale;

(3) RMB 300 000 yuan for a company engaged mainly in com-88

mercial retailing; and

(4) RMB 100 000 yuan for a company engaged in science and89

technology development, consultancy* or services.

Where the minimum registered capital of a limited liability com-90

pany in specified trades needs to be higher than those stip-ulated in the preceding paragraph, it shall be stipulated by thelaws and administrative rules and regulations separately.

Article 24 91

A shareholder may make its capital contributions to a com- 92

pany in currency or by contributing material objects, industrialproperty rights, non-patented technology and land-use rights attheir appraised value. The material objects, industrial propertyrights, non-patented technology or land-use rights to be con-tributed as capital must undergo an asset valuation and verifica-tion, and shall not be overvalued or undervalued. The appraisaland valuation of land-use rights shall be handled in accordancewith the laws and administrative rules and regulations.

The investment in the form of industrial property rights and non- 93

patented technology at their appraised value shall not exceedtwenty percent of the registered capital of a limited liability com-pany, except where special State regulations in respect of theapplication of high and new technological achievement provideotherwise.

Article 25 94

Each shareholder shall make in full the amount of the capital 95

contribution subscribed for under the articles of association ofthe company. Where a shareholder makes its capital contribu-tion in currency, it shall deposit the full amount of such capi-tal contribution in currency in the interim bank account openedby the limited liability company to be established. Where ashareholder makes its capital contribution in the form of ma-terial objects, industrial property rights, non-patented technol-





ogy or land-use rights, the transfer procedures for the propertyrights shall be handled in accordance with the law.

Shareholders failing to make the capital contributions they sub-96

scribed for in accordance with the preceding paragraph shallbe liable for breach of contract towards the shareholders whohave made in full their capital contributions.

Article 2697

After all shareholders have made their capital contributions in98

full, such contributions must be verified by a statutory capitalverification institution which shall issue capital verification cer-tificates.

Article 2799

After the total capital contributions of the shareholders have100

been verified by a statutory capital verification institution, ap-plication shall be made to the Company Registration Authorityfor registration of the incorporation of the company by a rep-resentative designated by all the shareholders or by an agentjointly entrusted by them, who shall submit such documents asan application for registration, the articles of association andthe capital verification certificate.

Where the examination and approval of the relevant authorities101

is required by the laws or administrative rules and regulations,the approval documents shall be submitted on application forregistration of incorporation.

TheCompanyRegistration Authority shall grant registration and102

issue a business license to a company that meets the require-ments stipulated in this Law; the Company Registration Author-ity shall not register a company failing to meet the requirementsstipulated in this Law.

The date of the issuance of the company business license 103

shall be the date of the incorporation of a limited liabilitycompany.

Article 28 104

Where, after the incorporation of a limited liability company, it is 105

discovered that the actual value of the material objects, indus-trial property rights, non-patented technology or land-use rightscontributed as capital is notably less than the value stated inthe articles of association, the shareholders that made suchcontributions shall make up the discrepancy. Those who areshareholders at the time of the incorporation of the companyshall bear joint and several liability therefor.

Article 29 106

Where branches are established simultaneously with the incor- 107

poration of a limited liability company, application for registra-tion of the branches established shall be made to, and businesslicenses shall be obtained from, the Company Registration Au-thority.

Where a limited liability company establishes branches after its 108

incorporation, the company's legal representative shall applyfor the registration to, and obtain business licenses from, theCompany Registration Authority.

Article 30 109

After a limited liability company has been incorporated, it shall 110

issue capital contribution certificates to its shareholders.

A capital contribution certificates shall specify the following 111

items:





(1) the name of the company;112

(2) the registration date of the company;113

(3) the registered capital of the company;114

(4) the name or title of the shareholder, the amount and date of115

its capital contribution; and

(5) the serial number of the capital contribution certificate and116

the date of its verification and issuance.

A capital contribution certificate shall bear the seal of the com-117

pany on it.

Article 31118

A limited liability company shall prepare a roster of its share-119

holders with the following items therein:

(1) the names or titles and domiciles of the shareholders;120

(2) the amounts of capital contributions of the shareholders;121

and

(3) the serial numbers of the capital contribution certifi-122

cates.

Article 32123

A shareholder shall have the right to look up the minutes of124

shareholders' meetings and the financial and accounting re-ports of the company.

Article 33125

Shareholders shall draw dividends in proportion to their capi-126

tal contributions. Where a company increases capital, the ex-isting shareholders shall have priority in subscription for newshares.

Article 34 127

Once a company is registered, its shareholders may not with- 128

draw their capital contributions.

Article 35 129

The shareholders of a company may assign among themselves 130

all or part of their capital contributions.

Where a share holder intends to assign its capital contribution 131

to persons who are not shareholders, the consent of over halfof all the shareholders must be secured. Those shareholdersdisapproving the assignment shall purchase the capital contri-bution to be assigned. If such shareholders do not make thepurchase, they shall be deemed to have consented to the as-signment.

Other shareholders shall, under identical terms, have priority 132

in purchasing the capital contribution to be assigned with theconsent of the shareholders.

Article 36 133

After a shareholder has assigned its capital contribution accord- 134

ing to law, the company shall record the name or title and domi-cile of the consignee and the amount of the capital contributionassigned in the roster of the shareholders.





Section 2 - Organizational Structure 135

Article 37136

The shareholders' meeting* of a limited liability company shall137

be composed of all the shareholders. The shareholders meet-ing shall be the organ of power of the company and shall exer-cise its functions and powers in accordance with this Law.

Article 38138

The shareholders meeting shall exercise the following functions139

and powers:

(1) to decide on the business policy and investment plan of the140

company;

(2) to elect and recall members of the board of directors and141

to decide on matters concerning the remuneration of direc-tors;

(3) to elect and recall supervisors appointed from among the142

shareholders representatives, and to decide on matters con-cerning the remuneration of supervisors;

(4) to examine and approve reports of the board of direc-143

tors;

(5) to examine and approve reports of the supervisory board or144

supervisors;

(6) to examine and approve the annual financial budget plan145

and final accounts plan of the company;

(7) to examine and approve plans for profit distribution of the146

company and plans for making up losses;

(8) to adopt resolutions on the increase or reduction of the reg-147

istered capital of the company;

(9) to adopt resolutions on the issuance of company 148

bonds;

(10) to adopt resolutions on the assignment of capital contri- 149

bution by a shareholder to a person other than the sharehold-ers;

(11) to adopt resolutions on matters such as the merger, di- 150

vision, transformation, dissolution and liquidation of the com-pany; and

(12) to amend the articles of association of the company. 151

Article 39 152

The rules of deliberation and voting procedures of the 153

Shareholders meeting shall, except where provided for bythis Law, be stipulated by the articles of association of thecompany.

Resolutions of the shareholders meeting on the increase or re- 154

duction of the registered capital, the division, merger, disso-lution, or transformation of the company must be adopted byshareholders of the company representing two-thirds or moreof the voting rights.

Article 40 155

A company may amend its articles of association. A reso- 156

lution on the amendment to the articles of association mustbe adopted by shareholders of the company representing two-thirds or more of the voting rights.

Article 41 157

Shareholders shall exercise their voting rights at the Sharehold- 158

ers meeting in proportion to their capital contributions.





Article 42159

The first meeting of the shareholders of a company shall be con-160

vened and presided over by the shareholder who has made thebiggest capital contribution to the company and shall exerciseits functions and powers in accordance with this Law.

Article 43161

Shareholders meetings shall be divided into regular meetings162

and interim meetings.

Regular shareholders meetings shall be convened on time as163

stipulated by the articles of associations of the company. In-terim shareholders meetings may be convened upon proposalmade by shareholders representing one-fourth or more of thevoting rights, or, by one-third or more of directors or supervi-sors.

Where a limited liability company has set up a board of di-164

rectors, its Shareholders meeting shall be convened by theboard of directors and presided over by the chairman of theboard. Where special circumstances preclude the chairman ofthe board from performing his function, the meeting shall bepresided over by a vice-chairman or a director of the board des-ignated by the chairman.

Article 44165

All shareholders shall be notified fifteen days prior to the con-166

vening of a Shareholders meeting.

The shareholders meeting shall keep minutes of their decisions167

on matters discussed at it; the shareholders present at themeeting shall sign the minutes.

Article 45 168

A limited liability company shall have a board of directors, which 169

shall be composed of three to thirteen members.

The members of the board of directors of a limited liability com- 170

pany invested in the established by two or more State-ownedenterprises, or by two or more other State-owned investmententities shall include representatives of the staff and workersof the company. Such representatives of the staff and workersshall be democratically elected by the staff and workers of thecompany.

A board of directors shall have a chairman and one or two vice- 171

chairmen. The method for the creation of the chairman andvice-chairmen shall be stipulated in the articles of associationof the company.

The chairman of the board of directors shall be the company's 172

legal representative.

Article 46 173

The board of directors shall be responsible to the sharehold- 174

ers' meeting, and exercise the following functions and pow-ers:

(1) to be responsible for convening shareholders' meetings and 175

to report on its work to the shareholders' meetings;

(2) to implement the resolutions of the shareholders' meet- 176

ings;

(3) to decide on the business plans and investment plans of the 177

company;

(4) to formulate the annual financial budget plan and final ac- 178

counts plan of the company;





(5) to formulate plans for profit distribution and plans for making 179

up losses of the company;

(6) to formulate plans for the increase or reduction of the regis-180

tered capital of the company;

(7) to formulate plans for the merger, division, transformation181

and dissolution of the company;

(8) to decide on the establishment of the company's internal182

management organs;

(9) to appoint or dismiss the company's manager (general man-183

ager) (hereinafter referred to as manager), and , upon recom-mendation of the manager, to appoint and dismiss the com-pany's deputy manager(s) and persons in charge of the finan-cial affairs of the company, and to decide onmatters concerningtheir remuneration; and

Article 47184

The term of office of directors shall be stipulated by the articles185

of association of the company but may not exceed three years.A director may, if reelected upon expiration of his term of office,serve consecutive terms.

The shareholders' meeting of a company may not unwarrant-186

edly dismiss a director of the board prior to the expiration of histerm of office.

Article 48187

Meetings of the board of directors shall be convened and188

presided over by the chairman of the board. Where specialcircumstances preclude the chairman from performing hisfunction, the meeting shall be convened and presided over bya vice-chairman or a director of the board designated by the

chairman. One-third or more of the members of the board ofdirectors may propose the convening of a meeting of the boardof directors.

Article 49 189

The rules of deliberation and voting procedures of the board 190

of directors shall, except where provided for by this Law, bestipulated by the articles of association of the company.

All directors shall be notified ten days prior to the convening of 191

a board meeting.

The board meeting shall keep minutes of decisions on matters 192

discussed at it; directors present at the meeting shall sign theminutes.

