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China's current Company Law was adopted by the Fifth Session of the Standing Committee of the Eighth National People's Congress on December 29, 1993, and came into force on July 1, 1994. On December 29, 2023, the Seventh Session of the Standing Committee of the 14th National People's Congress deliberated and passed the revised Company Law, which will come into force on July 1, 2024. Passed and implemented at the same time after a gap of 30 years, this amendment pays tribute to the 30th anniversary of the Company Law, and the Company Law is moving towards a new era and a new journey.
The reason why this revision is called a major overhaul is because the revision of the company law lasted five years and went through four deliberations, according to tradition, the minor repair is "positive", and the major repair is "fixed", and the company law has undergone four amendments and one revision since its promulgation, and this revision is the second revision, which is the most revised content and the largest one since the implementation of the company law: the new company law has a total of 15 chapters and 266 articles, and the company law in 2018 On the basis of the 218 articles in 13 chapters, 16 articles have been deleted, and 228 articles have been added or amended, of which more than 110 articles have been substantively amended.
As the deepening and upgrading of state-owned enterprise reform is fully implemented in 2024 and ushers in a big year of reform, the importance of the new company law is self-evident to make up for the final shortcomings of the mature and finalized modern enterprise system with Chinese characteristics. We will also launch a series of explanatory articles to share information. Today, we will talk about the company's three major capital systems and the process of change.
The ins and outs of the three major capital systems
There are three main models of corporate capital system: authorized capital system, authorized capital system and compromise capital system. As one of the important legal systems of the Company Law, the capital system is the core function of ensuring the normal operation and development of the company and properly balancing and coordinating the conflicts of interest of the company's shareholders and other relevant parties. The change of the company's capital system is a dynamic process of discovering and solving problems, and there is no immutable institutional model.
(1) Authorized capital system
The authorized capital system means that when a company is established, the total amount of the company's capital must be clearly specified in the articles of association and issued at one time and fully subscribed. After the establishment of the company, if the capital is increased due to operational or financial needs, the new share issuance procedure of the company's articles of association must be changed by resolution of the shareholders' meeting. The authorized capital system guarantees the company's capital credit, protects the interests of the company's creditors, and achieves fair and safe transactions by sacrificing financing efficiency.
The authorized capital system constructs a corporate credit system with authorized capital as the core, so that the company has sufficient capital and plays the guarantee function of capital credit, so as to meet the trust and interests of creditors in the company and provide reasonable expectations and effective guarantees for transaction security. However, the authorized capital system also exposes its drawbacks: the authorized capital system increases the financing pressure of the company's promoters, and the excessively high minimum capital limit causes idle funds, which is not conducive to the establishment and operation of the company.
(2) Authorized capital system
The authorized capital system means that when establishing a company, the total capital must be clearly specified in the articles of association, but the company can be established as long as the shareholders subscribe to part of the capital, and the board of directors is authorized to issue new shares at any time according to the company's operation if the capital is not sufficient. The authorized capital system improves the financing efficiency and effectively protects the interests of the company's shareholders at the cost of weakening the company's capital credit.
The authorized capital system does not require a one-time subscription of the registered capital specified in the articles of association of the company, as long as part of the funds are raised, the company can be successfully established, thereby promoting the effective use of funds and greatly stimulating the enthusiasm of the society for investment and entrepreneurship.
The authorized capital system also has the following disadvantages and limitations: first, due to the low threshold for establishing a company, the company is likely to become a "protective umbrella" for avoiding liability, which is also contrary to the legislative intent of the proposed company legal person;Second, the authorized capital system relaxes the restrictions on the amount and duration of the company's capital, resulting in the lack of a stable foundation for the company's assets, bringing greater risks to creditors, and easily causing chaos in the establishment of shell companies, which is not conducive to maintaining transaction security.
There is a clear distinction between the authorized capital system and the authorized capital system:
The first is whether the company's capital is issued at one time or in installments when the company is established. If it is a one-time issuance, it is an authorized capital system, otherwise it is an authorized capital system.
The second is whether the issuance of capital after the establishment of the company is decided by the shareholders' meeting or the board of directors. If it is decided by the shareholders' meeting, it is an authorized capital system, otherwise it is an authorized capital system.
Therefore, although the Company Law has been amended several times in the past, the minimum amount of registered capital has been abolished and the subscription system has been implemented, the company's capital is still a one-time issuance, but it can be subscribed, and the board of directors does not have the right to issue capital. Therefore, China's corporate capital system has always been a statutory capital system.
