Substantial amendments to China's Company Law are believed to have been proposed and may be on the agenda of the Standing Committee of the National People's Congress this year.
In line with worldwide trends, it is proposed that a limited liability company may be formed by one person. At present, a limited liability company must be formed with at least two shareholders and have no more than 50 shareholders.
One of the greatest restrictions on PRC companies is that a company cannot make an investment in another company if the investment is greater than 50% of its net assets. This restriction will be removed under the proposal. Other restrictions on the transfer of equity interests and share repurchases might also be relaxed.
Under the existing Company Law, the value of capital contributions by a promoter by way of industrial property rights and non-patented technology must not exceed 20% of the total registered capital. This restriction might be removed. Further, the new law might expressly recognize capital contributions in the form of shares of other companies.
To be consistent with regulations promulgated by the China Securities Regulatory Commission, the amended Company Law might require that one-third of the members of the boards of listed companies are independent directors.
The basic qualifications for companies to be listed might be lowered. One of the basic requirements for a company to be listed is that it must have a registered capital of no less than Rmb50 million ($6 million). If the capital exceeds Rmb400 million, 15% or more of its capital must be held by the public. These requirements might be lowered to Rmb30 million and 10% respectively.
The proposed amendments have not yet been officially issued. Details of the amendments will only come to light when they are approved by the National People's Congress.
Christopher Cheng and Debbie Chen