Article 50 193

A limited liability company shall have a manager, who shall be 194

appointed or dismissed by the board of directors. The managershall be responsible to the board of directors and shall exercisethe following functions and powers:

(1) to be in charge of the production, operation and manage- 195

ment of the company, and to organize the implementation ofthe resolutions of the board of directors;

(2) to organize the implementation of the annual business plans 196

and investment plans of the company;

(3) to draw up plans on the establishment of the internal man- 197

agement organs of the company;

(4) to draw up the basic management system of the com- 198

pany;

(5) to formulate specific rules and regulations of the com- 199





pany;

(6) to recommend the appointment or dismissal of the deputy200

manager(s) and of persons in charge of the financial affairs ofthe company;

(7) to appoint or dismiss management personnel other than201

those to be appointed or dismissed by the board of directors;and

(8) other functions and powers granted by the articles of asso-202

ciation of the company and the board of directors.

The manager shall attend meetings of the board of directors as203

a non-voting attendant.

Article 51204

Where a limited liability company has a small number of share-205

holders and is comparatively small in scale, it may have an ex-ecutive director instead of a board of directors. The executivedirector may concurrently serve as the manager of the com-pany.

The powers and functions of the executive director shall be stip-206

ulated by the articles of association of the company with refer-ence to Article 46 of this Law.

Where limited liability company does not have a board of direc-207

tors, the executive director shall be the legal representative ofthe company.

Article 52208

A limited liability company with a relatively large-scale business209

shall have a supervisory board composed of no less than threemembers. The supervisory board shall elect a conveyer fromamong its members.

The supervisory board shall be composed of representatives of 210

the shareholders and an appropriate proportion of the staff andworkers of the company. The exact proportion shall be stipu-lated in the articles of association. The representatives of thestaff and workers in the supervisory board shall be democrati-cally elected by the staff and workers of the company.

Where a limited liability company has a small number of share- 211

holders and is comparatively small in scale, it may have one ortwo supervisors.

Directors, the manager or personnel in charge of financial af- 212

fairs of the company may not concurrently serve as supervi-sors.

Article 53 213

The term of office of a supervisor shall be three years. A su- 214

pervisor may, if reelected upon expiration of his term of office,serve consecutive terms.

Article 54 215

The supervisory board or the supervisors shall exercise the fol- 216

lowing functions and powers:

(1) to examine the financial affairs of the company; 217

(2) to supervise the acts of the directors and the manager violat- 218

ing the laws, administrative rules and regulations or the articlesof association of the company during the performance of theirfunctions;

(3) to demand directors and the manager to make corrections 219

if any of their acts if found to have damaged the interests of thecompany;

(4) to propose the convening of interim shareholders' meetings; 220





and

(5) other functions and powers as stipulated in the articles of221

association of the company.

The supervisors shall attend meetings of the board of directors222

as non-voting participants.

Article 55223

A company shall, in studying and deciding on issues involv-224

ing the personal interests of its staff and workers such as theirsalaries, welfare, safety in production, labor protection and la-bor insurance, solicit in advance the opinions of the trade unionand the staff and workers of the company. And representativesof the trade union or of the staff and workers shall be invited toattend relevant meetings as non-voting participants.

Article 56225

A company shall solicit the opinions and suggestions of226

the trade union and the staff and workers of the companywhen studying and deciding on major issues concerningproduction and operation, and formulating important rules andregulations.

Article 57227

None of the following persons may hold the position of director,228

supervisor or manager of a company:

(1) a person without capacity or with restricted capacity for civil229

acts;

(2) a person who was sentenced to criminal punishment for the230

crime of embezzlement, bribery, seizure of property or misap-propriation of property or for undermining the socio-economicorder, where not more than five years have elapsed since theexpiration of the enforcement period; or a person who was de-prived of his political rights for committing a crime, where notmore than five years have elapsed since the expiration of theenforcement period;

(3) a director, or factory head or manager who was person- 231

ally responsible for the bankruptcy liquidation of the companyor enterprise due to mismanagement, where not more thanthree years have elapsed since the date of completion of thebankruptcy liquidation;

(4) a legal representative of the company or enterprise that had 232

the business license revoked for violating the law, where suchrepresentative bear individual liability therefor and not morethan three years have elapsed since the date of revocation ofthe business license; and

(5) a person with relatively large amount of personal debts that 233

have fallen due but haven't been settled.

Where a company elects or appoints a director or supervisor 234

or engages the manager in violation of the preceding para-graph, such election, appointment or engagement shall be invalid.

Article 58 235

Government functionaries may not concurrently serve as direc- 236

tors, supervisors or managers of companies.

Article 59 237

Directors, supervisors and the manager of a company shall 238





comply with the articles of association of the company, faith-fully perform their duties and maintain the interests of the com-pany and shall not take advantage of their position, functionsand powers in the company to seek personal gains.

Directors, supervisors and the manager of a company shall239

not, by taking advantage of their functions and powers, acceptbribes or other unlawful incomes, nor may they misappropriatethe property of the company.

Article 60240

Directors and the manager of a company shall not misappropri-241

ate company funds or lend company funds to others.

Directors and the manager shall not deposit company assets242

in their own personal accounts or in personal accounts of otherindividuals.

Directors and the manager shall not use company assets as243

security for the personal debts of shareholders of the companyor of other individuals.

Article 61244

Directors and the manager shall not operate their own in, or op-245

erate for others, the same category of business as the companythey are serving or, engage in activities which damage the in-terests of the company. If a director or the manager engages insuch business or activities, the incomes derived therefrom shallbelong to the company.

Directors and the manager shall not enter into contracts or con-246

duct transactions with the company except as provided for in thearticles of association or approved by the shareholders' meet-ing.

Article 62 247

Directors, supervisors and the manager shall not disclose any 248

company secrets except as provided for by the law or approvedby the shareholders' meeting.

Article 63 249

Directors, supervisors and the manager shall be liable for com- 250

pensation, if they violate the laws, administrative rules and reg-ulations or the articles of association in performance of theirduties and thus cause damage to the company.

Section 3 - Wholly State-owned Companies 251

Article 64 252

A wholly State-owned company mentioned in this Law means 253

a limited liability company invested in and established solelyby the State-authorized investment institution or a departmentauthorized by the State.

Companies which manufacture special products as determined 254

by the State Council or companies that belong to the categoryof specialized trades shall adopt the form of wholly State-ownedcompanies.

Article 65 255

The articles of association of a wholly State-owned company 256

shall be formulated by the state-authorized investment insti-tution or a department authorized by the State in accordancewith this Law, or be formulated by the board of directors of the





company and submitted for the approval of the relevant State-authorized investment institution or the department authorizedby the State.

Article 66257

A wholly State-owned company shall not have a shareholders'258

meeting. The State-authorized investment institution or thedepartment authorized by the State shall authorize the boardof directors of the company to exercise part of the functionsand powers of the shareholders meeting and to make deci-sions on important matters of the company. However, themerger, division, dissolution, increase and reduction of capital,and issuance of company bonds must be decided by theState-authorized investment institution or by the departmentauthorized by the State.

Article 67259

The State-authorized investment institution or the department260

authorized by the State shall exercise supervision and adminis-tration over the State-owned assets of the wholly State-ownedcompany in accordance with the provisions of the laws and ad-ministrative rules and regulations.

Article 68261

A wholly State-owned company shall have a board of direc-262

tors, which shall exercise its functions and powers in accor-dance with the provisions of Article 46 and Article 66 of thisLaw. Each term of office of the board of directors shall be threeyears.

The board of directors shall be composed of three to nine263

members, who shall be appointed and replaced by theState-authorized investment institution or by the departmentauthorized by the State in accordance with the term of officeof the board of directors. The board of directors shall includerepresentatives of the staff and workers of the company.The representatives of the staff and workers on the boardof directors shall be democratically elected by the staff andworkers of the company.

The board of directors shall have a chairman and may have a 264

vice-chairman, if necessary. The chairman and vice-chairmanshall be designated by the State-authorized investment insti-tution or the department authorized by the State from amongmembers of the board of directors.

The chairman of the board of directors shall be the legal repre- 265

sentative of the company.

Article 69 266

A wholly State-owned company shall have a manager, who 267

shall be engaged and dismissed by the board of directors. Themanager shall exercise his functions and powers in accordancewith the provisions of Article 50 of this Law.

A member of the board of directors may, subject to the consent 268

of the State-authorized investment institution or the departmentauthorized by the State, serve concurrently as manager.

Article 70 269

The chairman, vice-chairman and directors of the board, or the 270

manager of a wholly State-owned company may not, withoutthe consent of the State-authorized investment institution orthe department authorized by the State, serve concurrently as





responsible persons in other limited liability companies, joint-stock limited companies or other business organizations.

Article 71271

Where a wholly State-owned company transfers its assets, the272

procedures for examination and approval, and the transfer ofproperty rights shall be handled by the State-authorized invest-ment institution or the department authorized by the State inaccordance with the laws and administrative rules and regula-tions.

Article 72273

Large-sized wholly State-owned companies with a sound busi-274

ness management system and relatively successful operationsmay be authorized by the State Council to exercise the rightsof asset owners.

Chapter III - Incorporation and Organizational275

Structure of Joint Stock Limited Companies

Section 1 - Incorporation276

Article 73277

To incorporate a joint stock limited company, the following con-278

ditions must be satisfied:

(1) the number of sponsors shall conform to the statutory num-279

ber;

(2) the share capital subscribed for by the sponsors and raised280

from the general public shall reach the statutory minimumamount of capital;

(3) the issuance of shares and preparations for incorporation 281

shall be in conformity with the provisions of the law;

(4) the articles of association of the company shall be for- 282

mulated by the sponsors and adopted at the inauguralmeeting;

(5) the company shall have a name and an organizational struc- 283

ture required for the incorporation of joint stock limited com-pany; and

(6) the company shall have fixed premises and the necessary 284

conditions for production and operation.

Article 74 285

Joint stock limited companies may be incorporated by means 286

of sponsorship or by means of share offer.

Incorporation by means of sponsorship means incorporation of 287

a company by means of subscription by the sponsors for all theshares to be issued by the company.

Incorporation by means of share offer means incorporation of a 288

company bymeans of subscription by the sponsors for a portionof the shares to be issued by the company and offer of the restto the general public.

Article 75 289

To incorporate a joint stock limited company, there shall be 290

five or more sponsors, of which more than half must havetheir domicile within the territory of the People's Republic ofChina.

Where a State-owned enterprise is restructured as a joint stock 291





limited company, there may be less than five sponsors, how-ever, such a company shall be incorporated by means of shareoffer.

Article 76292

The sponsors of a joint stock limited company must subscribe293

in accordance with this Law for the shares to be subscribedfor by them, and shall undertake the matters concerning thepreparation for the incorporation of the company.

