(Adopted at the Fifth session of the Standing Committee of the Eighth National People's Congress on December 29, 1993)

Chapter 1 General Provisions

Article 1
This Law is formulated in accordance with the Constitution in order to adapt to the needs to establish a modem enterprise system, standardize the organization and activities of companies, protect the legitimate rights and interests of companies, shareholders and creditors, safeguard social and economic order and promote the development of the socialist market economy. Article 2
In this Law, the term "company" refers to a limited liability company or a company limited by shares established within Chinese territory in accordance with this Law. Article 3
All limited liability companies and companies limited by shares are enterprise legal persons.
In the case of a limited liability company, a shareholder is liable to the company to the extent of the amount of the shareholder's capital contribution. A limited liability company is liable for the debts of the company with all its assets.
In the case of a company limited by shares, its entire capital is divided into shares of equal value and shareholders shall be liable to the company to the extent of the shares held by them. A company limited by shares is liable for the debts of the company with all its assets. Article 4
The shareholders of a company, as capital contributors, have the right to enjoy the benefits of the assets of the company, make major decisions, choose managers etc. in accordance with the amount of capital they have invested in the company.
A company enjoys all legal person property rights constituted by the shareholders' investment, enjoys civil rights and assumes civil liabilities in accordance with law.
Ownership of the State-owned assets in a company belongs to the state. Article 5
With respect to all its corporate property, a company conducts its business autonomously in accordance with law and is responsible for its own profits and losses.
Under the state's macro regulation and control adjustment, a company organizes its production and operations autonomously according to market demand with the objectives of raising economic efficiency and labor productivity and preserving and increasing the value of assets. Article 6
A company implements an internal management structure with a clear division of rights and responsibilities, scientific management and combined incentives and restrictions. Article 7
A state owned enterprise which is being reorganized as a company shall replace its system of operation, gradually and systematically take inventory of its assets and verify its capital, determine property rights, clear creditors' rights and indebtedness, value assets and set up standardized internal management structure in accordance with the law and conditions and requirements of administrative regulations. Article 8
The establishment of a limited liability company or a company limited by shares shall comply with the conditions set out in this Law. A company complying with the conditions of this Law is registered as a limited liability company or a company limited by shares. A Company which does not comply with the conditions set out in this Law shall not be registered as a limited liability company or a company limited by shares.
Where the law or administrative regulations require that the establishment of a company be submitted for examination and approval, the procedures for such examination and approval are carried out before the company is registered. Article 9
A limited liability company established in accordance with this Law shall have the words "limited liability company" in its name.
A company limited by shares established in accordance with this Law shall have the words "company limited by shares" in its name. Article 10
The domicile of a company is the place where its principal place of business is located. Article 11
In establishing a company, the company's articles of association shall prepared in accordance with this Law. The articles of association rebinding on the company, the shareholders, directors, supervisors and managers.
A company's business scope is specified in its articles of association and registered in accordance with the law. For items in a company's business scope which are restricted by law or administrative regulations, approval shall be obtained in accordance with the law.
A company shall conduct business activities within its registered business scope. A company may change its business scope by amendments toots articles of association in accordance with procedures provided by law and after changing its registration with the company registrationauthority.Article 12
A company may invest in other limited liability companies or companies limited by shares and be liable to the companies which it has invested into the extent of the amount of capital invested in such companies.
Except for investment companies and holding companies specified by testate Council, where a company invests in other limited liability companies or companies limited by shares, the aggregate amount of investment shall not exceed fifty per cent of the net assets of the company, not including any increase in the capital of the other limited liability companies or companies limited by shares in which the company invests arising from any conversion of profits of these companies into capital following such investment. Article 13
A company may set up branches. Branches of a company do not have the status of enterprise legal persons and the company assumes the civil liabilities of its branches.
A company may set up subsidiaries. Subsidiaries of a company have the status of enterprise legal persons and assume civil liabilities independently in accordance with the law. Article 14
In conducting its business activities, a company shall abide by the law and by business ethics, strengthen the construction of socialist spiritual civilization and accept the supervision of the government and the public.
The legitimate rights and interests of a company are protected by law and shall not be infringed. Article 15
A company shall protect the legitimate rights and interests of its staff and workers, strengthen labor protection and bring about production safety.
A company should use various means to enhance vocational education anon-the-job training for staff and workers to increase their work quality. Article 16
The staff and workers of a company organize a trade union in accordance with the law to carry out union activities and protect the lawful rights and interests of the staff and workers. A company shall provide the necessary conditions for activities of the trade union of the company.
Limited liability companies established with investment by a wholly state-owned company and those established with investment by two or more state-owned enterprises or two or more other state-owned investment entities practice democratic management in accordance with the provisions of the Constitution and of relevant laws through the representative conferences of the staff and workers and otherwise. Article 17
The activities of the base-level organizations of the Communist Party of China in the company are dealt with in accordance with the Charter of the Communist Party of China. Article 18
The Law applies to limited liability companies with foreign investment. Where the laws on Sino-foreign equity joint venture enterprises, Sino-foreign co-operative joint venture enterprises and wholly-owned foreign enterprises otherwise provide, the provisions of such laws apply.
Chapter 2 Establishment and Organizational Structure of A Limited Liability Company
Section 1 Establishment Article 19
Establishment of a limited liability company shall be subject to fulfillment of the following conditions;
(1) the number of shareholders meets the requirements of the law;
(2) the investment contributed by shareholders meets the minimum amount of capital required by law;
(3) the company's articles of association are formulated jointly byte shareholders;
(4) there is a company name, and an organizational structure complying with the requirements for establishing a limited liability company; and
(5) there is a fixed site for production and operations and the necessary conditions for production and operations. Article 20
A limited liability company is established by capital contributions made jointly by at least two and no more than fifty shareholders.
A state-authorized investment institution or a department authorized by the state may in

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vest on its own to establish a wholly state-owned limited liability company. Article 21
A state-owned enterprise established before the implementation of this Law which fulfills the conditions for the establishment of a limited liability company under this Law may be reorganized as a owned-owned limited liability company in the case of an investment entity with a single investor, or as a limited liability company as provided in the first paragraph of the preceding Article in the case of an investment entity with many investors.
Implementing procedures and specific means for the reorganization of state-owned enterprises into companies are specified by the State Council in separate provisions. Article 22
The articles of association of a limited liability company shall setout the following:
(1) the company's name and domicile;
(2) the company's business scope;
(3) the company's registered capital;
(4) shareholders' names or titles;
(5) shareholders' rights and obligations;
(6) the form and amount of shareholders' capital contributions;
(7) conditions for shareholders' transfer of capital contributions;
(8) the company's organs and the method of establishing them, their powers and rules of procedure for discussion;
(9) the company's legal representative;
(10) grounds for the dissolution of the company and method for its liquidation; and
(11) other matters which the shareholders consider necessary to provide for.
The shareholders shall sign and seal the company's articles ofassociation.Article 23
A limited liability company's registered capital is the capital actually contributed by all the shareholders and registered with the company registration authorities.
The registered capital of a limited liability company shall not belles than the following minimum amounts:
(1) for a company engaging principally in production operations, RMB500,000 Yuan;
(2) for a company engaging principally in wholesaling commodities, RMB500,000 Yuan;
(3) for a company engaging principally in commercial retailing, RMB300,000 Yuan;
(4) for a company engaging principally in technology development,consultancy and services, RMB 100,000 Yuan.
Requirements for the minimum amount of registered capital for alimited liability company in a particular line of business to be higherthan the amount stated in the preceding paragraphs are provided for inseparate laws or administrative regulations.Article 24
Shareholders may make capital contributions in currency, or may investin kind, use industrial property, non-patented technology or land userights to make capital contributions based on their appraised value. Forinvestment in kind, industrial property, non-patented technology or landuse rights which are capital contributions, a valuation shall be carriedout and the property contributed verified, without overvaluation orundervaluation. The valuation of land use rights is to be dealt with in accordance with the provisions of laws and administrative regulations.
The amount of industrial property or non-patented technologycontributed as capital based on its appraised value shall not exceedtwenty percent of the registered capital of a company, except as otherwisespecified by the state for the use of the results of new and hightechnology.Article 25
Shareholders shall pay in full their respective subscribed capitalcontributions specified in the article of association. If a shareholdermakes its contribution in currency, the currency contribution shall bedeposited in full into a temporary account established with a bank by theproposed limited liability company; if the contribution is to be made ininvestment in kind, industrial property, non-patented technology or landuse rights, procedures for transfer of the property rights shall be dealtwith in accordance with the law.
If a shareholder does not pay its subscribed capital contribution in accordance with the provisions of the preceding paragraph, suchshareholder shall be liable for default to the other shareholders who havefully paid their capital contributions.Article 26
After the shareholders have paid in full their subscribed capitalcontributions a legally authorized investment verification authority mustverify the investment and issue certificate.Article 27
Upon verification by a legally authorized investment verificationauthority of all capital contributions of shareholders, a designatedrepresentative or jointly appointed agent of all the shareholders appliesto the company registration authority to register the establishment of the company, submitting the company registration application, the company'sarticle of association, investment verification certificate and otherdocuments.
If examination and approval from relevant departments is required in accordance with any law or administrative regulation, the approvaldocuments shall be submitted when applying to register the establishmentof the company.
Where the conditions required by this Law are met, the companyregistration authority registers the company and issues a company businesslicence. Where the conditions of this Law are not met, the company is notregistered.
The date of issue of the business licence is the date of establishmentof a limited liability company. Article 28
After the establishment of a limited liability company, if the actualvalues of the investment in kind, industrial property, non-patentedtechnology or land use rights are obviously lower than the values set in the articles of association, the difference shall be made up by theshareholder(s) who contributed such investment, and other shareholders atthe time of the establishment of the company shall be jointly liable forthe difference.Article 29
If a branch or branches of a limited liability company is establishedat the same time a limited liability company is established, applicationfor the registration of the branch(es) shall be made to the companyregistration authority to obtain the business licence(s).
