PRC Company Law Amendment – Implications for Foreign Investors

Summary

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• The PRC Company Law has been incrementally revised over the years, and the latest update is a significant one for foreign-investors
• The changes aim to optimize governance, strengthen shareholders' capital contribution responsibility, and enhance the accountability senior individuals
• Investors will be able to avail themselves of greater protection; however, gaining a full and in-depth understanding of the amendments is vital

The Amended PRC Company Law (中华人民共和国公司法) (hereafter referred to as the "New Company Law") has attracted significant attention. This sixth amendment to the Company Law, released on December 29, 2023, and scheduled to take effect on July 1, 2024, has introduced a number of significant changes aiming to optimize governance, strengthen shareholders' capital contribution responsibility, enhance the accountability of directors, supervisors and general officers, and streamline establishment and liquidation procedures. Given that the PRC Foreign Investment Law (中华人民共和国外国投资法), promulgated in 2019, has eliminated the difference between corporate governance structures of foreign-invested companies and that of domestic-invested companies by prescribing that the legal forms and organizational structures of all Foreign Invested Companies shall be adjusted in accordance with the Company Law by December 31, 2024, the New Company Law will have far-reaching implications for foreign-invested companies and foreign investors. It is imperative for foreign investors to gain sufficient understanding of these changes.

Recent statistics from the Ministry of Commerce of the PRC indicate that the limited liability company (LLC) is the most prevalent form for foreign-invested companies in China. In this context, foreign investors should be aware of certain revisions introduced in the New Company Law that may result in substantial changes in terms of their business activities as well as M&A activities involving the LLC in China. Additionally, the New Company Law offers additional protection mechanisms for shareholders, including foreign investors.