Article 77294

The incorporation of a joint stock limited company must be295

subject to the approval of a department authorized by thestate Council or of a people's government at the provinciallevel.

Article 78296

The registered capital of a joint stock limited company shall be297

the total amount of paid-up share capital as registered with theCompany Registration Authority.

The minimum registered capital of a joint stock limited company298

shall be RMB 10 ,000,000 yuan. If the minimum registered cap-ital of a joint stock limited company needs to be higher than theaforesaid amount, it shall be stipulated separately by the laws,or administrative rules and regulations.

Article 79299

The articles of association of a joint stock limited company shall300

specify the following items:

(1) the name and domicile of the company; 301

(2) the scope of business of the company; 302

(3) The method of incorporation of the company; 303

(4) the total number of shares, the amount of each shared and 304

the registered capital of the company;

(5)the names or titles of the sponsors and the numbers of 305

shares subscribed for by the sponsors;

(6) the rights and obligations of the shareholders; 306

(7) the composition, functions and powers, the term of office 307

and the deliberation rules of the board of directors;

(8) the legal representative of the company; 308

(9) the composition, functions and powers, the term of office 309

and the deliberation rules of the supervisory board;

(10) methods for the distribution of the company's profit; 310

(11) the reasons for dissolution of the company and liquidation 311

method;

(12) methods for notices and announcements of the company; 312

and

(13) other matters that the shareholders' general meeting 313

deems necessary to be specified.

Article 80 314

The sponsors may make their capital contributions in cash, or 315

with material objects, industrial property rights, non-patentedtechnology or land-use rights at their appraised value. Materialobjects, industrial property rights, non-patented technology orland-use rights contributed as capital must be appraised andvalued, and such property must be verified and converted into





shares. Such contributions may not be over-valued or under-valued. The appraisal and valuation of land-use rights shallbe conducted in accordance with the provisions of the laws,administrative rules and regulations.

The amount of capital contributions made by sponsors in the316

form of industrial property rights and non-patented technologyshall not exceed twenty percent of the registered capital of ajoint stock limited company.

Article 81317

where a State-owned enterprise is restructured as a joint stock318

limited company, it shall be strictly prohibited to convert theState-owned assets into shares at a depressed price or to selloff them at a depressed price, or to distribute them to individualswithout charge.

Article 82319

Where a joint stock limited company is incorporated by means320

of sponsorship, the sponsors shall pay in full for their sharesimmediately after confirming in writing their subscription of theshares to be issued according to the articles of associationof the company. If material objects, industrial property rights,non-patented technology or land-use rights are invested aspayment for shares, the sponsors shall undertake the transferprocedures for property rights therein in accordance with thelaw.

After the sponsors make their capital contributions in full, they321

shall elect the board of directors and supervisory board. Theboard of directors shall submit to the Company Registration Au-thority the documents such as approval document for the com-pany's incorporation, articles of association and capital verifica-

tion certificate of the company, and shall apply for registrationof incorporation.

Article 83 322

Where a joint stock limited company is incorporated by means 323

of share offer, the sponsors shall not subscribe for less thanthirty five percent of the total shares issued by the company,and the remaining shares shall be offered to the general pub-lic.

Article 84 324

When offering shares to the general public for subscription, the 325

sponsors must submit to the department of security administra-tion under the State Council an application for share offer alongwith the following main documents:

(1) the approval documents for the incorporation of the com- 326

pany;

(2) the articles of association of the company; 327

(3) a business forecast; 328

(4) the names or titles of the sponsors, the number of shares 329

subscribed for by the sponsors, the forms of capital contribu-tions and the capital verification certificate;

(5) the prospectus on share offer; 330

(6) the name and address of the bank accepting subscription 331

money on behalf of the company; and

(7) the name of the selling agencies and related agree- 332

ments.

The sponsors shall not offer shares to the general public with- 333





out the approval of the department of securities administrationunder the State Council.

Article 85334

A joint stock limited company may, with the approval of the de-335

partment of security administration under the State Council, of-fer its shares to the general public outside the territory of thePeople's Republic of China. The specific measures thereforshall be specially stipulated by the State Council.

Article 86336

The department of security administration under the State337

Council shall approve the applications for share offer whichconform to the stipulations of this Law, and disapprove theapplications which fail to conform to the stipulations of thisLaw.

If an approval is found to be inconsistent with the stipulations338

of this Law after it has been granted such approval shall berevoked. If the share offer has not yet been made, the offershall be halted; if the share offer has already been made, thesubscribers may claim a refund from the sponsors according totheir paid-up subscriptions plus bank deposit interest calculatedfor the same period.

Article 87339

A prospectus on share offer shall have the articles of associa-340

tion of the company formulated by the sponsors attached, andshall specify the following;

(1) then number of shares subscribed for by the spon-341

sors;

(2) the face value and the issue price of each share; 342

(3) the total number of bearer shares issued; 343

(4) the rights and obligations of the subscribers; and 344

(5) the term of the share offer and a statement to the effect 345

that subscribers may withdraw their share subscriptions if allthe shares are not taken up within the time limit.

Article 88 346

Where shares are to be offered to the general public, the spon- 347

sors must publish the company's prospectus on share offer andprepare subscription forms. The subscription forms shall con-tain the items listed in the preceding Article, and the subscribersshall fill in the number of shares subscribed for, the amountof money contributed to, and their respective domiciles on theforms, and shall sign and seal such forms. The subscribersshall pay their subscription money in accordance with the num-ber of shares subscribed for.

Article 89 348

When sponsors offer shares to the public, the shares shall be 349

distributed by a securities agency established according to law,with which a distribution agreement shall be concluded.

Article 90 350

Where shares are to be offered to the public, the sponsors shall 351

enter into an agreement with a bank on the collection of sub-scription money on behalf of the company.

The bank entrusted with collecting the subscription money 352

shall, in accordance with its agreement, collect and keep the





subscription money, issue receipts to the subscribers for theirpayments, and bear an obligation to issue certification of receiptof subscription money to the relevant departments.

Article 91353

After payment in full of the subscription money for all shares is354

made, a statutory capital verification institution shall be commis-sioned to conduct a verification of the funds and produce a ver-ification certificate. The sponsors shall, within thirty days there-after, convene and preside over an inaugural meeting com-posed of all the subscribers.

If the number of shares has not been fully subscribed for within355

the time limit specified in the prospectus on share offer or,after payment in full of the subscription money for the totalshare is made, or if sponsors fail to hold an inaugural meetingwithin thirty days thereafter, the subscribers may claim a refundfrom the sponsors according to the paid-up share subscriptionmoney plus bank deposit interest calculated for the same pe-riod.

Article 92356

The sponsors shall notify each subscriber of the date of the in-357

augural meeting or make a public announcement 15 days priorto the convening of the meeting. The inaugural meeting may beconvened only if subscribers representing fifty percent or moreof the total shares issued are present.

The following functions and powers shall be exercised at an358

inaugural meeting:

(1) to examine the sponsors' report on the preparation for the359

incorporation of the company;

(2) to adopt the articles of association of the company;360

(3) to elect members of the board of directors; 361

(4) to elect members of the supervisory board; 362

(5) to examine and verify the expenses incurred in the incorpo- 363

ration of the company;

(6) to examine and verify the valuation of the property used by 364

the sponsors to pay for subscription money; and

(7) to resolve not to incorporate the company in the event 365

that a force majeure* or major changes in business oper-ation conditions may directly affect the incorporation of thecompany.

The resolution made at the inaugural meeting on the issues 366

listed in the preceding paragraph must be approved by sub-scribers attending the meeting who represent more than half ofthe voting rights.

Article 93 367

Sponsors and subscribers may not withdraw their share capi- 368

tal after paying their subscription money or making their capi-tal contributions as substitutes for subscription money, exceptwhere the total share issue is not fully subscribed for within thetime limit or the sponsors fail to convene the inaugural meetingaccording to the schedule, or the inaugural meeting resolvesnot to incorporate the company.

Article 94 369

The board of directors shall, within thirty days, after the inaugu- 370

ral meeting, submit the following documents to the CompanyRegistration Authority and apply for registration of the incorpo-ration of the company:





(1) the approval documents issued by the relevant department371

in charge;

(2) the minutes of the inaugural meeting;372

(3) the articles of association of the company;373

(4) the financial audit report on the preparation of the incorpo-374

ration of the company;

(5) the capital verification certificate;375

(6) the names and domiciles of the members of the board of376

directors and the supervisory board; and

(7) the name and domicile of the legal representative.377

Article 95378

The Company Registration Authority shall, within thirty days af-379

ter receipt of an application for the incorporation of a joint stocklimited company, make a decision whether or not to register thecompany. A company complying with the provisions of this Lawshall be registered and a company business license shall be is-sued thereto. a company failing to comply with the provisionsof this Law shall not be registered.

The date of issuance of a company business license shall be380

the date of the incorporation of the company. Once a companyis incorporated, and announcement shall be made.

A joint stock limited company incorporated by means of share381

offer shall, after its registration for incorporation, report its sharesubscription to the department of security administration underthe State Council for the record.

Article 96382

Where branches are established simultaneously with the incor-383

poration of a joint stock limited company, the company shallsubmit applications for registration of the establishment of thebranches to, and obtain business licenses of the branches from,the Company Registration Authority.

Where branches are established after the incorporation of a 384

joint stock limited company, the legal representative of the com-pany shall submit applications for registration of the branchesto, and obtain business licenses of the branches from, the Com-pany Registration Authority.

Article 97 385

The sponsors of a joint stock limited company shall bear the 386

following responsibilities:

(1) in the event of the company failing to be incorporated, joint 387

and several liabilities for all debts and expenses incurred in theact of the incorporation;

(2) in the event of the company failing to be incorporated, joint 388

and several liabilities for refunding to the subscribers the paid-up subscription money plus bank deposit interest calculated forthe same period of time; and

(3) in the event of the interests of the company being damaged 389

during the course of its incorporation due to fault of the spon-sors, liability for compensation to the company.

Article 98 390

If a limited liability company is to be converted into a joint stock 391

limited company, it shall satisfy the requirements for a joint stocklimited company stipulated by this Law and the conversion shallbe handled in accordance with the procedures stipulated in thisLaw for the incorporation of a joint stock limited company.





Article 99392

Where a limited liability company is, after approval, converted393

into a joint stock limited company in accordance with the law,the total amount of its shares converted shall be equal to theamount of its net assets. Where a limited liability company thatis, after approval, converted into a joint stock limited companyin accordance with the law offers shares to the general pub-lic for the purpose of increasing its capital, it shall be handledin accordance with the provisions of this Law in respect of theshare offers to the public.

Article 100394

Where a limited liability company is converted into a joint395

stock limited company in accordance with the law, the claimsand debts of the original limited liability company shall besucceeded to by the joint stock limited company into which it isconverted.