If a branch or branches of a limited liability company are establishedafter the establishment of the company, application for registrationshall be made by the legal representative of the company to the companyregistration authority to obtain the business licence(s).Article 30
An investment certificate shall be issued to each of the shareholdersupon the establishment of a limited liability company.
An investment certificate shall set out the following:
(1) the company's name;
(2) the company's date of registration;
(3) the company's registered capital;
(4) the shareholder's name and the amount and date of payment ofcapital contribution; and
(5) the number and date of issue of the investment certificate.
An investment certificate is sealed with the company's seal.Article 31
A limited liability company shall establish a register of shareholderssetting out the following:
(1) the shareholders' names and domiciles;
(2) the shareholders' amounts of capital contributions; and
(3) the numbers of the investment certificates.Article 32
Shareholders have the right to examine the minutes of shareholders'meetings and the company's financial and accounting reports.Article 33
Shareholders are entitled to receive dividends in accordance with theproportions of their capital contributions. Shareholders have a preemptiveright to subscribe capital when a company increases its capital.Article 34
Shareholders shall not withdraw their capital contributions after theregistration of a company. Article 35
Shareholders may transfer among themselves all or part of theircapital contributions.
Where a shareholder transfers its capital contribution to a personother than a shareholder, the consent of more than half of allshareholders shall be required. A shareholder objecting to such transfershall purchase the capital contribution to be transferred and suchshareholder is deemed to have agreed to the transfer if he does notpurchase the capital contribution.
For a transfer of capital contribution which is transferred with theconsent of the shareholders, other shareholders have a pre-emptive rightto purchase it on the same conditions.Article 36
After a shareholder transfers its capital contribution in accordancewith the law, the company records in the register of shareholders the nameof the transferee, its domicile and the amount of the capital contributiontransferred.
Section 2 Organizational StructureArticle 37
The shareholder's meetings of a limited liability company are made upof all shareholders. The shareholders' meeting is the company'sauthoritative organization, exercising its powers in accordance with thisLaw.Article 38
The shareholders' meeting exercises the following powers:
(1) to decide on the company's operational policies and investmentplans;
(2) to elect and replace directors and decide on matters relating tothe remuneration of directors;
(3) to elect and replace the supervisors who are representatives of the shareholders, and decide on matters relating to the remuneration ofsupervisors;
(4) to examine and approve reports of the board of directors;
(5) to examine and approve reports of the board of supervisors or anysupervisor(s);
(6) to examine and approve the company's proposed annual financialbudget and final accounts;
(7) to examine and approve the company's plans for profit distributionand recovery of losses;
(8) to decide on increases in or reductions of the company'sregistered capital;
(9) to decide on the issue of bonds by the company;
(10) to decide on transfers of capital contribution by shareholders toa person other than a shareholder;
(11) to decide on issue such as merger, division, change in corporateform or dissolution and liquidation of the company; and
(12) to amend the company's articles of association.Article 39
Except as otherwise provided in this Law, methods of discussion andvoting procedures for shareholders' meetings are specified in thecompany's articles of association.
A resolution for an increase in or reduction of registered capital,division, merger, dissolution or change in corporate form of the companyshall be passed by shareholders representing two-thirds or more of thevoting rights.Article 40
A company may amend its articles of association. A resolution to amendthe company's articles of association shall be passed by shareholdersrepresenting two-thirds or more of the voting rights.Article 41
Shareholders shall exercise voting rights at shareholders' meetings in accordance with the proportions of their capital contribution.Article 42
The first shareholders' meeting is convened and presided over by theshareholder whose capital contribution is the largest. Such shareholderexercises its rights in accordance with this Law. Article 43
Shareholders' meetings are divided into regular meetings and interimmeetings.
Regular meeting shall be convened on time in accordance with theprovisions of the articles of association. Shareholders representingone-fourth or more of the voting rights or one-third or more of thedirectors or supervisors may request that an interim meeting be convened.
Where a limited liability company has a board of directors,shareholders' meetings are convened by the board of directors and presidedover by the chairman of the board of directors. If the chairman of theboard of directors is unable to perform his duties for a particularreason, the vice-chairman or another director designated by the chairmanpresides over the meeting.Article 44
When convening a shareholders' meeting, notice shall be given to allshareholders fifteen days before the meeting is convened.
Shareholders' meetings shall keep minutes of the decisions made onmatters discussed. The minutes shall be signed by the shareholders presentat the meeting.Article 45
A limited liability company has a board of directors with three tothirteen members.
For a limited liability company established with the investment of twoor more state-owned enterprises or two or more state-owned investment entities, members of its board of directors shall include representativesof the staff and workers of the company. Representatives of staff andworkers on the board of directors are chosen by the company's staff andworkers by democratic election.
The board of directors has one chairman and may have one or twovice-chairmen. The method of election of the chairman and vice-chairmen isspecified in the articles of association.
The chairman of the board of directors is the legal representative of the company. Article 46
The board of directors is responsible to the shareholders' meetingsand exercises the following powers:
(1) to be responsible for convening shareholders' meetings andaccountable to the shareholders' meeting;
(2) to implement the resolutions of the shareholders' meeting;
(3) to decide on the operational plans and investment plan of the company;
(4) to formulate the company's proposed annual financial budget andfinal accounts;
(5) to formulate plans for profit distribution and recovery of losses;
(6) to formulate plans for increases in or reductions of the company'sregistered capital;
(7) to prepare plans for merger, division, change in corporate formand dissolution of the company;
(8) to decide on the set up of the company's internal managementstructure;
(9) to appoint or dismiss the company's manager (general manager) (the"manager") and pursuant to the manager's nominations to appoint or dismissthe deputy manager and the financial officers of the company and decideupon their remuneration; and
(10) to formulate the company's basic management system.Article 47
The term of office of the directors is as provided in the company'sarticles of association, provided that each term shall not be longer thanthree years. At the end of a director's term, the director may serveanother term if re-elected.
The shareholders' meeting shall not without reason remove a directorfrom office before the expire of that director's term.Article 48
Meetings of the board of directors are convened and presided over byte chairman. When the chairman is unable to perform his duties for aparticular reason, the vice-chairman or another director designated by thechairman convenes and presides over the meetings. One-third or more of thedirectors may request that an interim meeting be convened.Article 49
Except as otherwise provided in this Law, methods of discussion andvoting procedures for the board of directors are provided for in thecompany's articles of association.
When convening a meeting of the board of directors, notice of themeeting shall be given to all directors ten days before the meeting isconvened.
The board of directors shall keep minutes of the decisions made onmatters discussed. Such minutes shall be signed by the directors presentat the meeting.Article 50
A limited liability company has a manager who is appointed ordismissed by the board of directors. The manager is responsible to theboard of directors and exercises the following powers:
(1) to be in charge of the company's production, operations andmanagement and organize the implementation of the resolutions of the boardof directors;
(2) to organize the implementation of the company's annual businessplan and investment plan;
(3) to propose plans for the putting in place of the company'sinternal management structure;
(4) to propose the company's basic management system;
(5) to formulate specific rules and regulations for the company;
(6) to propose the appointment or dismissal of the company's deputymanager(s) and financial officers;
(7) to appoint or dismiss management officers other than thoserequired to be appointed or dismissed by the board of directors; and
(8) other powers conferred by the company's articles of associationand the board of directors.
The manager is present at meetings of the board of directors.Article 51
A limited liability company with a relatively small number ofshareholders and of a relatively small scale may have one executivedirector and no board of directors. The executive director may also be thecompany's manager.
The powers of the executive director shall be specified in thecompany's articles of association with reference to the provisions ofArticle 46 of this Law.
Where a limited liability company has no board of directors, theexecutive director is the legal representative of the company. Article 52
A limited liability company with a relatively large scale ofoperations shall have a board of supervisors with not less than threemembers. The board of supervisors elects a convener from among itsmembers.
The board of supervisors is made up of representatives of shareholdersand a reasonable proportion of representatives from the company's staffand workers, the specific proportion to be provided in the company'sarticles of association. Representatives of the staff and workers on theboard of supervisors are chosen by the company's staff and workers bydemocratic election.
A limited liability company with a relatively small number ofshareholders and of a small scale may have one to two supervisors.
The directors, manager and financial officers of the company shall notact concurrently as supervisors.Article 53
The term of office of the supervisors is three years. At the end of asupervisor's term, the supervisor may serve another term, if reelected.Article 54
The board of supervisors as supervisor (s) exercises the followingpowers:
(1) to inspect the company's financial situation;
(2) to exercise supervision over the acts of the directors and managercarried out while performing their corporate functions which violate laws,regulations or the company's articles of association;
(3) to demand remedies from a director or manager when the acts ofsuch director or manager are harmful to the company's interests;
(4) to propose the convening of an interim shareholders' meeting; and
(5) other powers specified in the company's articles of association.
The supervisors are present at meetings of the board of directors.Article 55
When considering and deciding on the wages, welfare and production safety of the staff and workers and labor protection, labor insuranceand other issues involving the personal interests of the staff andworkers, the company shall first solicit and consider the opinions of thecompany's trade union and staff and workers, and shall inviterepresentatives from the trade union and the staff and workers to attendthe relevant meetings.Article 56
When considering and deciding on major issues relating to thecompany's production and operations and formulating important rules andregulations, the company shall solicit and consider the opinions andproposals of the company's trade union and staff and workers.Article 57
Any of the following persons shall not serve as a director, supervisoror manager of a company:
(1) persons without civil capacity or with restricted civil capacity;
(2) persons who have committed the offences of corruption, bribery,infringement of property, misappropriation of property or sabotaging thesocioeconomic order, and have been sentenced to criminal penalties, whereless than five years have elapsed since the date of completion of thesentence; or persons who have been deprived of their political rights dueto criminal offences, where less than five years have elapsed since thedate of the completion of implementation of this deprivation;
(3) persons who are former directors, factory directors or managers ofa company or enterprise which has become bankrupt and been liquidated as aresult of mismanagement and are personally liable for the bankruptcy ofsuch company or enterprise, where less than three years have elapsed sincethe date of the completion of the bankruptcy and liquidation of the company or enterprise;
(4) persons who were legal representatives of a company or enterprisewhich had its business licence revoked due to a violation of the law andwho are personally liable, where less than three years have elapsed sincethe date of the revocation of the business licence; or
(5) persons who have a relatively large amount of debts due andoutstanding.
