On December 29, 2023, the seventh meeting of the Standing Committee of the 14th National People's Congress voted to approve the newly revised oneCompany Law of the People's Republic of China (hereinafter referred to as the "Company Law")., effective from July 1, 2024.
China's current Company Law was formulated in 1993, individual provisions of the Company Law were revised in 1999 and 2004, comprehensively revised in 2005, and revised twice in 2013 and 2018. Compared with the 2018 version of the Company Law, 16 articles have been deleted and 228 articles have been added or amended.
What changes do listed companies need to focus on in revising so many provisions?
1. Shareholders and shareholders' meetings.
The expression "general meeting of shareholders" will be uniformly changed to "shareholders' meeting", and the expression in the articles of association and other systems of the listed company may need to be amended in the future.
Amend the functions and powers of the shareholders' meeting
The shareholders' meeting has deleted the two functions and powers of "deciding on the company's business policy and investment plan" and "reviewing and approving the company's annual financial budget plan and final account plan".
In the functions and powers of the shareholders' meeting, "elect and replace directors and supervisors not served by employee representatives" is amended to "elect and replace directors and supervisors", and the identities of directors and supervisors are no longer distinguished
The new shareholders' meeting may authorize the board of directors to make a resolution on the issuance of corporate bonds;
The new shareholders' meeting may authorize the board of directors to decide to issue shares not exceeding 50% of the issued shares within three years, and if there is a change in the company's registered capital and the number of issued shares, the amendment to the matters recorded in the articles of association of the company shall not be voted on by the shareholders' meeting;
The new "the price paid by the company on a consolidated basis shall not exceed 10% of the net assets of the company" may be resolved without a resolution of the shareholders' meeting, unless otherwise provided in the articles of association.
Reduction of the shareholding requirement for shareholders who make provisional proposals
According to the Measures for the Administration of Independent Directors of Listed Companies, the shareholding ratio of shareholders who nominate candidates for independent directors is 1%, but the temporary proposal right of the shareholders' meeting of listed companies requires 3% of the shares. The amendment reduces the shareholding requirement from 3% to 1% for shareholders exercising the right to make provisional proposalsIt also requires listed companies not to increase the shareholding ratio of shareholders who put forward temporary proposals, which is bound to strengthen investor protection for small and medium-sized shareholders.
This is to strengthen the protection of small and medium-sized shareholders, to protect the legitimate rights and interests of small and medium-sized shareholders, generally in the company's daily decision-making, it is difficult for small and medium-sized shareholders to have a significant impact on the company's affairs or decision-making intervention, basically the decision-maker or actual controller makes decisions, and most of the small and medium-sized shareholders only want to make profits.
Expand the scope of shareholders' right to know
The right of shareholders to copy the register of shareholders and inspect accounting documents has been addedIf the company refuses to provide inspection, the shareholders may file a lawsuit with the people's court. In addition, shareholders who inspect the accounting books or accounting vouchers are required to meet the requirement of holding more than 3% of the company's shares individually or collectively for more than 180 consecutive days, but the company's articles of association may provide a lower limit for the shareholding ratio. The aforesaid shareholders' right of access includes wholly-owned subsidiaries.
In current practice, in order to confirm the identity of shareholders, most listed companies require shareholders to go to the site to verify the identity of shareholders and then check the shareholder register, and are not allowed to take photos or make copies. After the revision of the Company Law, it is necessary to pay attention to the wording in the subsequent communication with shareholders and not to violate the rules. In addition, the revision of the "Company Law" also mentions that if shareholders consult and copy relevant materials, if insider information is involved, they shall comply with the provisions of the "People's Republic of China ** Law".
The right to know is first of all to check the accounts, if the shareholders are not even clear about the company's accounts, how can they know the company's operating conditions!
Knowing the business situation is not necessarily a bad thing, and if you find that the company is in risk, you can also make constructive suggestions to help the company resolve the risk, and I think it is a good thing to disclose the accounts within the shareholders in moderation.
Directors and Board of Directors
The authority of the board of directors to "formulate the company's annual financial budget plan and final account plan" is deleted
Remove the manager's authority, make it clear that the manager is responsible to the board of directors, and the manager's authority is granted by the company's articles of association or the board of directors;
The functions and powers granted to the board of directors in the aforesaid amendment to the functions and powers of the shareholders' meeting have been added, in which if the shareholders' meeting authorizes the board of directors to decide to issue new shares, the board of directors shall approve it by more than two-thirds.
The limit on the number of members of the board of directors has been revised from "five to nineteen" to "three or more". In practice, the average number of directors of A-share listed companies is 8, and only Minsheng Bank and Shanghai Rural Commercial Bank have reached the original upper limit of 19 directors in the A** market, so although the upper limit of the number of directors is deleted in this amendment, it is not expected to have a substantial impact on listed companies.
In accordance with the provisions of the articles of association, an audit committee composed of directors may be set up in the board of directors to exercise the functions and powers of the board of supervisors as stipulated in the company law, and there is no board of supervisors or supervisors. It also clearly requires that more than half of the members of the Audit Committee shall not hold any position other than directors in the Company, and shall not have any relationship with the Company that may affect their independent and objective judgment. For listed companies, according to the Measures for the Administration of Independent Directors of Listed Companies, there should be more than half of the independent directors in the audit committee.