Article 101396

A joint stock limited company shall keep its articles of associ-397

ation, roster of the shareholders, minutes of the shareholders'general meetings and financial and accounting statements atthe company.

Section 2 - Shareholders' General Meetings398

Article 102399

A joint stock limited company shall form a shareholders' gen-400

eral meeting which shall be composed of all the shareholders.The shareholders' general meeting is the organ of power of the

company and shall exercises its functions and powers in accor-dance with this Law.

Article 103 401

The shareholders' general meeting shall exercise the following 402

functions and powers:

(1) to decide upon policies on business operation and invest- 403

ment plans of the company;

(2) to elect and replace members of the board of directors and 404

to decide upon matters concerning the remuneration of the di-rectors;

(3) to elect and replace the supervisors who are representatives 405

of the shareholders and to decide upon matters concerning theremuneration of the supervisors;

(4) to examine and approve reports of the board of direc- 406

tors;

(5) to examine and approve reports of the supervisory 407

board;

(6) to examine and approve plans of the company's fiscal finan- 408

cial budget and final accounts;

(7) to examine and approve plans for company's profit distribu- 409

tion and making up losses;

(8) to make resolutions on the increase or reduction of the reg- 410

istered capital of the company;

(9) to adopt resolutions on the issuance of company 411

bonds;

(10) to adopt resolutions on matters such as the merger, divi- 412

sion, dissolution and liquidation of the company; and

(11) to amend the articles of association of the company. 413





Article 104414

The annual meeting of the shareholders' general meetings shall415

be convened once a year. An interim shareholders' generalmeeting shall be convened within two months if any of the fol-lowing situations occurs:

(1) if the number of directors is less than the number stipulated416

by this Law, or less than two-thirds of the number required bythe articles of association of the company;

(2) if the amount of the company's losses that have not been417

made up reaches one-third of its total share capital;

(3) if shareholders holding ten percent or more of the company's418

shares request to convene a shareholders' meeting;

(4) if the board of directors deems it necessary; and419

(5) if the supervisory board proposes that such a meeting be420

convened.

Article 105421

A Shareholders' general meeting shall be convened by the422

board of directors in accordance with the provisions of thisLaw and presided over by the Chairman of the board. Wherethe Chairman is unable to perform his duties due to specialreasons, the vice-chairman or other director designated bythe Chairman may preside over such meetings. Shareholdersshall be notified of the matters to be considered at a share-holders general meeting thirty days prior to the holding ofsuch a meeting. At interim shareholders' general meetings, noresolutions may be adopted in respect of matters not includedin the notice.

Where bearer shares are to be issued, a public announcement423

shall be made in respect of the matters mentioned in the pre-ceding paragraph forty-five days prior to the holding of such ameeting.

Holders of bearer shares attending the shareholders' general 424

meeting shall deposit their share certificates with the companyfor the period from five days prior to the holding of the meetinguntil the end of the meeting.

Article 106 425

Shareholders attending a shareholders' general meeting shall 426

have the right to one vote for each share held.

A resolution of the shareholders general meeting must be 427

passed by more than one half of the voting rights held bythe shareholders present at the meeting. Resolutions on themerger, division or dissolution of the company adopted bythe shareholders' general meeting must require more thantwo-thirds of the voting rights held by the shareholders presentat the meeting.

Article 107 428

Amendments to the articles of association of the company must 429

be a adopted by more than two-thirds of the voting rights heldby the shareholders present at the shareholders' general meet-ing.

Article 108 430

A Shareholder may entrust a proxy to attend the sharehold- 431

ers' general meeting on his behalf. The proxy shall present theshareholders' power of attorney to the company and exercisevoting rights within the scope of authorization.





Article 109432

Resolutions on matters discussed at a shareholders' general433

meeting shall be minuted* down. The directors attending themeeting shall sign the minutes. The minutes of the meetingshall be kept together with the roster of the signatures of theshareholders attending the meeting and the powers of attorneyof attending proxies.

Article 110434

Shareholders shall have the right to examine the articles of as-435

sociation of the company, the minutes of the shareholders' gen-eral meetings and the financial and accounting statements, andto make suggestions or inquiries about the business operationof the company.

Article 111436

Where a resolution of the shareholders' general meeting or of437

the board of directors violates the law or administrative rulesand regulations or infringes the lawful rights and interests ofthe shareholders, the shareholders concerned shall have theright to bring a lawsuit in a people's court demanding that suchillegal or infringing action be stopped.

Section 3 - Board of Directors, and Manager438

Article 112439

A joint stock limited company shall have a board of directors440

composed of five to nineteen members.

The board of directors shall be responsible to the sharehold-441

ers' general meeting and exercise the following functions andpowers:

(1) to convene the shareholders' general meeting and to report 442

on its work to the shareholders' general meeting;

(2) to implement resolutions passed at the shareholders' gen- 443

eral meetings;

(3) to decide on the business operation plans and the invest- 444

ment plans of the company;

(4) to formulate the fiscal financial budgets and the final ac- 445

counts of the company;

(5) to formulate plans for the profit distribution and making up 446

losses of the company;

(6) to formulate plans for increasing or reducing the registered 447

capital of the company and plans for the issue of companybonds;

(7) to formulate plans for the merger, division and dissolution of 448

the company;

(8) to decide on the establishment of the internal management 449

organs of the company;

(9) to engage or dismiss the manager and, upon recommen- 450

dation of the manager, to engage or dismiss the deputy man-ager(s) and responsible persons in charge of the financial af-fairs of the company, and to decide on matters concerning theirremuneration; and

(10) to formulate the basic management system of the com- 451

pany.

Article 113 452

The board of directors shall have one chairman and may have 453





one or two vice-chairmen. The chairman and vice-chairmen ofthe board of directors shall be elected by the affirmative votesof more than half of all the directors.

The chairman of the board shall be the legal representative of454

the company.

Article 114455

The chairman of the board shall exercise the following functions456

and powers:

(1) to preside over shareholders' general meetings, and to457

convene and preside over meetings of the board of direc-tions;

(2) to examine the implementation of resolutions of the board458

of directors; and

(3) to sign the shares and the bonds of the company.459

The vice-chairmen of the board shall assist the chairman of the460

board in his work and shall, upon designation by the chairman,exercise the chairman's powers and functions on behalf of thechairman of the board in case the chairman is unable to performhis powers and functions.

Article 115461

The term of office of the directors shall be stipulated in the ar-462

ticles of association of the company, but each term shall notexceed three years. A director may serve consecutive terms ifreelected upon expiration of his term of office.

The shareholders' general meeting may not without reason re-463

move a director from office before the expiration of his term ofoffice.

Article 116 464

Meetings of the board of directors shall be held at least twice 465

a year. All the members of the board shall be notified of themeeting ten days prior to the holding of the meeting.

The notification method and time limit for giving notice of the 466

convening of the interim meetings of the board of directors maybe separately decided.

Article 117 467

A meeting of the board of directors shall be convened only if 468

more than one half of all the directors are present. Any reso-lution of the board must be adopted by the affirmative votes ofmore than one half of all the directors.

Article 118 469

Meetings of the board of directors shall be attended by the di- 470

rectors in person. If a director is unable to attend a meeting ofthe board for certain reasons, he may entrust another directorin writing with attending the meeting on his behalf. The powerof attorney shall define the scope of authorization.

Decisions on matters discussed at a meeting of the board of 471

directors shall be minutes. Such minutes of the meeting shallbe signed by the directors and clerks present.

Directors shall be responsible for resolutions passed by the 472

board of directors. If a resolution of the board violates the law,administrative rules and regulations or the articles of associ-ation of the company and thus causes serious losses to thecompany, the directors who participated in the adoption of sucha resolution shall be liable for compensation to the company.





However, if a director is proved to have expressed his objec-tion to such a resolution when it was put to the vote and hisobjection was recorded in the minutes of the meeting, he maybe exempted from such liability.

Article 119473

A joint stock limited company shall have a manager, who shall474

be engaged or dismissed by the board of directors. The man-ager shall be responsible to the board of directors and shallexercise the following functions and powers:

(1) to be in charge of the production, operation and manage-475

ment of the company and to organize the implementation ofresolutions of the board of directors;

(2) to organize the implementation of the annual business plans476

and investment plans of the company;

(3) to draft plans for the establishment of internal management477

organs of the company;

(4) to draft the basic management system of the com-478

pany;

(5) to formulate specific rules and regulations of the com-479

pany;

(6) to propose the appointment or dismissal of deputy man-480

ager(s) and responsible persons in charge of the financial af-fairs of the company;

(7) to appoint or dismiss management personnel, except those481

who shall be appointed or dismissed by the board of directors;and

(8) to exercise other functions and powers authorized by the482

articles of association of the company and by the board of di-rectors.

The manager shall attend meetings of the board of directors as 483

a non-voting participant.

Article 120 484

If necessary, the board of directors may authorize its chairman 485

to perform part of its functions and powers when the meeting ofthe board is not in session.

The board of directors may decide that one of its members shall 486

concurrently serve as the manager of the company.

Article 121 487

A company shall solicit in advance the opinions of the trade 488

union and its staff and workers in studying and deciding on is-sues involving the personal interests of its staff and workerssuch as the salary, welfare, safety in production, labor protec-tion and labor insurance, and shall invite representatives fromthe trade union or from its staff and workers to attend relevantmeetings as non-voting participants.

Article 122 489

A company shall solicit the opinions and suggestions of the 490

trade union and its staff and workers when studying and de-ciding major issues in respect of the company's production andoperations or the formulation of important rules and regulationsof the company.

Article 123 491

Directors and managers shall abide by the articles of associ- 492





ation of the company, faithfully perform their duties and pro-tect the interests of the company, and shall not use their posi-tions, functions and powers in the company to seek personalgains.

Provisions of Articles 57 to 63 of this Law regarding persons493

disqualified to serve as directors and managers, and the obli-gations and responsibilities of the directors and managers shallapply to directors and managers of joint stock limited compa-nies.

Section 4 - Supervisory Board494

Article 124495

A joint stock limited company shall have a supervisory board496

composed of no less than three members. The supervisoryboard shall elect a conveyer* from among its members.

The supervisory board shall be composed of shareholders' rep-497

resentatives and an appropriate proportion of representativesof the staff and workers of the company, and the specific pro-portion of such representatives shall be provided for by the ar-ticles of association of the company. The representatives ofthe staff and workers serving on the supervisory board shallbe democratically elected by the staff and workers of the com-pany.

Directors, managers and responsible persons in charge of the498

financial affairs of the company may not serve concurrently assupervisors.

Article 125499

The term of office of the supervisors shall be three years. A500

supervisor may serve consecutive terms if re-elected upon ex-piration of his term of office.