Where a company elects, nominates or appoints any director orsupervisor or employs a manager contrary to the provisions of thepreceding clause, such election, appointment or employment isineffective.Article 58
State civil servants shall not act concurrently as a company'sdirector, supervisor or manager.Article 59
The directors, supervisors or managers shall abide by the company'sarticles of association, faithfully execute their official duties andprotect the company's interests. They shall not exploit their position andpower in the company to advance their own private interests.
The directors, supervisors or managers of a company shall not exploittheir position to accept bribes or other illegal income or wrongfully takeover company property.Article 60
The directors or managers shall not misappropriate company funds orloan such funds to others.
The directors or managers shall not open accounts in their own namesor in the names of other individuals for the deposit of the company'sassets.
The directors or managers shall not provide a guarantee for debts of ashareholder of the company or other individual(s) with the company'sassets.Article 61
The directors or managers shall not engage on their own behalf or onbehalf of others in any business similar to the business of the company inwhich they hold office or in activities harmful to the company'sinterests. The proceeds from such business or activities shall belong tothe company.
Unless otherwise provided in the company's articles of association orwith the consent of a shareholders' meeting, a director or manager shallnot enter into any contracts or transactions with the company. Article 62
The directors, supervisors or managers shall not disclose the secretsof the company except in accordance with the provisions of the law or withthe consent of a shareholders' meeting.Article 63
Where a director, supervisor or manager of a company violates the law,administrative regulations or the company's articles of association whileperforming his official corporate duties resulting in harm to the company,such director, supervisor or manager shall be liable for damages.
Section 3 Wholly State-Owned CompaniesArticle 64
"A wholly state-owned company" in this Law refers to a limited liability company in which a state-authorized investment institution or astate-authorized department is the sole investor and which is establishedsolely by a state-authorized investment institution or by astate-authorized department.
A company designated by the State Council for the production ofspecial products or belonging to a specified trade shall be established in the form of a wholly state-owned company. Article 65
The articles of association of a wholly state-owned company areformulated in accordance with this Law by the state-authorized investmentinstitution or the state-authorized department or formulated by the boardof directors, and reported to the state-authorized investment institutionor the state-authorized department for approval.Article 66
A wholly state-owned company does not have shareholders' meetings. Thecompany's board of directors is authorized by the state-authorizedinvestment institution or the state-authorized department to exercise partof the powers of the shareholders' meetings, decide on the major issues of the company, provided that decisions on merger, division, dissolution of the company, increase or decrease in capital and issue of corporate bondsshall be decided by the state-authorized investment institution or thestate-authorized department.Article 67
The state-authorized investment institution or the state-authorizeddepartment shall exercise supervision and management over the state-ownedassets of a wholly state-owned company in accordance with the provisions of law and administrative regulations.Article 68
A wholly state-owned company shall have a board of directors whichcarries out its duties in accordance with the provisions of Article 46 andArticle 66 of this Law. The term of office of the board of directors isthree years.
The board of directors has three to nine members, appointed orreplaced by the state-authorized investment institution or thestate-authorized department in accordance with the board of directors'terms. Members of the board of directors shall include representatives of the staff and workers of the company. Representatives of the staff andworkers on the board of directors are chosen by the company's staff andworkers by democratic election.
The board of directors has a chairman and may have one vice-chairmanif necessary. The chairman and the vice-chairman are designated from amongthe directors by the state-authorized investment institution or thestate-authorized department.
The chairman of the board of directors is the legal representative of the company. Article 69
A wholly state-owned company shall have a manager who is appointed ordismissed by the board of directors. The manager exercises his powers in accordance with the provisions of Article 50 of this Law.
With the consent of the state-authorized investment institution or thestate-authorized department, members of the board of directors may actconcurrently as manager.Article 70
The chairman and vice-chairman of the board of directors, directorsand the manager of a wholly state-owned company shall not act concurrentlyas officers of other limited liability companies, companies limited byshares or other economic organizations without the consent of thestate-authorized investment institution or the state-authorizeddepartment.Article 71
To transfer assets of a wholly state-owned company, in accordance withthe provisions of law and administration regulations, examination andapproval and procedures for transfer of property rights are handled by thestate-authorized investment institution or the state-authorizeddepartment.Article 72
Large-scale wholly state-owned companies with a sound system ofoperation and management and whose operational situation is relativelygood may be authorized by the State Council to exercise rights as theowner of the assets.
Chapter 3 Establishment and Organizational Structure of A Company Limited by Shares
Section 1 Establishment Article 73
Establishment of a company limited by shares shall be subject to thefulfillment of the following conditions:
(1) the number of promoters meets the requirement of the law;
(2) the share capital subscribed by the promoters and by public offermeets the minimum amount of capital required by law;
(3) the issue of shares and related preliminary matters comply withthe provisions of law;
(4) articles of association are formulated by the promoters andadopted by the founding meeting;
(5) there is a company name and the establishment of an organizationalstructure complying with the requirements for the establishment of acompany limited by shares; and
(6) there is a fixed site for production and operations and the necessary conditions for production and operations. Article 74
A limited liability company may be established by means of promotionor offer.
Establishment by the promoter method means the establishment of acompany by the subscription by the promoters for all the shares to beissued by the company.
Establishment by the offer method means establishment of a company byte subscription by the promoters of part of the shares to be issued by acompany and a public offer of the remaining part of the shares.Article 75
The establishment of a company limited by shares shall have at leastfive promoters including more than half of the promoters with domicileswithin Chinese territory.
When a state-owned enterprise is reorganized into a company limited byshares, there may be less than five promoters, but the offer method shallbe adopted for its establishment.Article 76
The promoters of a company limited by shares shall subscribe forshares for which they are required to subscribe in accordance with this Law and shall be responsible for the preparation of the establishment of the company. Article 77
The establishment of a company limited by shares shall be approved byte department authorized by the State Council or by the provincial-levelpeople's government.Article 78
The registered capital of a company limited by share is the totalshare capital which has been registered with the company registrationauthority and which has been actually received.
The minimum amount of the registered capital of a company limited byshares is RMB 10,000,000. Requirements for the minimum amount of theregistered capital of a company limited by shares to be higher than theabove amount are provided for in separate laws or administrativeregulations.Article 79
The articles of association of a company limited by shares shall setout the following:
(1) the company's name and domicile;
(2) the company's scope of business;
(3) the company's method of establishment;
(4) the total shares, value per share and registered capital of the company;
(5) the names of the promoters and the number of shares subscribed bythem;
(6) the rights and obligations of the shareholders;
(7) the composition, powers, term of office and rules of procedure fordiscussion of the board of directors;
(8) the company's legal representative;
(9) the composition, powers, term of office and rules of procedure fordiscussion of the board of supervisors;
(10) the company's method of profit distribution;
(11) grounds for the dissolution of the company and method for its liquidation;
(12) procedures for company notices and announcements; and
(13) other matters which the shareholders' general meeting considersnecessary to specify.Article 80
The promoters may make capital contributions in currency, or mayinvest in kind, use industrial property, non-patented technology or landuse rights to make capital contributions based on their appraised value.For investment in kind, industrial property, non-patented technology orland use rights which are capital contributions, a valuation shall becarried out, the property contributed, verified and conversion into sharesmade, without over valuation or under valuation. The valuation of land userights is to be dealt with in accordance with the provisions of laws andadministration regulations.
The amount of industrial property or non-patented technologycontributed as capital based on its appraised value shall not exceedtwenty percent of the registered capital of a company. Article 81
When a state-owned enterprise is reorganized into a company limited byshares, it is strictly prohibited to under value state-owned assets forconversion into shares, sell them at prices below their value, ordistribute them without compensation to individuals.Article 82
Where a company limited by shares is to by established by the promotermethod, the promoters shall pay the full amount for the shares immediatelyafter they have subscribed in writing for all shares which the articles ofassociation provide to be issued. If investment in kind, industrialproperty, non-patented technology or land use rights are used as paymentfor the shares, procedures for the transfer of the property rights shallbe dealt with in accordance with the law.
The board of directors and the board of supervisors shall be electedafter the promoters have paid all capital contributions. The board ofdirectors submits to the company registration authority the approvaldocument(s), the company's articles of association, the investmentverification certificate and other documents for the establishment of the company and applies to register the establishment of the company. Article 83
Where a company limited by shares is to be established by the offermethod, the shares subscribed for by the promoters shall not be less thanthirty-five percent of the total number of shares of the company. Theremaining portion shall be offered to the public.Article 84
When the promoters offer shares to the public, and application for theoffer shall be submitted to the securities administration authorities of the State Council together with the following major documents:
(1) document(s) approving the establishment of the company;
(2) the company's articles of association;
(3) the operating budget;
(4) the promoters' names, the number of shares subscribed by thepromoters, the type(s) of capital contribution and investment verificationcertificate;
(5) the prospectus;
(6) the names and addresses of the receiving bankers; and
(7) the names of the underwriters and relevant agreements.