In practice, most of the supervisors are ordinary employees of the company, and the current laws and regulations lack a supporting mechanism to ensure the effective exercise of their statutory supervisory powers. Therefore, this article is a major reform of the revision of the Company Law, and the single-tier governance structure will greatly reduce the cumbersome and complex procedures of the original three committees and improve the efficiency of governance.
In fact, some red-chip companies listed on the A-share market are already applying a single-tier governance structure. According to the provisions of the Several Opinions on Launching the Pilot Program of Domestic Issuance** or Depositary Receipts by Innovative Enterprises issued by the China Securities Regulatory Commission, the shareholding structure, corporate governance, and operation specifications of the pilot red-chip enterprises may be subject to the provisions of the Company Law of the place of overseas registration, but the arrangements for the protection of investors' rights and interests should generally not be lower than the requirements of domestic laws. For example, China Mobile made it clear in its prospectus that "the Articles of Association have been formulated in accordance with the provisions of the Company Regulations and other applicable laws and regulations, and in light of the actual situation of the company, and a corporate governance structure including the general meeting of shareholders and the board of directors has been established, and the Company Regulations do not require the company to establish supervisors and a board of supervisors".
Improving corporate governance capabilities and improving corporate governance is also a guarantee for the truly high-quality development of listed companies.
In the past, the board of supervisors was only a formality, and the form was greater than the substance
It is also a good thing that the functions and powers of the audit committee have been enhanced, and strengthening the supervision and audit of listed companies will play a great role in grasping the company's financial, tax, legal and market risks in advance.
There are still many weak links in the governance of China's listed companies, which is a reflection of the imperfect system construction.
New restrictions on the qualifications of directors, supervisors and senior executives
New restrictive provisions have been added that have not exceeded two years from the expiration date of the probationary period, that a company or enterprise serving as a legal person has been ordered to close down for less than three years, and that a person listed by the court as a judgment defaulter may not serve as a director, supervisor or senior executive. Among them, the provision that judgment defaulters are not allowed to serve as directors, supervisors and senior executives is based on the relevant provisions of the "Memorandum of Cooperation on the Implementation of Joint Disciplinary Action against Judgment Defaulters" to expand the scope of enterprises in which judgment defaulters are not allowed to serve as directors, supervisors and senior executives.
In addition, it should be noted that, according to the relevant requirements of the current Measures for the Administration of Equity Incentives, changes in the qualifications of directors, supervisors and senior executives will also affect whether they can become the recipients of equity incentives.
The qualification restrictions for directors, supervisors and senior executives are also very good, and it is necessary to control risks.
If the directors, supervisors and senior executives of a listed company are judgment defaulters or have a criminal record, how big is this risk?
Auditors and the Board of Supervisors
The board of supervisors may request directors and senior executives to submit reports on their executive duties
The board of supervisors is the main body that decides the hiring and dismissal of accounting firms.
Revise the voting ratio for the election of the presiding officers of the three sessions
The shareholders' meeting and the board of directors shall be presided over by the chairman of the board, and when the chairman of the board of directors and the vice chairman of the board of directors are unable to perform their duties, a director shall be jointly elected by more than half of the directors to preside;The board of supervisors shall be presided over by the chairman of the board of supervisors, and when the chairman of the board of supervisors and the vice chairman of the board of supervisors are unable to perform their duties, a supervisor shall be jointly elected by more than half of the supervisors to preside. This time, the above-mentioned provisions on the nomination of other directors or supervisors to perform their duties are revised from "more than half" to "more than half", and the number is no longer included, and the voting ratio requirement is increased
Added a report on related party transactions of directors, supervisors and senior executives
If a director of a newly listed company is related to the enterprise or individual involved in the resolution of the board meeting, the director shall report in writing to the board of directors in a timely manner。In addition, directors, supervisors and senior executives are required to directly or indirectly enter into contracts or conduct transactions with the Company, and shall report to the board of directors or the shareholders' meeting on matters related to the conclusion of the contract or the transaction, and shall be approved by the board of directors or the shareholders' meeting in accordance with the provisions of the articles of associationThe provisions of the preceding paragraph shall apply to the close relatives of directors, supervisors and senior executives, enterprises directly or indirectly controlled by directors, supervisors and senior executives or their close relatives, as well as related persons with other related relationships with directors, supervisors and senior executives, who enter into contracts or conduct transactions with the company.
The articles of association of the newly listed company shall specify the matters
The articles of association of a newly added listed company shall specify "the number of shares issued at the time of establishment", the amount of each share of par shares, "the number of shares of each class of shares and their rights and obligations if class shares are issued", the "method for the formation and change of the company's legal representative", and "the remuneration evaluation mechanism for directors, supervisors and senior executives".
Newly listed companies are not allowed to provide financial assistance and exclusions
A newly listed company shall not provide gifts, loans, guarantees or other financial assistance for others to obtain the shares of the Company or its parent company, except for the implementation of an employee stock ownership plan. For the benefit of the company, the company may provide financial assistance for others to obtain the shares of the company or its parent company upon resolution of the shareholders' meeting, or a resolution made by the board of directors in accordance with the articles of association or the authorization of the shareholders' meeting, but the cumulative total amount of financial assistance shall not exceed 10% of the total issued share capital. Listed companies that may be involved in the aforesaid situations should pay attention to the simultaneous amendment of the articles of association.