Article 126 501

A supervisory board shall exercise the following functions and 502

powers:

(1) to examine the financial affairs of the company; 503

(2) to supervise the acts of the directors and the manager vio- 504

lating the laws, the administrative rules and regulations or thearticles of association of the company during the performanceof their functions;

(3) to demand directors or the manager to make corrections if 505

any of their acts is found to have damaged the interests of thecompany;

(4) to propose the convening of interim shareholders' general 506

meetings; and

(5) other functions and powers provided for in the articles of 507

association of the company.

Supervisors shall attend meetings of the board of directors as 508

non-voting participants.

Article 127 509

The articles of association of the company shall stipulate the 510

method of deliberation and voting procedures of the supervisoryboard.

Article 128 511

A supervisor shall faithfully perform his duties of supervision in 512





accordance with the law, the administrative rules and regula-tions and the articles of association of the company.

Provisions of Articles 57 to 59 and Articles 62 to 63 of this Law513

regarding persons disqualified to serve as supervisors and theobligations and responsibilities of supervisors shall apply to thesupervisors of joint stock limited companies.

Chapter IV - Issue and Transfer of Shares of Joint514

Stock Limited Companies

Section 1 - Issue of Shares515

Article 129516

The capital of a joint stock limited company shall be divided into517

shares of equal value.

The shares of the company shall take the form of share certifi-518

cates, their shareholders.

Article 130519

The issue of shares shall be in compliance with the principles520

of publicity, fairness and justice. The same shares must carrythe same rights and the same benefits.

Shares of the same issue shall be issued on the same condi-521

tions and at the same price. A unit or an individual subscribingto shares shall pay the same price for each share.

Article 131522

Shares may be issued at or above par but not below par.523

Shares to be issued above par shall be subjected to the ap-524

proval of the department of security administration under theState Council.

The premiums generated from issuing shares above par shall 525

be entered under the capital common reserve fund of the com-pany.

Specific measures for the administration of issue of shares 526

above par shall be separately stipulated by the State Coun-cil.

Article 132 527

Share certificates may be in paper form or in such other forms 528

as stipulated by the department of security administration underthe State Council.

The following main particulars shall be clearly stated on a share 529

certificate:

(1) the name of the company; 530

(2) the date of registration of the company's incorpora- 531

tion;

(3) the class of the shares, the par value and the number of 532

shares represented by the certificate; and

(4) the serial number of the share certificate. 533

A share certificate shall be signed by the chairman of the board 534

of directors and sealed with the seal of the company.

In the case of share certificates owned by sponsors, the words 535

sponsor's share certificate shall be clearly stated on the sharecertificates.

Article 133 536

Shares issued by a company to sponsors, a State-authorized 537





investment institution or legal persons shall be registeredshares which shall state the names of the sponsors, State-authorized investment institution or legal persons. Suchshares may not be registered in other names, or names of theirrepresentatives.

Shares issued to the general public may be either registered538

shares or bearer shares.

Article 134539

Where registered shares are issued, the company shall prepare540

a roster of the shareholders, in which the following items shallbe recorded:

(1) the names or titles, and domiciles of the shareholders;541

(2) the number of shares held by each shareholder;542

(3) the serial numbers of the share certificates held by each543

shareholder; and

(4) the date on which each shareholder obtained his544

shares.

Where bearer shares are issued, the company shall keep a545

record of the number, the serial numbers and the issue dateof the share certificates.

Article 135546

The State Council may formulate separate regulations on the547

issue of other classes of shares which are not provided for inthis Law.

Article 136548

A joint stock limited company shall formally deliver share certifi-549

cates to its shareholders immediately after the registration of itsincorporation. No company may deliver share certificates to itsshareholders prior to the registration of its incorporation.

Article 137 550

To issue new shares, a company must satisfy the following con- 551

ditions:

(1) shares of the previous issue must have fully been sub- 552

scribed for and at least one year has elapsed since the previousissue of shares;

(2) the company has been continuously profitable for the last 553

three years and is able to pay dividends to its sharehold-ers;

(3) the company is not found to have false records in the finan- 554

cial accounting documents in the last three years; and

(4) the forecast profit rate of the company can reach the interest 555

rate of bank deposit for the same period of time.

A company's distribution of new shares from the current year's 556

profits shall not be restricted by item (2) of the preceding para-graph.

Article 138 557

Where a company issues new shares, resolutions on the follow- 558

ing matters shall be adopted by a shareholders' general meet-ing:

(1) the class and number of the new shares; 559

(2) the issue price of the new shares; 560

(3) the opening and closing dates of the new share issue; 561

and





(4) the class and number of new shares issued to existing562

shareholders.

Article 139563

After the shareholders' general meeting adopts a resolution to564

issue new shares, the board of directors must apply to the de-partment authorized by the State Council or to the local provin-cial people's government for approval. If the new shares areto be issued to the general public, the approval of the depart-ment of security administration under the State Council must beobtained.

Article 140565

When a company obtains the approval to issue new shares to566

the general public, it must publicly announce its prospectus onnew share offer and its financial accounting statements with an-nexed detailed schedules, and shall prepare subscription appli-cation forms.

When a company issues new shares openly to the public, the567

new shares shall be distributed by a securities agency estab-lished in accordance with the law, with which a distributionagreement shall be concluded.

Article 141568

Where a company issues new shares, it may determine the569

pricing proposal for new shares based upon the circumstancesof its consecutive proposal for new shares based upon the cir-cumstances of its consecutive profit gains and property valueappreciations.*

Article 142 570

Where the new share issue of a company is fully subscribed 571

for, the company shall apply to the Company Registration Au-thority for registration of the modification in its capital and makea public announcement thereafter.

Section 2 - Transfer of Shares 572

Article 143 573

Shares held by shareholders may be transferred in accordance 574

with the law.

Article 144 575

Transfer of shares by shareholders shall be conducted through 576

stock exchanges established in accordance with the law.

Article 145 577

Registered shares shall be transferred by means of endorse- 578

ment by the shareholders or by such other means as providedfor by the law and administrative rules and regulations.

When registered shares are transferred, the company shall reg- 579

ister the transferee's name or title and domicile in its roster ofshareholders.

No registration of modification to the roster of shareholders as 580

stipulated in the preceding paragraph shall bemadewithin thirtydays prior to the convening of a shareholders' general meetingor within five days prior to the date decided by the company forthe distribution of dividends.





Article 146581

Transfer of bearer shares shall become effective immediately582

after the shareholder delivers the share certificates to the trans-feree at a stock exchange established in accordance with thelaw.

Article 147583

Shares held by the sponsors of a company shall not be trans-584

ferred within three years after the date of incorporation of thecompany.

Directors, supervisors and themanager shall declare their num-585

bers of shares held by them to company, and shall not transfersuch shares during their term of office.

Article 148586

The State-authorized investment institution may transfer its587

shares held by it in accordance with the law and may purchaseshares held by other shareholders. The authority to examineand approve such transfers or purchases and measures foradministration thereof shall be separately provided for by thelaw and administrative rules and regulations.

Article 149588

A company may not purchase its own shares except where,589

for the purpose of reducing its capital, shares need to be can-celed, or where the company merges with another companywhich holds its shares.

A company must cancel the shares purchased by the company590

itself in accordance with the preceding paragraph within ten

days, and register the change of its capital in accordance withlaws and administrative rules and regulations and make a pub-lic announcement thereafter.

A company may not accept its own shares as the subject matter 591

of a mortgage.

Article 150 592

Where registered share certificates are stolen, lost or de- 593

stroyed, the shareholder may, in accordance with the pro-cedure for publicizing public notice for assertion of claimsprovided for in the Civil Procedure Law, request a people'scourt to declare such share certificates as void.

After the voidness has been declared by a people's court in ac- 594

cordance with the aforesaid procedure, the shareholder mayapply to the company for a replacement of the share certifi-cates.

Section 3 - Listed Companies 595

Article 151 596

A listed company mentioned in this Law refers to a joint stock 597

limited company which has its issued shares listed and tradedat stock exchanges with the approval of the State Council or thedepartment of securities administration authorized by the StateCouncil.

Article 152 598

Where a joint stock limited company apples to have its 599

shares listed and traded, the following conditions shall besatisfied:





(1) the shares have already been issued to the general public600

with approval of the securities administration department underthe State Council;

(2) the total amount of the company's share capital reaches not601

less than RMB 50 000 000 yuan;

(3) the company must have been in operation for three years602

or more and have made profits for the past three consecutiveyears; the business operation of a company which is convertedfrom a State-owned enterprise according to law or which isnewly incorporated after the implementation of this Law withmedium and large-sized State-owned enterprises as the mainsponsors may be traced back without interruption to the originalenterprise or the main sponsors;

(4) the number of shareholders holding shares at the face value603

of RMB 1 000 yuan or more is not less than one thousand andthe shares issued to the general public amount to twenty fivepercent or more of the total share issue; where the companyhas a registered capital of more than RMB 400 000 000 yuan,the ratio of shares issued to the general public must amount offifteen percent or more of the total share issue;

(5) the company must have no records of involvement in seri-604

ous illegal activities in the recent three years, and its financialaccounting statements must contain no false information in thesame period; and

(6) other conditions as stipulated by the State Council.605

Article 153606

Where a joint stock limited company applies to have its shares607

listed and traded in a stock exchange, it shall apply to the StateCouncil or the department of security administration authorized

by the State Council for approval and submit the relevant docu-ments as required by the law and administrative rules and reg-ulations.

The State Council or the department of security administration 608

authorized by the State Council shall approve applications forapproval of the listing and trading of shares that comply withthe conditions specified in this Law and shall not approve thosethat fail to comply with the provisions of this Law.

Where an application for the listing and trading of shares has 609

been approved, the approved listed company must publicly an-nounce its report on the listing of its shares and put its applica-tion documents at a designated place for public review.

Article 154 610

Shares of an approved listed company shall be listed and 611

traded in accordance with the relevant laws and administrativerules and regulations.

Article 155 612

Upon approval of the department of security administration un- 613

der the State Council, shares of a joint stock limited companymay be listed and traded in stock exchanges outside the terri-tory of the People's Republic of China and the measures there-for shall be specially formulated by the State Council.

Article 156 614

A listed company must, in compliance with the provisions of 615

the laws and administrative rules and regulations, regularly dis-close its financial and business situations. A financial account-





ing report shall be publicized every half year of each fiscalyear.

Article 157616

The department of security administration under the State617

Council may decide to suspend the listing of the sharesof a listed company if any of the following circumstancesoccurs:

(1) the total share capital and the distribution of share ownership618

have been altered to make the company no longer satisfy therequirements necessary for listing;

(2) the company has failed to make public its financial situa-619

tion in compliance with the legal provisions or has falsified itsfinancial accounting statements;

(3) the company is involved in major illegal acts; or620

(4) the company has incurred losses for the past three consec-621

utive years.