The promoters shall not offer any shares to the public without priorapproval of the securities administration authorities of the StateCouncil.Article 85
Subject to the approval of the securities administration authoritiesof the State Council, promoters may publicly offer shares to investorsoutside China. The concrete procedures for such offers are set out inspecific regulations of the State Council.Article 86
The securities administration authorities of the State Council grantapproval to applications for offers which comply with the conditionsprovided in this Law. If the applications do not comply with theconditions provided in this Law, no approval is granted.
If, after the approval has been granted, the offer is found not tocomply with the provisions of this Law, approval shall be revoked. Ifshares have not been offered, the offer will not be carried out. If shareshave already been offered, the subscribers may demand that the promotersrefund their payments for shares with interest at the bank's rate for adeposit of the same term.Article 87
The articles of association formulated by the promoters shall beattached to the prospectus which shall set out the following:
(1) the number of shares subscribed by the promoters;
(2) the par value per share and issue price for each share;
(3) the total number of non-registered shares issued;
(4) the rights and obligations of the subscribers; and
(5) the duration of the offer and explanation that subscribers mayrevoke their subscription to shares if the offer is under-subscribed atthe close of the offer.Article 88
In making a public offer of shares, promoters shall publish aprospectus and prepare share subscription applications. Share subscriptionapplications shall set out the items stated in the preceding article.Subscribers fill in the number of shares subscribed, the amount of paymentand their domiciles, and sign and seal the share subscription application.Subscribers make payment for shares according to the number of shares theyhave subscribed.Article 89
A public offer of shares by promoters shall be underwritten bysecurities institutions. established in accordance with the law, and anunderwriting agreement shall be entered into.Article 90
In making a public offer of shares, the promoters shall enter into aagreement with the receiving bankers.
The receiving bankers shall receive and hold as agents the paymentsfor shares, issue receipts to subscribers making payments, and shall beobliged to issue evidence of receipt of payments to the relevantdepartments.Article 91
After payment in full has been made for the shares issued, anauthorized investment verification authority shall verify the investmentsand issue an investment verification certificate. The promoters shallconvene a founding meeting within thirty days. The founding meeting ismade up of the subscribers.
If the shares issued are not fully subscribed after the closing datespecified in the prospectus; or if the promoters do not convince thefounding meeting within thirty days of payment in full having been madefor the shares offered, the subscribers may demand that the promotersrefund their payments for shares plus interest at the bank's rate for adeposit of the same term.Article 92
The promoters shall give notice to all subscribers or make anannouncement of the date of the founding meeting fifteen days before themeeting. The founding meeting shall be held only if subscribersrepresenting half or more of the total shares are present.
The founding meeting exercises the following powers:
(1) to examine the report of the promoters on preparations for theestablishment of the company;
(2) to adopt the company's articles of association;
(3) to elect the members of the board of directors;
(4) to elect the members of the board of supervisors;
(5) to examine and verify the expenses incurred for the establishmentof the company;
(6) to examine and verify the valuation of the property used bypromoters as payments for shares; and;
(7) in the case of the occurrence of force major or substantialchanges to operating conditions which have a direct effect on theestablishment of the company, a resolution not to establish the companymay be made.
A resolution at the founding meeting on any of the matters set outabove requires the approval of subscribers with more than half of thevoting rights present at the meeting.Article 93
The promoters and subscribers shall not withdraw their share capitalafter making payments for shares or making their contribution of capitalas payment for shares, except where the shares have not been fullysubscribed within the offer period, the promoters have not convened thefounding meeting within the period specified, or a resolution not toestablish the company is adopted at the founding meeting.Article 94
Within 30 days of the conclusion of the founding meeting, the board ofdirectors shall submit to the company registration authority the followingdocuments and shall apply to register the establishment of the company:
(1) approval document from the relevant supervising departments;
(2) minutes of the founding meeting;
(3) the company's articles of association;
(4) the auditors' report on financial matters relating to thepreparation of the establishment of the company;
(5) investment verification certificate;
(6) the names and domiciles of members of the board of directors andboard of supervisors; and
(7) the name and domicile of the legal representative.Article 95
The company registration authority shall, within thirty days from thedate of receipt of an application to register the establishment of acompany limited by shares decide whether or not to grant registration.Registration is granted and a business licence issued if all theconditions set out in this Law are met. Registration is not granted if theconditions set out in this Law are not met.
The date of issue of the business licence is the date of establishmentof a company limited by shares. After the company is established, a publicannouncement shall be made.
After the registration and establishment of a company limited byshares, in the case of establishment by the offer method, a report on theoffer of shares shall be filed with the securities administrationauthorities of the State Council for the record.Article 96
Where a branch or branches are to be set up at the same time as theestablishment of a company limited by shares, application shall be made tothe company registration authority to register it or them and obtainbusiness licence(s).
Where a branch or branches are to be set up after the establishment ofa company limited by shares, the legal representative of the company shallapply to the company registration authority to register it or them andobtain business licence(s).Article 97
Promoters of a company limited by shares shall assume the followingresponsibilities:
(1) to be jointly liable for the debts and expenses arising fromactions to establish the company, if the company can not be established;
(2) to be jointly liable to refund subscribers' payments for sharesplus interest at the bank's rate for a deposit of the same term, if the company cannot be established; and
(3) to be responsible for compensating the company for damages to theinterests of the company arising from negligence of the promoters duringthe process of establishing the company. Article 98
A limited liability company being converted into a company limited byshares shall meet the conditions for a company limited by shares set outin this Law, and procedures for the establishment of a company limited byshares shall be carried out in accordance with this Law. Article 99
When a limited liability company is converted into a company limitedby shares in accordance with the law and with approval, the total amountof shares into which conversion is made shall be equivalent to the amountof the company's net assets. When a limited liability company is convertedinto a company limited by shares and increases its capital by public offerof shares, the provisions of this Law concerning public offer of sharesshall be followed.Article 100
Where a limited liability company is being converted into a companylimited by shares, the creditors' rights and indebtedness of the originallimited liability company are assumed by the company limited by sharesafter the conversion.Article 101
A company limited by shares shall deposit its articles of association,register of shareholders, minutes of shareholders' general meetings andfinancial and accounting reports at the company.
Section 2 Shareholders' General MeetingArticle 102
A company limited by shares shall have a shareholders' general meetingmade up of all shareholders. The shareholders' general meeting is thecompany's authoritative organization which exercises its powers in accordance with this Law. Article 103
The shareholders' general meeting exercises the following powers:
(1) to decide on the company's operational policies and investmentplans;
(2) to elect and replace directors and decide on matters relating tothe remuneration of directors;
(3) to elect and replace the supervisors who are representatives of the shareholders and decide on matters relating to the remuneration ofsupervisors;
(4) to examine and approve reports of the board of directors;
(5) to examine and approve reports of the board of supervisors;
(6) to examine and approve the company's proposed annual financialbudget and final accounts;
(7) to examine and approve the company's profit distribution plan andplan for recovery of losses;
(8) to decide on increases in or reductions of the company'sregistered capital;
(9) to decide on the issue of bonds by the company;
(10) to decide on issue such as merger, division, dissolution andliquidation of the company and other matters; and
(11) to amend the company's articles of association.Article 104
Shareholders' general meetings shall be held once every year. Aninterim shareholders' general meeting shall be held within two monthsunder any of the following circumstances:
(1) the number of directors is less than tow-thirds of the number ofdirectors required by this Law or of the number of directors specified in the company's articles of association;
(2) the unrecovered losses of the company's capital reach one-third of the company's total share capital;
(3) upon request by shareholders holding ten per cent or more of theshares of the company;
(4) when deemed necessary by the board of directors; and
(5) when the board of supervisors proposes convening it.Article 105
Convening shareholders' general meetings is the responsibility of thechairman of the board of directors in accordance with the provisions ofthis Law and such meetings are presided over by the chairman. If thechairman is unable to perform his duties for a particular reason, thevice-chairman or another director designated by the chairman presides overthe meeting. When convening a shareholders' general meeting, notice shallbe given to all shareholders thirty days before the meeting, stating thematters to be considered at the meeting. An interim shareholders' generalmeeting shall not adopt resolutions on matters not stated in the notice.
Where bearer shares are issued, a public announcement shall be madeabout the matters in the preceding paragraph forty-five days before themeeting.
Where shareholders of bearer shares are present at a shareholders'general meeting, their shares shall be deposited with the company fromfive days prior to the opening of the meeting until the adjournment of themeeting.Article 106
Shareholders present at a shareholders' general meeting have one votefor each share they hold.
Resolutions of the shareholders' general meeting shall be adopted withhalf or more of the voting rights held by shareholders present at themeeting. Resolutions of the shareholders' general meeting on merge,division or dissolution of a company shall be adopted by shareholders withtwo-thirds or more of the voting rights present at the meeting.Article 107
Amendments to the articles of association of the company must beadopted by shareholders with two-thirds or more of the voting rightspresent at the meeting.Article 108
Shareholders may appoint proxies to attend shareholders' generalmeetings. A proxy shall present to the company a power of attorney fromthe shareholder and shall exercise his voting rights within the scope ofhis authorization.Article 109
Minutes of decision made on matters discussed by the shareholders'general meeting shall be kept and signed by the shareholders present atthe meetings. The minutes shall be kept together with the signed registerof shareholders in attendance and the powers of attomey of shareholderswho attended by proxy.Article 110
shareholders have the right to examine the company's articles ofassociation, minutes of shareholders' general meetings and financial andaccounting reports, and to make proposals or inquiries in respect of thecompany's operations. Article 111
If any resolution adopted by a shareholders' general meeting or theboard of directors violates any law or administrative regulation orinfringes the lawful rights and interests of shareholders, shareholdershave the right to initiate proceedings in the people's court to requirethat such acts of violation or infringement be stopped.Section 3 Board of Directors, ManagerArticle 112
A company limited by shares has a board of directors with five tonineteen members.
The board of directors is responsible to the shareholders' generalmeeting and exercises the following powers:
(1) to be responsible for convening the shareholders' general meetingand reporting on its work to the shareholders' general meeting;
(2) to implement the resolutions of the shareholders' generalmeetings;
(3) to decide on the company's business plans and investment plans;
(4) to formulate the company's proposed annual financial budget andfinal accounts;
(5) to formulate the company's profit distribution plan and plan forrecovery of losses;
(6)to formulate proposals for increases in or reductions of thecompany's registered capital and the issue of corporate bonds;
(7) to prepare plans for the merger, division or dissolution of the company;
(8) to decide on the putting in place of the company's internalmanagement structure;
(9) to appoint or dismiss the company's manager, and pursuant to themanager's nominations to appoint or dismiss the deputy general manager andfinancial officers of the company and decide on their remuneration; and
(10) to formulate the company's basic management system.Article 113
The board of directors has one chairman and may have one or twovice-chairmen. The chairman and vice-chairmen are elected from thedirectors with the approval of more than half of all the directors.
The chairman of the board of directors is the legal representative of the company. Article 114
The chairman of the board of directors exercises the following powers:
(1) to preside over shareholders' general meetings and convene andpreside over meetings of the board of directors;
(2) to check on the implementation of resolutions of the board ofdirectors; and
(3) to sign the company's share certificates and bonds.
The vice-chairmen assist the chairman in his work. When the chairmanis unable to perform his duties, the vice-chairman designated by thechairman performs his duties on his behalf.Article 115
The term of office of the directors is specified in the company'sarticles of association, provided, however, that each term may not belonger than three years. At the end of a director's term, the director mayserve another term if re-elected.
The shareholders' general meeting shall not without reason remove adirector from office before the expire of that director's term.Article 116
Meetings of the board of directors are convened at least twice a year.Notice of each meeting shall be given to all directors ten days before themeeting.
For convening an interim meeting of the board of directors, the boardof directors may provide for a different method of giving notice andnotice period.Article 117
Meetings of the board of directors shall be held only if half or moreof the directors are present. Resolutions of the board of directorsrequire the approval of more than half of all directors.Article 118
The directors shall attend the meetings of the board of directors inperson. If a director is unable to attend a meeting for any reason, he mayappoint another director by a written power of attomey to attend themeeting on his behalf. The power of attorney shall set out the scope of the authorization.
The board of directors shall keep minutes of resolutions on mattersdiscussed at the meetings. The minutes are signed by the directors presentat the meeting and the person who recorded the minutes.
The directors shall be responsible for the resolutions of the board ofdirectors. If a resolution of the board of directors violates the law,administrative regulations or the company's articles of association andthis results in the company sustaining serious losses, the directorsparticipating in the resolution are liable to compensate the company.However, if it can be proven that a director expressly objected to theresolution when the resolution was voted on, and that such objections wererecorded in the minutes of the meeting, such director may be free ofliability.Article 119
A company limited by shares has a manager appointed and dismissed byte board of directors. The manager is responsible to the board ofdirectors and exercises the following powers:
(1) to be in charge of the company's production, operation andmanagement and organize the implementation of the resolutions of the boardof directors;
(2) to organize the implementation of the company's annual businessplan and investment plan;
(3) to propose plans for the putting in place of the company'sinternal management structure;
(4) to propose the company's basic management system;
(5) to formulate specific rules and regulations for the company;
(6) to propose the appointment or dismissal of the company's deputymanager and financial officers;
(7) to appoint or dismiss management personnel other than thoserequired to be appointed or dismissed by the board of directors; and
(8) other powers conferred by the company's articles of associationand the board of directors.
The manager is present at meetings of the board of directors.Article 120
The board of directors may, as required, authorize the chairman of theboard of directors to exercise part of the powers of the board ofdirectors during the period when the board of directors is not in session.Article 121
When considering and deciding on the wages, welfare and production safety of staff and workers and labor protection, labor insurance andother issues involving the personal interests of staff and workers, the company shall first solicit and consider the opinions and proposals of thecompany's trade union and the staff and workers, and shall inviterepresentatives from the company's trade union and the staff and workersto attend the relevant meetings.Article 122
When considering and deciding on major issues relating to thecompany's production and operation and formulating important rules andregulations, the company shall solicit and consider the opinions andproposals of the company's trade union and the staff and workers.Article 123
The directors and manager shall abide by the company's articles ofassociation, faithfully execute their official duties, and protect thecompany's interests. They shall not exploit their position and power in the company to advance their own private interests.
The provisions of Article 57 to Article 63 of this Law on persons noteligible for the positions of director and manager and on the obligationsand duties of the directors and manager are applicable to the directorsand manager of a company limited by shares.Section 4 Board of SupervisorsArticle 124
A company limited by shares has a board of supervisors made up of notless than three members. The board of supervisors shall choose a convenerfrom among its members.
The board of supervisors is made up of representatives of theshareholders and a reasonable proportion of representatives of thecompany's staff and workers, the specific proportion to be provided for in the company's articles of association. Representatives of the staff andworkers on the board of supervisors are chosen by the company's staff andworkers by democratic election.
The directors, manager and financial officers shall not actconcurrently as supervisors.Article 125
The term of office of the supervisors is three years. At the end of asupervisor's term, the supervisor may serve another term if re-elected.Article 126
The board of supervisors exercises the following powers:
(1)to inspect the company's financial situation;
(2)to exercise supervision over the acts of the directors and managercarried out while performing their corporate functions which violate laws,regulations or the company's articles of association;
(3) to demand remedies from a director or manager when the acts ofsuch director or manager are harmful to the company's interests;
(4)to propose the convening of an interim shareholders' generalmeeting; and
(5) other powers specified in the company's articles of association.
Supervisors are present at meetings of the board of directors.Article 127
The discussion methods and voting procedures of the board ofsupervisors are specified in the company's articles of association.Article 128
The supervisors shall faithfully execute their supervisory duties in accordance with laws, administrative regulations and the company'sarticles of association.
The provisions of Articles 57 to Article 59 and Articles 62 to Article63 of this Law on persons not eligible for the position of supervisor anon the obligations and duties of supervisors are applicable to supervisorsof a company limited by shares.
Chapter 4 Issue and Transfer of Shares by A Company Limited by SharesSection 1 Issue of SharesArticle 129
The capital of a company limited by shares is divided into shares.Each share is of equal value.
Shares in a company take the form of share certificates. A sharecertificate signed and issued by the company is an evidence that the shareis held by the shareholder.Article 130
The issue of shares is public, fair and impartial. Shares of the sameclass must have the same rights and benefits.
For shares certificates issued at the same time, each share shall havethe same issue terms and price. The share price for each share purchasedby any organization or individual must be the same.Article 131
The share certificate issue price may be equal to or greater than thepar value, but may not be less than the par value.
Share certificates with an issue price above par value shall beapproved by the securities administration departments of the StateCouncil.
The premium obtained from the issue of share certificates above parvalue is allocated to the company's capital common reserve fund.
Specific regulations governing the issue of share certificates at apremium are separately issued by the State Council.Article 132
Share certificates take the form of paper certificates or such otherform as specified by the securities administration departments of testate Council.
The following items shall be set out on a share certificate:
(1) the company's name;
(2) the company's registration and establishment date;
(3) the class of the share certificate, the par value and the numberof shares represented by the share certificate; and
(4) the number of the share certificate;
The share certificate is signed by the chairman of the board ofdirectors and sealed by the company.
Share certificates of promoters shall bear the notation "promoter'sshare certificate".Article 133
Shares issued to promoters, state-authorized investment organizationsand legal persons shall be in the form of registered share certificates,shall bear the name of such promoter, state-authorized investmentorganizations or legal person, and may not carry a different account nameor be registered in the name of an agent.
Shares issued to the general public may be in the form of registeredshare certificates and also may be in the form of bearer sharecertificates.Article 134
A company issuing registered share certificates shall prepare aregister of shareholders setting out the following:
(1) the name and address of the shareholders;
(2) the number of shares held by each shareholder;
(3) the number(s) of the share certificate(s) held by eachshareholder, and
(4) the date on which each shareholder acquired its shares.
A company issuing bearer share certificates shall record the number ofsuch share certificates issued, their numbers and dates of issue.Article 135
The State Council may separately issue regulations governing the issueof classes of share certificates not covered by this Law. Article 136
A company limited by shares formally delivers share certificates toits shareholders immediately upon its registration and establishment. Noshare certificates shall be delivered prior to the registration andestablishment of the company. Article 137
A company issuing new shares shall meet the following conditions:
(1) the previous issue of shares has been fully subscribed and atleast one year have elapsed since that issue;
(2)the company has been continuously profitable for the last threeyears and is able to make dividend payments to its shareholders;
(3) there has been no false reporting in the company's financial andaccounting documents during the last three years; and
(4) the projected profit rate of the company equals or exceeds therate of interest on bank deposits for the same term.
A company which uses a given year's profits to issue new shares is notsubject to clause (2) above.Article 138
In order for a company to issue new shares, resolutions shall bepassed on the following matters at a meeting of the shareholders:
(1) the class and quantity of the new shares;
(2) the issue price of the new shares; and
(3) the commencement and closing dates of the new share issue;
(4) the class and quantity of shares to be issued to existingshareholders.Article 139
Once the shareholders at a shareholders' meeting have passed aresolution to issue new shares, the board of directors shall apply to theapply to the authorized department of the State Council or to theprovincial level people's government for approval. Public offers shallrequire the approval of the securities administration departments of testate Council.Article 140
Upon receiving approval to issue new shares in a public offer, the company shall publish a prospectus for the new shares and its financialstatements with their detailed schedules, and prepare a share subscriptionapplication.