Article 158622

Where any of the circumstances stipulated in item (2) or (3) of623

the preceding Article applies to a listed company and the con-sequences are verified to be serious, or where any of the cir-cumstances stipulated in item (1) or (4) of the preceding Articleis unable to be eliminated within the time limit and the companyhas become disqualified as a listed company, the departmentof security administration under the State Council shall decideto terminate the listing of the shares of the company.

Where a company decides to dissolve itself, is ordered by a624

competent administrative department in accordance with thelaw to close down or is declared bankrupt, the department of

security administration under the State Council shall decide toterminate the listing of the company's shares.

Chapter V - Company Bonds 625

Article 159 626

A joint stock limited company, a wholly State-owned company, 627

and a limited liability company incorporated by two or moreState-owned enterprises or by two or more other State-ownedinvestment entities may, for the purpose of raising funds for itsproduction and operation, issue company bonds in accordancewith this Law.

Article 160 628

Company bonds mentioned in this Law mean negotiable instru- 629

ment issued by a company in accordance with the legal proce-dures with repayment of the principal and payment of the inter-est within a definite time limit.

Article 161 630

To issue company bonds, the following conditions must be 631

met:

(1) for a joint stock limited company, the value of its net asset 632

may not be lower than RMB 30 000 000 yuan; for a limited lia-bility company, the value of its net asset may not be lower thanRMB 60 000 000 yuan;

(2) the accumulated value of the bonds issued may not ex- 633

ceed forty percent of the value of the net assets of the com-pany;

(3) the average distributable* profits for the past three years 634





shall be sufficient to pay the interest on the company bonds forone years;

(4) the funds to be raised must be invested in accordance with635

the industrial policies of the State;

(5) the interest rate for the bonds shall not exceed the ceiling636

fixed by the State Council; and

(6) other conditions as a stipulated by the State Council.637

Funds raised through the issue of company bondsmust be used638

for the purpose approved by the examination and approval au-thorities and shall not be used to make up the losses of thecompany or for non-production expenditure.

Article 162639

In any of the following circumstances, a companymay not make640

another issue of bonds:

(1) if the company bonds of the previous issue have not been641

fully subscribed for; or

(2) if it is a fact that the company has defaulted on, or deferred642

repayment of the principal and the payment of interest of itspreviously issued company bonds or its debts, and such defaultor deferment still persists.

Article 163643

For a joint stock limited company and a limited liability company644

to issue company bonds, its board of directors shall formulatea plan therefor, and a pertinent resolution shall be adopted bythe shareholders' meeting.

For a wholly State-owned company to issue company bonds,645

a decision on the approval shall be made by the State-authorized investment institution or the department authorizedby the State.

Where a resolution or decision is made in accordance with the 646

preceding two paragraphs of this Article, the company shallsubmit the matter to the department of security administrationunder the State Council for approval.

Article 164 647

The scale of the company bond issues shall be determined by 648

the State Council. Issues of company bonds examined andapproved by the department of determined by the State Coun-cil.

The department of security administration under the State 649

Council shall approve the application for issuing companybonds if it conforms with the provisions of this Law and shalldisapprove the application if it does not conform with theprovisions of this Law.

If an approval that has been granted is found not to be in com- 650

pliance with the stipulations of this Law, such an approval shallbe withdrawn. In the event that company bonds have not yetbeen issued, the company shall stop issuing the bonds; if thecompany bond issue has already commenced, the issuing com-pany shall refund the subscribers the money already paid fortheir subscriptions plus bank deposit interest calculated for thesame period of time.

Article 165 651

Where a company applies to the department of security admin- 652

istration under the State Council for issuing company bonds,the following documents shall be submitted:





(1) the registration certificate of the company;653

(2) the articles of association of the company;654

(3) the method of offer of the company bonds; and655

(4) an asset valuation report and an asset verification re-656

port.

Article 166657

After an application for the issue of company bonds is approved,658

the company shall make a public announcement of the methodof offer of the company bonds.

The method of offer of company bonds shall specify the follow-659

ing main particulars:

(1) the name of the company;660

(2) the total amount of the bonds and their par value;661

(3) the interest rate of the bonds;662

(4) the time limit for and the method of the repayment of the663

principal and the payment of interest;

(5) the beginning and ending dates of the bond issue;664

(6) the amount of the net assets of the company;665

(7) the total amount of the undue bonds issued by the company;666

and

(8) the selling agency of the company bonds.667

Article 167668

Company bonds issued by a company must clearly carry669

thereon items such as the name of the company, the par value,the interest rate and the time limit for repayment, and the

bonds shall be signed by the chairman of the board of directorsand sealed by the company.

Article 168 670

Company bonds may be divided into registered bonds and 671

bearer bonds.

Article 169 672

A company issuing company bonds shall prepare the counter- 673

foils of bonds issued.

When registered company bonds are issued, the counterfoils 674

of bonds shall specify the following:

(1) the name or title and domicile of the bondholder; 675

(2) the date on which the holder acquired the bonds and their 676

serial numbers;

(3) the total amount of the bonds, the par value, the interest rate 677

of the bonds and the method of and time limit for repayment ofthe principal and payment of interest; and

(4) the issuing date of the bonds. 678

Where bearer company bonds are issued, the counterfoils of 679

the company bonds shall specify the total amount of the bonds,the interest rate, the time limit for and method of repayment ofthe principal and payment of interest, the issuing date of thebonds and the serial numbers.

Article 170 680

Company bonds may be transferred. The transfer shall be car- 681





ried out at the securities exchanges established in accordancewith the law.

The price for the transfer of the company bonds shall be agreed682

upon by the transferor and transferee.

Article 171683

Registered bonds shall be transferred by means of endorse-684

ment by the bondholder or by other means provided for by thelaw or administrative rules and regulations.

Where registered bonds are transferred, the name and domi-685

cile of the transferee shall be recorded in the counterfoils of thecompany bonds.

Where bearer bonds are transferred, the transfer becomes ef-686

fective immediately after the bondholder delivers his bonds tothe transferee at a securities exchange established in accor-dance with the law.

Article 172687

Upon adoption of a resolution by the shareholders' general688

meeting, a listed company may issue company bonds whichcan be converted into shares. The specific measures for theconversion shall be stipulated in the method of offer of the com-pany bonds.

The issue of company bonds convertible into shares shall be689

subjected to the approval of the department of securities admin-istration under the State Council. Company bonds convertibleinto shares shall, in addition to satisfying the conditions for theissue of company bonds, satisfy the conditions for the issue ofshares.

In issuing company bonds convertible into shares, the words690

convertible company bonds shall be clearly indicated on thebonds and the amount of convertible company bonds shall berecorded in the counterfoils of company bonds.

Article 173 691

A company that issues company bonds convertible into shares 692

shall let the bondholders convert their bonds into shares in ac-cordance with the conversion measures. However, bondhold-ers shall have an option whether or not to convert their bondsinto shares.

Chapter VI - Financial Affairs and Accounting of 693

Companies

Article 174 694

A company shall establish its financial and accounting system in 695

accordance with the law, administrative rules and regulations,and the stipulations of the department in charge of financial af-fairs under that State Council.

Article 175 696

At the end of each fiscal year, a company shall prepare its fi- 697

nancial and accounting report, which shall be examined andverified in accordance with the law.

The financial and accounting report shall include the follow- 698

ing financial and accounting statements and annexed detailedschedules:

(1) a balance sheet; 699

(2) a profit and loss statement; 700





(3) a statement on changes in the financial position of the com- 701

pany;

(4) a statement explaining the financial situation of the com-702

pany; and

(5) a statement regarding the distribution of profits.703

Article 176704

A limited liability company shall send the financial and account-705

ing report to each of its shareholders within the time limit stipu-lated in its articles of association.

A joint stock limited company shall make the financial and ac-706

counting report available at the company for examination by itsshareholders twenty days prior to the convening of the share-holders' annual general meeting.

A joint stock limited company incorporated by means of share707

offer must announce its financial and accounting report

Article 177708

When a company distributes the annual after-tax profits, it shall709

allocate ten percent of its profits to its statutory common reservefund and another five to ten percent to its statutory commonwelfare fund. Where the accumulated amount of the statutorycommon reserve fund has exceeded fifty percent of the reg-istered capital of the company, no further allocation may bemade.

Where the statutory common reserve fund is insufficient to710

make up the company's losses of the previous fiscal year, thecompany shall apply its annual after-tax profits to making up itslosses before allocating such profits, in accordance with pro-

visions of the preceding paragraph, to the statutory commonreserve fund and statutory common welfare fund.

After making its allocation to the statutory common reserve fund 711

from the company's after-tax profits, the company may, uponresolution made by the shareholders' meeting, make alloca-tions to the discretionary common reserve fund.

After a company makes up its losses and makes allocations 712

to the statutory common reserve fund and the statutory com-mon welfare fund a limited liability company shall distribute theremaining profits to its shareholders according to the propor-tion of capital subscribed for by each shareholder, and a jointstock limited company shall distribute the remaining profits toits shareholders according to the proportion of the shares heldby each shareholder.

Where the shareholders' meeting or the board of directors vi- 713

olate the provisions of the preceding paragraphs by distribut-ing profits to the shareholders before making up the company'slosses and making allocations to the statutory common reservefund and the statutory common welfare fund, the profits dis-tributed in violation of the legal provisions must be returned tothe company.

Article 178 714

The premium income derived from issuing shares above par 715

by a joint stock limited company in accordance with the pro-visions of this Law, and other income which according to therules set by the departments in charge of financial affairs underthe State Council should be entered into the capital commonreserve fund, shall be entered into the capital common reservefund of the company.





Article 179 716

A company's common reserve fund shall be used to make up717

the company's losses, to expand the production and operationof the company or to increase the capital of the company bemeans of conversion.

If a joint stock limited company converts its common reserve718

fund into capital upon a resolution made by the shareholders'general meeting, it shall issue new shares in proportion to theoriginal shares held by the shareholders or increase the originalpar value of each share. However, when the statutory commonreserve fund is converted into its capital, the remaining amountof the statutory common reserve fund shall not be less thantwenty five percent of the registered capital.

Article 180719

The statutory common welfare fund retained by a company720

shall be used for the collective welfare of the company's staffand workers.

Article 181721

A company shall not have any other account books in addition722

to its statutory account books.

No account may be opened in the name of any individual for723

deposit of a company's assets.

Chapter VII - Merger and Divisions of Companies724

Article 182725

The merger or division of a company shall require the adop-726

tion of a resolution by its shareholders' meeting of the com-pany.

Article 183 727

The merger or division of a joint stock limited company must be 728

approved by the department authorized by the State Council orby the people's government at the provincial level.

Article 184 729

The merger of a company may take the form of merger by ab- 730

sorption or merger by new establishment.

When a company absorbs another, it is an absorption merger, 731

and the company being absorbed shall be dissolved. Whentwo or more companies merge to establish a new company, itis merger for new establishment, and all parties being mergedshall be dissolved.

When companies merge, the parties to a merger shall sign a 732

merger agreement and formulate a balance sheet and a de-tailed inventory of assets. The company shall inform its credi-tors of the intendedmerger within ten days following the date onwhich the merger resolution is adopted and make at least threeannouncements in newspaper within thirty days. The creditorsshall have the right to claim full repayment of their debts or pro-vision of a corresponding guarantee from the company withinthirty days from the date of receipt of the notice or, within ninetydays from the date of the first public announcement for thosewho have not received the notice. The company that fails torepay its debts in full or to provide a corresponding guaranteeshall not be merged.

The claims and debts of the parties to a merger shall be suc- 733





ceeded to by the absorbing company or the newly establishedcompany when companies are merged.

Article 185734

Where a company proceeds into a division, its assets shall be735

divided correspondingly.

Where a company decides to divide itself, it shall formulate a736

balance sheet and a detailed inventory of assets and shall in-form its creditors of the intended division within ten days follow-ing the date on which the division resolution is adopted, andmake at least three announcements in newspaper within thirtydays. The creditors shall have the right to claim full repaymentof their debts or provision of a corresponding guarantee fromthe company within thirty days from the date of receipt of thenotice or, within ninety days from the date of the first public an-nouncement for those who have not received the notice. Thecompany that fails to pay its debts in full or to provide a corre-sponding guarantee shall not be divided.

The debts prior to the division of a company shall be assumed737

by the companies following the division in accordance with theagreement reached between them.

Article 186738

Where a company intends to reduce its registered capital, it739

must formulate a balance sheet and a detailed inventory of as-sets.

The company shall inform its creditors of the planned reduc-740

tion of its registered capital within ten days following the dateon which the resolution to reduce its capital is adopted, andmake at least three announcements in newspaper within thirtydays following the aforesaid date. The creditors shall have the

right to claim full repayment of their debtor provision of a corre-sponding guarantee from the company within thirty days fromthe date of the receipt of the notice or, within ninety days fromthe date of the first public announcement for those who havenot received the notice.

After the reduction of capital, the amount of a company's 741

registered capital shall not be lower than the statutory mini-mum.

Article 187 742

Where a limited liability company increases its registered capi- 743

tal, the capital contributions to the newly increased shares sub-scribed for by the shareholders shall be governed by the rele-vant provisions of this Law regarding the subscription for capitalcontributions in connection with the incorporation of a limited li-ability company.

Where a joint stock limited company issues new shares to 744

increase its registered capital, shareholders shall subscribefor the new shares in accordance with the relevant provisionsof this Law regarding the payment of subscription moneyin connection with the incorporation of joint stock limitedcompany.

Article 188 745

Where the merger or division of a company involves changes 746

in registered items, such changes shall be registered accordingto law with the Company Registration Authority. Where a com-pany is dissolved, it shall apply for cancellation of its registrationin accordance with the law. Where a new company is incorpo-rated, the registration of the incorporation of the company shallbe carried out according to law.





Where a company increases or reduces its registered capital, it747

shall apply to the Company Registration Authority for registra-tion of the changes in accordance with the law.

Chapter VIII - Bankruptcy, Dissolution and Liquidation748

of Companies

Article 189749

Where a company is declared bankrupt according to law be-750

cause it is unable to pay off its due debts, a people's court shall,in accordance with relevant laws, organize the shareholders,the relevant departments and relevant professionals to form aliquidation committee which shall conduct bankruptcy liquida-tion of the company.

Article 190751

Where one of the following circumstances occurs, a company752

may be dissolved:

(1) the term of operation as stipulated by the articles of asso-753

ciation of the company expires or other reasons for dissolutionas stipulated by the articles of association occur;

(2) the shareholders' meeting resolves to dissolve the company;754

or

(3) dissolution is necessary as a result of the merger or division755

of the company.

Article 191756

Where a company is dissolved in accordance with the provi-757

sions of item (1) or (2) of the preceding Article , a liquidation

committee shall be formed within fifteen days thereafter. A liq-uidation committee of a limited liability company shall be com-posed of its shareholders. Membership of a liquidation commit-tee of a joint stock limited company shall be decided upon by itsshareholders' general meeting. Where a company fails to forma liquidation committee to conduct liquidation within the timelimit, its creditors may request a people's court to designate rel-evant personnel to form a liquidation committee and conductliquidation. The people's court shall accept such request andwithout delay designate the members to the liquidation commit-tee to conduct liquidation.

Article 192 758

Where a company is ordered to be closed down in accordance 759

with the law due to its violation of the law or administrative rulesand regulations, it shall be dissolved. In such a case, the de-partment in charge shall organize the shareholders, relevantdepartments and relevant professionals to form a liquidationcommittee to conduct liquidation.

Article 193 760

During liquidation, a liquidation committee shall exercise the fol- 761

lowing functions and powers:

(1) to check up on the company's assets, and separately formu- 762

late a balance sheet and a detailed inventory of assets;

(2) to notify creditors by notice or announcement; 763

(3) to dispose of and liquidate the company's unfinished busi- 764

ness;

(4) to pay off taxes owed by the company; 765

(5) to clear up claims and debts; 766





(6) to dispose of, after paying off the debts of the company, its767

remaining property; and

(7) to participate in civil lawsuits on behalf of the com-768

pany.

Article 194769

A liquidation committee shall inform the creditors of the com-770

pany of its establishment within ten days following the date ofits establishment, and make at least three announcements innewspaper within sixty days following the aforesaid date. Thecreditors shall declare their claims to the liquidation committeewithin thirty days from the date of receipt of the notice or, withinninety days from the date of the first public announcement forthose who have not received the notice.

When declaring his claims, a creditor shall specify the relevant771

items of the claim and provide supporting material. The liqui-dation committee shall register the claims.

Article 195772

After the liquidation committee has checked up on the com-773

pany's assets, formulated the balance sheet and a detailed in-ventory of assets, it shall formulate a liquidation plan and shallsubmit such plan to the shareholders' meeting or the depart-ment in charge for confirmation.

Where the assets of the company are sufficient to pay off the774

company's debts, such assets shall be applied to payment ofthe liquidation fee, the wages and labor insurance premiums ofthe staff and workers of the company, due taxes and the com-pany's debts.

The remaining assets of a company after paying off all the debts775

and expenses as prescribed by the preceding paragraph shallbe distributed, in the case of a limited liability company, in pro-portion to the shareholders' capital contributions and, in thecase of a joint stock limited company, in proportion to the share-holders' shares.

During liquidation, a company may not engage in new business 776

activities. No assets of the company shall be distributed to theshareholders prior to full payments prescribed by the secondparagraph of this Article.

Article 196 777

If a company is liquidated due to its dissolution and the liqui- 778

dation committee, having checked up on the company's as-sets and formulated the balance sheet and a detailed inven-tory of assets, discovers that there are insufficient assets inthe company to pay off its debts, the committee shall apply tothe people's court for a declaration of bankruptcy of the com-pany.

After the people's court has ruled to declare the company 779

bankrupt, the liquidation committee shall turn the liquidationmatters over to the court.

Article 197 780

After the completion of liquidation, the liquidation committee 781

shall formulate a liquidation report and submit the report to theshareholders' meeting or to the department in charge for confir-mation and submit it to the Company Registration Authority inorder to cancel the registration of the company and publicly an-nounce the company's termination. If no application is made forcancellation of the company's registration, the Company Reg-





istration Authority shall revoke the business license of the com-pany and publicly announce the revocation.

Article 198782

Members of a liquidation committee shall be devoted to their783

duties and perform their liquidation obligations in accordancewith the law.

Members of a liquidation committee shall not accept bribes or784

other illegal income, or misappropriate the property of the com-pany by taking advantage of their position and power.

Members of a liquidation committee who cause losses to the785

company or to its creditors, either willfully or through gross neg-ligence, shall be liable for compensation.

Chapter IX - Branches of Foreign Companies786

Article 199787

A foreign company may, in accordance with this Law, establish788

a branch within the territory of the People's Republic of Chinato engage in production and business activities.

A foreign company mentioned in this Law means a company789

registered and incorporated outside the territory of the People'sRepublic of China in accordance with foreign laws.

Article 200790

A foreign company that intends to establish a branch within the791

territory of the People's Republic of China must submit an ap-plication to the authorities in charge in China together with rele-vant documents such as its articles of association and the com-

pany's registration certificate issued by its country. Upon ap-proval, it shall apply to the Company registration Authority forregistration and for a business license for the Branch accordingto law.

Measures for examining and approving the establishment of 792

branches of foreign companies shall be formulated separatelyby the State Council.

Article 201 793

A foreign company that establishes a branch within the territory 794

of the People's Republic of China must appoint its represen-tative or agent within the territory of the People's Republic ofChina to take charge of the branch and shall allocate to thebranch funds commensurate with the business which it is toengage in.

Where a minimum amount of operational funds is required for a 795

branch of a foreign company, the State Council shall separatelyprescribe to that effect.

Article 202 796

A branch of a foreign company shall clearly indicate in its name 797

the nationality and the form of liability of such foreign com-pany.

The branch shall keep at its domicile a copy of the articles of 798

association of such foreign company.

Article 203 799

A foreign company is a foreign legal person, so its branch estab- 800

lished within the territory of the People's Republic of China shallnot have the status of a Chinese legal person in China.





A foreign company shall bear civil liability for the operational ac-801

tivities engaged by its branch within the territory of the People'sRepublic of China.

Article 204802

the business activities engaged in within the territory of the Peo-803

ple's Republic of China by branches of foreign companies es-tablished upon due approval must comply with the laws of Chinaand shall not harm the social and public interest of China. Thelawful rights and interests of such branches shall be protectedby the laws of China.

Article 205804

Where a foreign company dissolves its branch established805

within the territory of the People's Republic of China, it mustpay off the branch's debts according to law and carry out liqui-dation in accordance with the relevant procedures concerningcompany liquidation provided for in this Law. The assets ofthe branch shall not be transferred out of the territory of thePeople's Republic of China prior to the full payment of itsdebts.

Chapter X - Legal Liability806

Article 206807

Where a company obtains its registration by making a false re-808

port on its registered capital, submitting falsified certificates, orresorting to other fraudulent means to conceal important factsin violation of this Law when carrying out company registration,it shall be ordered to make a rectification; where a companymakes a false report on its registered capital, it shall be fined

an amount of not less than five percent but not more than tenpercent of the registered capital falsely reported; where a com-pany submits falsified certificates or resorts to other fraudulentmeans to conceal important facts, it shall be punished with afine of not less than RMB 10 000 yuan but not more than RMB100 000 yuan. If the circumstances are serious, the registra-tion of the company shall be revoked. If the case constitutesa crime, criminal liabilities shall be investigated in accordancewith the law.