A public offer of new shares shall be underwritten by a legallyestablished securities institution and an underwriting agreement shall beexecuted.Article 141
A company issuing new shares may determine its pricing plans in thelight of the company's continuous profitability and the increase in thevalue of its property.Article 142
After a company issuing new shares has fully collected the paymentsfor shares, the company shall change its registration with the companyregistration authority and issue a public notice.Section 2 Transfer of SharesArticle 143
A shareholder may transfer his shares in accordance with the law. Article 144
A shareholder's transfer of its shares must be carried out through alegally established stock exchange.Article 145
Registered share certificates are transferred by means of endorsementor by other means as stipulated by law or by administrative regulations.
Upon the transfer of registered share certificates, the companyrecords the name and address of the transferee in the register ofshareholders.
Pursuant to the previous paragraph, no changes in the register ofshareholders shall be made within 30 days before the convening of theshareholders' general meeting or within 5 days before the record date forthe issue of dividends.Article 146
A transfer of bearer share certificates is effective upon delivery of the share certificates to the transferee through a legally establishedstock exchange.Article 147
Shares of a company held by a promoter of that company shall not betransferred for three years after the company's establishment.
Directors, supervisors and the manager of a company shall report tothat company all the shares that they hold in the company, and shall nottransfer them during their term of office.Article 148
A state-authorized investment institution may transfer the shares itholds in accordance with the law and may also purchase the shares held byother shareholders. The approval limits and the regulatory regime for suchshare transfers and purchases are separately determined by law or byadministrative regulations.Article 149
A company shall not purchase the company's own share certificates,except in order to decrease its capital by canceling its shares or when itmerges with another company that holds its shares.
Within ten days following the purchase of the company's own sharecertificates pursuant to the terms of the preceding paragraph, a companyshall, in accordance with applicable law and administrative regulations,cancel that portion of its shares, change its registration and issue apublic notice.
A company shall not accept the company's own share certificates ascollateral.Article 150
In the event registered share certificates are stolen, lost ordestroyed, the shareholder may, pursuant to the procedures for publicinvitation to assert claims contained in the Code of Civil Procedure,request the people's court to declare the share certificates invalid.
After the share certificates are declared invalid by the people'scourt, the shareholder may, pursuant to the procedures for publicinvitation to assert claims, apply to the company to have sharecertificates re-issued.Section 3 Listed CompaniesArticle 151
A listed company referred to in this Law means a company limited byshares whose issued shares are approved for trading on a stock exchange byte State Council or its authorized securities administration departments.Article 152
A company limited by shares shall meet the following requirementsbefore applying for its shares to be listed on a stock exchange:
(1) the securities administration departments of the State Councilhave approved the company's stock being issued to the public;
(2) the company's total share capital is not less than RMB 50,000,000;
(3) the company has been in operation for over three years and hasbeen profitable in each of the last three years; if an originalstate-owned enterprise has been converted and the company establishedaccording to the law, or the company has been reorganized and establishedafter the effective date of this Law with a large-or medium-sizedstate-owned enterprise as its main promoter, the three year periods may becalculated continuously;
(4) the number of shareholders each holding shares of a par valuetotaling at least RMB 1,000 is not less than one thousand; the company'sshares already issued to the public account for over 25% of the company'stotal shares; if the company's total share capital exceeds RMB400,000,000, company shares already issued to the public account for over15% of the company's total shares;
(5) during the last three years, the company has not committed anysignificant acts in violation of the law and the company's financialstatements have not contained any false statements; and
(6) such other conditions as may be specified by the State Council.Article 153
A company limited by shares applying to have its shares listed fortrading shall file an application for approval with the State Council orits authorized securities administration departments and submit relevantdocuments in accordance with applicable laws and administrativeregulations.
The State Council or its authorized securities administrationdepartments grant approval to those listing applications which meet therequirements specified in this Law and deny approval to those listingapplications which do not meet the requirements specified in this Law.
A company which has been granted approval for listing must publish ashare listing report and keep its application documents on file in adesignated place for public inspection.Article 154
Shares of a company which has been approved for listing shall trade ona stock exchange in accordance with applicable laws and administrativeregulations.Article 155
If granted approval by the securities administration departments of the State Council, shares of a company may be listed abroad, The specificmeans are stipulated by special regulations issued by the State Council.Article 156
Pursuant to laws and administrative regulations, a listed companyshall periodically make public its financial and operational conditions. Alisted company shall publish its financial statements once every sixmonths in each fiscal year.Article 157
A listed company in one of the following situations shall have itslisting temporarily suspended upon determination by the securitiesadministration departments of the State Council:
(1) the company's total share capital, share distribution, or othercircumstances have changed such that the company no longer meets thelisting requirements;
(2) the company does not make public its financial condition asrequired by the regulations, or its financial statements contain falsestatements;
(3) the company commits a significant violation of law; and
(4) the company has had a loss in each of the three previous years.Article 158
A listed company in the situation described in clause (2) or clause(3) of the preceding article which upon investigation is found to havecaused serious consequences, or a listed company which is in the situationdescribed in clause (1) or clause (4) of the same article and is unable toeliminate it within a limited time, does not meet the listingrequirements, its listing shall be terminated upon decision by thesecurities administration departments of the State Council.
If a company resolves to dissolve itself, or if a company is legallyordered to close down by the responsible administrative department, or ifa company is declared to be bankrupt, the company shall have its listingterminated upon decision by the securities administration departments of the State Council.
Chapter 5 Corporate BondsArticle 159
A company limited by shares, a wholly state-owned company and alimited liability company established with the investment by two or owned-owned enterprises or two or more state-owned investment entities, inorder to raise funds for production and operations, may issue corporatebonds in accordance with this Law. Article 160
"Corporate bonds" as used in this Law mean valuable securities issuedby a company in accordance with legally specified procedures and pursuantto which the company covenants to repay principal and interest within acertain period of time.Article 161
The issue of corporate bonds shall be subject to the followingconditions:
(1) the net assets of a company limited by shares are not less thanRMB 30,000,000, and the net assets of a limited liability company are notless than RMB 60,000, 000;
(2) the aggregate amount of bonds of the company does not exceed fortyper cent of the net assets of the company;
(3) the average distributable profits over the previous three years issufficient to defray one year's interest payments on the company's bonds;
(4) the funds raised are used in a manner consistent with stateindustrial policy;
(5) the interest rate payable on the corporate bonds does not exceedthe levels set by the State Council; and
(6) such other conditions as may be provided for by the State Council.
The funds raised by corporate bonds shall be used for the purposesapproved by the approval authority and shall not be used to cover lossesor for non-productive expenditures.Article 162
A company shall not re-issue corporate bonds under any of thefollowing circumstances:
(1) the corporate bonds issued the previous time have not yet beenfully subscribed;
(2) the company has defaulted on previously issued corporate bonds orother indebtedness, or is late in the payment of principal or interest,and such situation is still continuing.Article 163
When a company limited by shares or a limited liability companyproposes to issue corporate bonds, its board of directors shall draft aproposal for approval by resolution at a meeting of the shareholders.
The issue of corporate bonds by a wholly state-owned company shall bedecided by the state-authorized investment organization or thestate-authorized department.
Once a resolution or decision has been made pursuant to the precedingtwo paragraphs, the company shall submit an application for approval tothe securities administration departments of the State Council.Article 164
The scale of an issue of corporate bonds shall be determined by testate Council. Approvals by the securities administration departments of the State Council of an issue of corporate bonds shall not exceed thescale determined by the State Council.
The securities administration departments of the State Council shallgrant approval if an application to issue corporate bonds satisfies therequirements of this Law and deny approval if an application to issuecorporate bonds does not satisfy the requirements of this Law.
If an approval that has previously been granted for an application isfound not to satisfy the requirements of this Law, the approval shall berevoked. With respect to corporate bonds not yet issued, the issue willnot be carried out. With respect to corporate bonds already issued, theissuing company shall return the funds paid to the subscribers, togetherwith interest calculated at the rate on bank deposits for the same term.Article 165
The company shall submit the following documents when applying to thesecurities administration departments of the State Council for approval toissue corporate bonds:
(1) the company's registration certificate;
(2) the company's articles of association;
(3) corporate bond offer procedure; and
(4) an asset appraisal report and investment verification report.Article 166
Upon approval of the company's application to issue corporate bonds,the company shall make public its corporate bond offer procedure.
The corporate bond offer procedure shall set out the following:
(1) the company's name;
(2) the total amount and face value of the bonds;
(3) the bonds' interest rate;
(4) the periods and method for paying principal and interest;
(5) the commencement and closing dates of the issue;
(6) the net assets of the company;
(7) the total amount of corporate bonds already issued but not yetdue; and
(8) the underwriter for the corporate bonds.Article 167
When a company issues corporate bonds, the bonds shall showinformation including the company's name, the face value of the bond, theinterest rate, and the date of maturity, and be signed by the chairman of the board of directors and sealed by the company. Article 168
Corporate bonds may be either bearer or registered bonds.Article 169
A company which issues corporate bonds shall keep a corporate bondsregister.
When registered bonds are issued, the following items shall be set outin the register:
(1) the names and addresses of the bondholders;
(2) the date on which the bond was acquired by the bondholder and itsnumber;
(3)the total amount of the bond, its face value, interest rate,principal and interest payment dates and method of payments; and
(4) the issue date.
When bearer bonds are issued, the register shall set out the totalamount of the bonds, the interest rate, the maturity date and paymentmethod, the date of issue and the number of the bonds.Article 170
Corporate bonds may be transferred. Transfers of corporate bonds shallbe carried out through a legally established stock exchange.
The transfer price is negotiated and agreed upon by the transferor andtransferee.Article 171
Registered corporate bonds are transferred by the bondholder throughendorsement or by other means as stipulated by law or administrativeregulations.
Upon the transfer of a registered corporate bond, the company recordsin its corporate bond register the name and address of the transferee.
A transfer of a bearer corporate bond becomes effective upon thedelivery of the corporate bond to the transferee at a legally establishedstock exchange.Article 172
Subject to a resolution at a general meeting of the shareholders, alisted company may issue corporate bonds convertible into shares of the company. The procedures for conversion are specified in the corporate bondoffer procedures.
The issue of corporate bonds convertible into shares shall besubmitted to the securities administration departments of the StateCouncil for approval. Corporate bonds convertible into shares shall meetnot only the requirements for the issue of bonds but also the requirementsfor the issue of shares.
Corporate bonds convertible into shares shall be marked "convertiblecorporate bonds", and the quantity of convertible corporate bonds shall berecorded in the corporate bond register.Article 173
A company which issues corporate bonds convertible into shares shallissue share certificates to bondholders in accordance with its conversionprocedures, provided that the bondholder has the option whether or not toconvert.
Chapter 6 Financial Affairs and Accounting of A CompanyArticle 174
A company shall establish its financial and accounting systemsaccording to laws, administrative regulations and the regulations of theresponsible finance department of the State Council.Article 175
At the end of each fiscal year, the company shall prepare a financialstatement which shall be examined and verified as provided by law.
The company's financial statements shall include the followingaccounting statements and schedules:
(1) balance sheet;
(2) profit and loss statement;
(3) statement of financial changes;
(4) explanation of financial condition; and
(5) profit distribution statement.Article 176
A limited liability company shall present its financial statements tothe shareholders in accordance with the time periods specified in thecompany's articles of association.
A company limited by shares shall deposit its financial statements atthe company for inspection by the shareholders at least twenty days beforethe convening of the annual general meeting of shareholders.
A company limited by shares established by the offer method shall makepublic its financial statements.Article 177
When distributing each year's after-tax profits, the company shall setaside ten per cent of its after-tax profits for the company's statutorycommon reserve fund and five per cent to ten per cent of its profits forthe company's statutory common welfare fund. When the aggregate balance in the statutory common reserve fund is fifty per cent or more of theregistered capital of the company, the company need not make any furtherallocations to that fund.
When the company's statutory common reserve fund is not sufficient tomake up for the company's losses of the previous year, current yearprofits shall be used to make up for the losses before allocations are setaside for the statutory common reserve fund or the statutory commonwelfare fund in accordance with the previous clause.
Subject to a resolution of the shareholders' meeting, after the company has set aside funds from after-tax profits for the statutorycommon reserve fund, the company may set aside funds for a discretionarycommon reserve fund.
After the company has made up its losses and made allocations to itscommon reserve fund and statutory common welfare fund, the remainingprofits are distributed in proportion to the shareholders' capitalcontributions if the company is a limited liability company and inproportion to the number of shares held by the shareholders if the companyis a company limited by shares.
If a shareholders meeting or the board of directors violates the aboveprovisions and profits are distributed to the shareholders before the company makes up for losses or makes allocations to the statutory commonfund and the statutory common reserve welfare fund, the profitsdistributed in violation of the provisions must be returned to thecompany.Article 178
In accordance with this Law, the premium a company limited by sharesobtains when it issues shares at a price which exceeds par value, and anyother income designated for the capital common reserve fund by theregulations of the responsible finance department of the State Councilshall be allocated to the company's capital common reserve fund.Article 179
The common reserve fund of a company is used to make up its losses,expand its production and operations or for conversion into additionalcapital of the company.
When the common reserve fund of a company limited by shares isconverted to capital in accordance with a resolution passed at a generalmeeting of the shareholders, the company either distributes new shares inproportion to the shareholders, number of shares, or increases the parvalue of each share, provided, however, that when the statutory commonreserve fund is converted to capital, the balance of the statutory commonreserve fund may not fall below twenty-five percent of the registeredcapital.Article 180
The company's statutory common welfare fund is used for the collectivewelfare of the company's staff and workers.Article 181
A company shall not keep accounting books and records other than thoseprovided by law.
The company's assets shall not be held in an account opened in thename of any individual.
Chapter 7 Merger and Division of A CompanyArticle 182
A resolution to effect the merger and division of a company shall bepassed at a meeting of the shareholders.Article 183
The merger and division of a company limited by shares shall beapproved by the authorized department of the State Council or by theprovincial government.Article 184
The merger of a company may take the form of either merger byabsorption or merger by the establishment of a new company.
Where one company is absorbed by another in a merger by absorption,the absorbed company is dissolved. Where two or more companies establish anew company in a merger by re-establishment, all merged parties aredissolved.
In the event of a merger, the merging parties shall execute a mergeragreement and prepare a balance sheet and an inventory of property. The company shall notify its creditors within ten days of the date of thecompany's resolution to merge and shall publish public notices in anewspaper at least three times within thirty days of the date of thecompany's resolution to merge. A creditor has the right within thirty daysof receiving such notice from the company (or, for creditors who do notreceive the notice, within ninety days of the date of the first publicnotice) to demand that the company repay its debts to that creditor orprovide a corresponding guarantee for such debt. A company which does notrepay its debts or provide corresponding guarantees for such debts shallnot be merged.
At the time of merger, the creditors' rights and indebtedness of eachof the merged parties shall be assumed by the company which survives themerger or the newly established company. Article 185
When a company is divided, its property shall be split up accordingly.
At the time a company is divided, the company shall prepare a balancesheet and an inventory of property. The company shall notify its creditorswithin ten days of the date of the company's resolution to divide andshall publish public notices in a newspaper at least three times withinthirty days of the date of the company's resolution to divide. A creditorhas the right within thirty days of receiving such notice from the company(or, for creditors who do not receive the notice, within ninety days of the date of the first public notice) to demand that the company repay itsdebts to that creditor or provide a corresponding guarantee for such debt.A company which does not repay its debts or provide correspondingguarantees for such debts shall not be divided.
Debts of the company prior to division are assumed by thepost-division companies in accordance with the agreements entered into.Article 186
When a company needs to reduce its registered capital, it prepares abalance sheet and an inventory of property.
The company shall notify its creditors within ten days of the date of the company's resolution to reduce its registered capital and shallpublish public notices in a newspaper at least three times within thirtydays of the date of the company's resolution to reduce its registeredcapital. A creditor has the right within thirty days of receiving suchnotice from the company (or, for creditors who do not receive notice,within ninety days of the date of the first public notice) to demand thatthe company repay its debts to that creditor or provide a correspondingguarantee for such debt.
The registered capital of a company following such capital reductionshall not be less than the minimum levels set by law. Article 187
When a limited liability company increases its registered capital, theshareholders' subscription and payment of contributions for the newlyincreased capital are carried out in accordance with the relevantprovisions of this Law governing payment of capital contributions for theestablishment of a limited liability company.
When a company limited by shares issues new shares in order toincrease its registered capital, the process by which shareholderssubscribe for new shares shall be carried out in accordance with therelevant provisions of this Law governing payment for shares for theestablishment of a company limited by shares.Article 188
When a company merges or divides and there is a change in any item inits registration, the company shall change its registration with the company registration authority in accordance with the law. When a companydissolves, the company shall cancel its registration in accordance withthe law. When a new company in established, its establishment shall beregistered in accordance with the law.
When a company increases or decreases its registered capital, the company shall carry out a change of registration with the companyregistration authority.
Chapter 8 Insolvency, Dissolution and Liquidation of A CompanyArticle 189
In the case of a company legally declared bankrupt because it isunable to repay debts due, the people's court shall, in accordance withthe provisions of relevant laws, organize the shareholders, relevantorganizations and relevant professional personnel to establish aliquidation group to carry out bankruptcy liquidation procedures withrespect to the company. Article 190
A company may dissolve in any of the following situations:
(1) pursuant to the provisions of the company's articles ofassociation, the term of the company has expired or one of the otherevents which are grounds for dissolution has occurred;
(2) a resolution for dissolution is passed by a shareholders' meeting;and
(3) dissolution is necessary due to a merger or division of thecompany.Article 191
A liquidation group shall be set up within fifteen days of a companybeing dissolved pursuant to provisions (1) or (2) of the precedingarticle. The liquidation group of a limited liability company is made upof its shareholders. The composition of the liquidation group of a companylimited by shares is determined by a general meeting of the shareholders.If a liquidation group to carry out liquidation procedures is not set upwithin the specified time limit, the creditors may apply to the people'scourt to have it designate relevant persons to form a liquidation group inorder to carry out liquidation procedures. The people's court shall acceptand hear such applications and timely designate the members of theliquidation group in order to carry out liquidation procedures.Article 192
A company which is ordered according to law to close down forviolating laws and administrative regulations shall be dissolved, and therelevant responsible authority shall organize the shareholders, relevantinstitutions and professional personnel to establish a liquidation groupto carry out liquidation procedures.Article 193
During the liquidation period, the liquidation group shall exercisethe following powers:
(1) to check the company's property and separately prepare a balancesheet and an inventory of property;
(2) to send notices to creditors or notify them by public notice;
(3) to deal with and liquidate relevant uncompleted business mattersof the company;
(4) to pay off outstanding taxes;
(5) to clear creditors' rights and indebtedness;
(6) to deal with the property remaining after the company's debts havebeen repaid; and
(7) to represent the company in any civil litigation proceedings.Article 194
The liquidation group shall, within ten days of its establishment,send notices to creditors, and within sixty days of its establishmentpublish public notices in a newspaper at least three times. A creditorshall, within thirty days of receiving notice, report its creditors'rights to the liquidation group, or for creditors who do not receivenotice, within ninety days of the date of the first public notice.
When reporting creditors' rights, the creditor shall provide andexplanation of matters relevant to the creditor's rights and shall provideevidentiary materials. The liquidation group shall carry out registrationof creditors' rights.Article 195
After checking the company's property and preparing a balance sheetand an inventory of property, the liquidation group shall formulate aliquidation plan and present it to a meeting of the shareholders or to therelevant responsible authority for confirmation.
To the extent that the company is able to repay its debts, it shallrespectively pay all liquidation expenses, wages of staff and workers,labour insurance fees and taxes owing, and shall repay the company'sdebts.