Article 207 809

Where a company issues shares or company bonds by making 810

false prospectus on share offer, false subscription forms or falsemethods of offer of company bonds, it shall be ordered to stopthe issuance and to refund the funds it has raised and the in-terest therefrom to the subscribers, and shall be punished witha fine of not less than one percent but not more than five per-cent of the funds illegally raised. If the case constitutes a crime,criminal liabilities shall be investigated in accordance with thelaw.

Article 208 811

Where a sponsor or a shareholder makes a false capital contri- 812

bution by failing to pay the promised cash or tangible assets, orto transfer property rights, thereby deceiving the creditors andthe general public, he shall be ordered to make a rectificationand imposed a fine of not less than five percent but not morethan ten percent of the false capital contributions. If the caseconstitutes a crime, criminal liabilities shall be investigated inaccordance with the law.





Article 209 813

Where a sponsor or a shareholder of a company surreptitiously814

withdraws his capital contribution after the incorporation of thecompany, rectification shall be ordered and a fine of not lessthan five percent but not more than ten percent of the amount ofcapital contribution surreptitiously withdrawn shall be imposed.If the case constitutes a crime, criminal liabilities shall be inves-tigated in accordance with the law.

Article 210815

Where a company issues shares or company bonds without the816

approval of the relevant department in charge as stipulated bythis Law, it shall be ordered to stop the issuance and to refundthe funds it has raise with interest, and a fine of not less thanone percent but not more than five percent of the funds ille-gally raised shall be imposed. If the case constitutes a crime,criminal liabilities shall be investigated in accordance with thelaw.

Article 211817

Where a company violates the provisions of this Law by setting818

up account books in addition to its statutory account books, itshall be ordered to make a rectification and imposed a fine ofnot less than RMB 10 000 yuan but not more than RMB 100 000yuan. If the case constitutes a crime, criminal liabilities shall beinvestigated in accordance with the law.

Whoever deposits the assets of a company in a personal ac-819

count shall be confiscated of the illegal gains and imposed upona fine from one to five times the amount of the illegal gains. Ifthe case constitutes a crime, criminal liabilities shall be investi-gated in accordance with the law.

Article 212 820

Where a company submits to the shareholders and the general 821

public false financial and accounting reports or reports conceal-ing important facts, the persons in charge and other personsheld directly responsible shall be imposed upon a fine of notless than RMB 100 000 yuan but not more than RMB 100 000yuan. If the case constitutes a crime, criminal liabilities shall beinvestigated in accordance with the law.

Article 213 822

Where this Law is violated by converting the State owned as- 823

sets into shares at a depressed value, or selling them at lowprices, or distributing them gratuitously to individuals, the per-sons in charge and other persons held directly responsible shallbe given administrative sanctions in accordance with the law. Ifthe case constitutes a crime, criminal liabilities shall be investi-gated in accordance with the law.

Article 214 824

Where a director, a supervisor or the manager of a company 825

takes advantage of his position and powers to accept bribes, totake other illegal gains or to misappropriate company property,he shall be confiscated of the illegal gains, ordered to returnsuch property to the company, and imposed upon a sanction.If the case constitutes a crime, criminal liabilities shall be inves-tigated in accordance with the law.

Where a director or the manager misappropriates company 826

funds or lends company funds to another person, he shall beordered to return such funds to the company; the gains de-rived therefrom shall belong to the company; the company shallimpose a sanction upon him. If the case constitutes a crime,





criminal liabilities shall be investigated in accordance with thelaw.

Where a director or the manager violates the provisions of this827

Law by providing company assets as a guarantee for personaldebts of a shareholder of its company or of another person,he shall be ordered to cancel the guarantee and shall be li-able for compensation in accordance with the law; the gainsderived from the illegal provision of guarantee shall belong tothe company. If the circumstances are serious, the companyshall impose a sanction upon him.

Article 215828

Where a director or the manager violates the provisions of this829

Law by engaging for his own account or for another person inthe same kind of business as his company is engaged in, theincome derived therefrom shall belong to the company. In ad-dition, the company may impose a sanction upon him.

Article 216830

Where a company fails to make allocations to its statutory com-831

mon reserve fund or statutory common welfare fund in accor-dance with this Law, the company shall be ordered to make upthe amount that it is required to allocated and shall be imposedupon a fine of not less than RMB 10 000 yuan but not more thanRMB 1000 000 yuan.

Article 217832

Where a company fails to issue a notice or make an announce-833

ment to its creditors according to this Law in case of merger,division, reduction of its registered capital or liquidation, it shall

be ordered to make a rectification and be imposed upon a fineof not less than RMB 10 000 yuan but not more than RMB 100000 yuan.

Where a company, in the process of its liquidation, conceals 834

property, records false information in its balance sheet or in-ventory of assets or, distributes the company assets prior tothe full payment of its debts, it shall be ordered to make a recti-fication and be imposed upon a fine of not less than one percentbut not more than five percent of the amount concealed or ofthe amount distributed prior to the full payment of the debts ofthe company. The persons in charge and others held directlyresponsible shall be imposed upon a fine of not less than RMB10 000 yuan but not more than RMB 100 000 yuan. If the caseconstitutes a crime, criminal liabilities shall be investigated inaccordance with the law.

Article 218 835

Where a liquidation committee fails to submit a liquidation report 836

to the Company Registration Authority in accordance with theprovisions of this Law, or where a report submitted concealsmajor facts or contains major omissions, it shall be ordered tomake a rectification.

Where a member of the liquidation committee takes advantage 837

of his position and power to practice favoritism for personalgains, seek illegal income or misappropriate the property of thecompany, he shall be ordered to return the property to the com-pany, confiscated of his illegal gains and imposed upon a finefrom one to five times the amount of his illegal gains. If the caseconstitutes a crime, criminal liabilities shall be investigated inaccordance with the law.





Article 219 838

Where an institution in charge of asset valuation, capital ver-839

ification or certificate verification provides false documents ofcertification, the illegal income derived therefrom shall be con-fiscated and a fine from one to five times the amount of the ille-gal income shall be imposed; the relevant department in chargemay order the institution to suspend its business and revokethe qualification certificates of those held directly responsibleaccording to law. If the case constitutes a crime, criminal liabil-ities shall be investigated in accordance with the law.

Where an institution in charge of asset valuation, capital verifi-840

cation or certificate verification provides by negligence reportswith major omissions, it shall be ordered to make a rectifica-tion; where the circumstances are serious, a fine from one tothree times the amount of the income derived therefrom shallbe imposed, and the relevant department in charge may orderthe institution to suspend its business and revoke the qualifica-tion certificates of those held directly responsible according tolaw.

Article 220841

Where a relevant department in charge authorized by the State842

Council approves an application for the incorporation of a com-pany or an application for the issue of shares that does not sat-isfy the conditions as stipulated in this Law, if the circumstancesare serious, the persons in charge and others held directly re-sponsible shall be given administrative sanctions according tolaw. If the case constitutes a crime, criminal liabilities shall beinvestigated in accordance with the law.

Article 221843

Where the department of security administration under the 844

State Council approves an application for the offer of shares,the listing of shares or the issue of bonds that does not satisfythe conditions as stipulated in this Law, if the circumstancesare serious, the persons in charge and others held directlyresponsible shall be given administrative sanctions accordingto law. If the case constitutes a crime, criminal liabilities shallbe investigated in accordance with the law.

Article 222 845

Where the Company registration Authority approves an appli- 846

cation for registration which does not meet the requirementsas stipulated in this Law, if the circumstances are serious, thepersons in charge and others held directly responsible shall begiven administrative sanctions according to law. If the caseconstitutes a crime criminal liabilities shall be investigated inaccordance with the law.

Article 223 847

Where departments at a level higher than the Company Reg- 848

istration Authority force the Company Registration Authority toapprove an application for registration which does not meet therequirements as stipulated in this Law or, covers up an illegalregistration, the persons in charge and others held directly re-sponsible shall be given administrative sanctions according tolaw. If the case constitutes a crime, criminal liabilities shall beinvestigated in accordance with the law.





Article 224 849

Where a company that has not registered according to law as850

a “limited liability company ”or a“ joint stock limited company”assumes the name of limited liability company or joint stocklimited company it shall be ordered to make a rectification orbe banned, and a fine of not less than RMB 10 000 yuan butnot more than RMB 100 000 yuan may be imposed. If the caseconstitutes a crime, criminal liabilities shall be investigated inaccordance with the law.

Article 225851

Where a company fails to commence its business without jus-852

tification within the period of more than six months of its incor-poration or, after commencing its business, suspends businessat its own will for a period of six consecutive months or more,the Company Registration Authority shall revoke the company'sbusiness license.

Where a company fails to apply for modification registration in853

accordance with the provisions of this Law whenever modifica-tion occurs in items of company registration, it shall be orderedto conduct modification registration within a specified time limit,a fine of not less than RMB 10 000 yuan but not more than RMB100 000 yuan shall be imposed.

Article 226854

Where a foreign company, in violation of the provisions of this855

Law, establishes a branch within the territory of the People'sRepublic of China without authorization, it shall be ordered tomake a rectification or to be closed down, and a fine of not lessthan RM. 10 000 Juan but not more than RM. 100 000 Juanmay be imposed.

Article 227 856

Where relevant department in charge performing examination 857

and approval duties according to this Law refuses to approvean application which meets the statutory requirements or theCompany Registration Authority refuses an application for reg-istration which meets the statutory requirements, the party con-cerned may apply for reconsideration or institute an administra-tive lawsuit in accordance with the law.

Article 228 858

Where a company violating the provisions of this Law should 859

assume civil liability for compensation and pay fines and penal-ties, and the company's property is insufficient to pay such com-pensation, fines and penalties, the company shall assume thecivil liability for compensation first.

Chapter XI - Supplementary Provisions 860

Article 229 861

Companies registered and incorporated in accordance with the 862

law, administrative rules and regulations, local regulations orthe Opinions on Standardization of Limited Liability Compa-nies and the Opinions on Standardization of Joint Stock LimitedCompanies formulated by the relevant competent departmentsunder the State Council prior to the implementation of this Lawshall continue to be retained; companies which do not fully meetthe requirements as stipulated in this Law shall meet all suchrequirements within a prescribed time limit. Specific measuresfor the implementation thereof shall be formulated separatelyby the State Council.





Article 230863

This Law shall enter into force as of July 1, 1994.864





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Document Manifest @:

‹http://www.jus.uio.no/lm/china.company.law.2.1993/sisu_manifest.html›

Title: China - Company Law, 1993

Creator: MOFTEC

Rights: Copyright (C) 1993 MOFTEC

Publisher: SiSU ‹http://www.jus.uio.no/sisu› (this copy)

Date: 1993-12-29

Topics Registered: statute:China;company law:China

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