The assets of the company remaining after its debts have been repaidin accordance with the provisions of the previous clause are distributedin proportion to the shareholders capital contributions if the company isa limited liability company and in proportion to the number of shares heldby the shareholders if the company is a company limited by shares.
During the liquidation period, a company shall not commence any newoperational activities. The property of the company shall not bedistributed to the shareholders until the settlement provided for in thesecond paragraph of this article is complete.Article 196
After putting the company's property in order and preparing a balancesheet and an inventory of property in connection with liquidation of the company resulting from dissolution, the liquidation group discovers thatthe company's assets are insufficient to repay the company's debts, theliquidation group shall immediately apply to the people's court for abankruptcy declaration.
After a company is declared bankrupt by a ruling of the people'scourt, the liquidation group shall transfer liquidation matters to thepeople's court.Article 197
After liquidation of the company is completed, the liquidation groupshall prepare a liquidation report and present it for confirmation to ameeting of the shareholders or to the relevant responsible authority,apply to the company registration authority for cancellation of thecompany's registration and publish by public notice of the termination of the company. Where no application is made for cancellation of thecompany's registration, the company's business license is revoked by the company registration authority and a public notice is published.Article 198
The members of a liquidation group shall faithfully attend to theirduties and carry out their liquidation tasks in accordance with the law.
The members of a liquidation group shall not exploit their position toaccept bribes or other illegal income, nor shall they wrongfully take overthe property of the company.
The members of a liquidation group who intentionally or through grossnegligence cause losses to the company or its creditors shall beresponsible for providing compensation.
Chapter 9 Branches of Foreign CompaniesArticle 199
Pursuant to this Law, a foreign company may set up branches withinChinese territory, and may engage in production and operationalactivities.
Under this Law, "foreign company" means a company registered andestablished outside Chinese territory in accordance with the law of aforeign country.Article 200
To set up a branch or branches within Chinese territory, a foreigncompany shall file an application with the responsible Chineseauthorities, and present its company's articles of association, thecompany's registration certificate issued by its home country and otherrelevant documents. After receiving approval, the company shall registerwith the company registration authority as provided by law and obtains abusiness license.
The approval procedures for branches of foreign companies areseparately provided for in regulations issued by the State Council.Article 201
A foreign company which establishes a branch within Chinese territoryshall appoint a representative or agent in charge of the branch andallocate to the branch appropriate funds for the operational activities itis engaged in.
Where it is necessary to provide for a minimum amount of operationalfunds for branches of foreign companies, separate regulations are issuedby the State Council.Article 202
The branch of a foreign company shall indicate in its name thenationality of the foreign company and whether it has limited or unlimitedliability.
The articles of association of the foreign company shall be availableat its branches.Article 203
A foreign company is a foreign legal person and its branchesestablished within Chinese territory do not have the status of Chineselegal persons.
A foreign company assumes civil liability for the operationalactivities of its branches within Chinese territory.Article 204
A branch of a foreign company established with approval and engagingin business activities within Chinese territory shall abide by the laws ofChina and shall not harm the social and public interests of China. Itslegitimate rights and interests shall be protected by the laws of China. Article 205
When a foreign company withdraws its branches from Chinese territory,it shall repay its debts according to law and carry out liquidation in accordance with the provisions of the relevant company liquidationprocedures set out in this Law. Until such debts are repaid, the propertyof the branch shall not be transferred outside of Chinese territory.
Chapter 10 Legal LiabilitiesArticle 206
A company which violates this Law by falsely reporting its registeredcapital when registering, presenting false documentation or employingother deceptions to conceal important facts in order to obtainregistration of the company shall be ordered to remedy the situation. Acompany that falsely reports its registered capital shall be fined atleast five per cent and no more than ten per cent of the amount of theregistered capital falsely reported. A company that presents falsedocumentation or employs other deceptions to conceal important facts shallbe fined at least RMB 10,000 and no more than RMB 100,000. In seriouscases, the company's registration shall be canceled. If the violationconstitutes a criminal offence, criminal liability shall be investigatedin accordance with the law. Article 207
A company which prepares a false prospectus, share subscriptionapplication or corporate bond offer procedure in connection with the issueof shares or corporate bonds shall be ordered to halt such issue andreturn all funds raised together with interest, and is fined an amount ofat least one per cent and no more than five per cent of the amount of thefunds illegally raised. If the violation constitutes a criminal offence,criminal liability shall be investigated in accordance with the law. Article 208
A promoter or shareholder who does not pay cash or property in kind ordoes not transfer property rights, so making a false capital contributionand committing fraud against creditors and the general public, shall beordered to remedy his wrongs and is fined at least five per cent and nomore than ten per cent of the capital which he falsely contributed. If theviolation constitutes a criminal offence, criminal liability shall beinvestigated in accordance with the law. Article 209
A promoter or shareholder who illicitly withdraws his capitalcontribution after the establishment of the company shall be ordered tocorrect his wrongs and is fined at least five per cent and no more thanten per cent of the capital contribution illicitly withdrawn. If theviolation constitutes a criminal offence, criminal liability shall beinvestigated in accordance with the law. Article 210
A company which, without having obtained approval as provided by this Law from the relevant responsible authority, arbitrarily issues shares orcorporate bonds is ordered to halt such issue and return all funds raisedtogether with interest, and shall be fined at least one per cent and nomore than five per cent of the amount of the funds illegally raised. Ifthe violation constitutes a criminal offence, criminal liability shall beinvestigated in accordance with the law. Article 211
A company which violates this Law by keeping accounting books andrecords other than those provided for by law shall be ordered to remedythe situation and shall be fined at least RMB 10,000 and no more than RMB100,000. If the violation constitutes a criminal offence, criminalliability shall be investigated in accordance with the law.
Where assets of the company are held in an account opened in the nameof an individual, illegal income shall be confiscated and there shall befine of at least the same amount and less than five times the amount of the illegal income. If the violation constitutes a criminal offence,criminal liability shall be investigated in accordance with the law. Article 212
If a company furnishes to shareholders or the general public financialstatements which are false or which conceal important facts, the personnelin charge of the matter who have direct responsibility and other personnelwith direct responsibility shall be fined at least RMB 10,000 and no morethan RMB 100,000. If the violation constitutes a criminal offence,criminal liability shall be investigated in accordance with the law. Article 213
If in violation of this Law, state assets are converted into shares orsold at a low price or given to individuals without compensation, thepersonnel in charge of the matter who have direct responsibility and otherpersonnel with direct responsibility are subject to administrativesanctions in accordance with the law. If the violation constitutes acriminal offence, criminal liability shall be investigated in accordancewith the law. Article 214
If a director, supervisor or manager exploits his position to acceptbribes or other illegal income or to take property of the companywrongfully, the illegal income is confiscated, he shall be ordered toreturn the company's property and he is subject to sanctions by the company. If the violation constitutes a criminal offence, criminalliability shall be investigated in accordance with the law.
If a director or manager misappropriates company funds or takescompany funds and lends them to another, he shall be ordered to returnthe funds to the company, is subject to sanctions by the company, andturns over to the company all income obtained. If the violationconstitutes a criminal offence, criminal liability shall be investigatedin accordance with the law.
When a director or manager in violation of this Law uses the company'sassets to provide a guarantee for the debts of its shareholders or otherindividuals, he is ordered to cancel the guarantee, is responsibleaccording to law for providing compensation, and turns over to the companyall income derived from the illegal provision of the guarantee. If thecircumstances are serious, he shall be subject to sanctions by thecompany.Article 215
If a director or manager in violation of this Law operates for himselfor on behalf of another a business in the same line of business as the company in which he holds a position, in addition to turning over allincome obtained, he shall be subject to sanctions by the company. Article 216
If a company does not make allocations to its statutory common reservefund or its statutory common welfare fund in accordance with this Law, the company shall be ordered to make up the exact amount which should havebeen allocated and shall be subject to a fine of at least RMB 10,000 andno more than RMB 100,000.Article 217
In the event of a merger, division, reduction of registered capitalor liquidation, if the company does not send notice to or publish publicnotices for its creditors in accordance with the provisions of this Law,the company shall be ordered to remedy the situation and shall be subjectto a fine of at least RMB 10, 000 and no more than RMB 100,000.
If at the time of liquidation, a company conceals its property, makesfalse entries on its balance sheet or its inventory of property, ordistributes the company's property before repaying its debts, the companyshall be ordered to remedy the situation and shall be subject to a fine ofat least one per cent and no more than five per cent of the assetsconcealed or the debts not repaid before distribution. The personnel incharge of the matter who have direct responsibility and the otherpersonnel with direct responsibility shall be subject to a fine of atleast RMB 10,000 and no more than RMB 100,000. If the violationconstitutes a criminal offence, criminal liability shall be investigatedin accordance with the law. Article 218
If a liquidation group does not file a liquidation report with the company registration authority in accordance with the provisions of this Law, or the liquidation report conceals important facts or containssignificant omissions, the wrongs shall be ordered to be remedied.
If a member of the liquidation group exploits his position for corruptor improper ends, obtains illegal income or wrongfully takes over assetsbelonging to the company, he shall be ordered to return the company'sproperty, the illegally obtained income shall be confiscated, and he shallbe fined at least the amount of and no more than five times the amount of the income illegally obtained. If the violation constitutes a criminaloffence, criminal liability shall be investigated in accordance with thelaw.Article 219
If an institution responsible for assessing, verifying, or examiningand certifying assets provides false documentation, its unlawful income isconfiscated and it is subject to a fine of at least the amount of and nomore than five times the amount of the unlawful income. The institutionshall also be ordered to cease doing business, and the certification of the qualifications of the personnel directly responsible shall be revokedby the relevant responsible authority. If the violation constitutes acriminal offence, criminal liability shall be investigated in accor