(3) Compromise capital system
The compromise capital system means that after the establishment of the company, the total amount of capital specified in the articles of association of the company can be authorized to issue new shares at any time without having to be recognized, but such issuance must be carried out within the statutory period. The compromise capital system allows the board of directors to issue capital, although the power is not completely free and is bound to a certain statutory period, but it has broken through the shackles of the board of directors in the statutory capital system that does not enjoy the right to issue capital, and has the original intention of "authorization", and has the essential characteristics of the authorized capital system. Therefore, the eclectic capital system is essentially an authorized capital system, which is different from the authorized capital system in the strict sense and the installment payment system under the premise of the authorized capital system.
The compromise capital system is an organic combination of the authorized capital system and the authorized capital system, which can learn from each other's strengths and reduce the amount of capital to establish a company to a certain extent, but the guarantee function of the company's capital has not been completely abandoned, which is more conducive to maintaining transaction security and the interests of creditors than the authorized capital system. On this basis, the board of directors is granted the right to issue capital within a fixed period, which is significantly more flexible, convenient and effective than the authorized capital system, which is conducive to safeguarding the interests of shareholders and improving the efficiency of financing.
Capital credit vs. asset credit
When judging a company's credit and financial strength, capital credit is often confused with asset credit. The so-called capital credit is to guarantee the company's credit with the registered capital specified in the company's articles of association, and the legal capital production is the basis of the systemThe so-called asset credit, that is, the company's actual assets in the course of business to guarantee the company's credit, compared with the authorized capital system, its relevance to the authorized capital system is stronger.
Under the strict authorized capital system, capital credit has been fully demonstrated, but with the relaxation of the authorized capital system, capital credit is actually weakening, and asset credit has increasingly become a key factor for outsiders to decide whether to trade with the company because it can reflect the company's real asset status and solvency. However, asset credit cannot completely replace capital credit, and capital credit determines the obligations and responsibilities of shareholders to the company, which is not only the basis of asset credit, but also the basis for creditors to judge whether the company's capital is significantly insufficient and constitutes the basis for "lifting the corporate veil" to hold shareholders accountable.
Therefore, the reform direction of the company's capital system needs to establish and improve the company's credit system, including capital credit and asset credit, absorb the respective advantages of capital credit and asset credit, and ensure the safety and stability of investment.
The history of changes in China's capital system
Since the promulgation of the first "Company Law" in 1993, China's corporate capital system has always adopted the statutory capital system, but with the continuous development of China's market economy, its drawbacks have gradually been exposed and revealed. With the continuous development of the socialist market economy, China's corporate capital system has also undergone many revisions, from the strict statutory capital system, to the reduction of the minimum amount of statutory registered capital, from a one-time full payment to an installment payment system, and then to the abolition of the minimum amount of statutory registered capital, from the paid-in system to the subscription system. The company's capital system has shown an evolution from a strict statutory capital system to a relatively relaxed statutory capital system.
The amendment to the Company Law introduces the authorized capital system, which grants the board of directors the right to issue new shares for the first time, but at the same time imposes certain restrictions, which is more like a compromise capital system on the basis of the authorized capital system. It should be pointed out that the introduction of the authorized capital system only applies to joint-stock companies,** and the authorized capital system is still in force, which is mainly based on the following considerations:
On the one hand, under the conditions of the existing system, there is no limit on the minimum amount of registered capital for the establishment of a company, and the subscription system is also allowed, recognizing the term interests of shareholders, and it is usually a small and medium-sized enterprise with a limited number of people, and it is not a problem to raise capital, and the statutory capital system does not affect the establishment of the company. On the other hand, ** has the nature of people and capitalization, and the joint-stock company is a typical capital company. The former is closed, so it is more compatible and more emphasis is placed on the role of supervisionThe latter is open and highly resourced, and only by giving it a broader space for autonomy can it play an effective role in creating social wealth. Therefore, it is not possible to stubbornly deny the authorized capital system or blindly affirm the authorized capital system, but to weigh and determine it in combination with the type of company and the capital system.
To sum up, the revision of the company law to introduce the authorized capital system, which is a breakthrough measure for the change of the company's capital system, directly conveys the signal that China's corporate capital system has shifted from the statutory capital system to the authorized capital system, and on this basis, to promote capital control to capital autonomy and capital credit to asset credit, which will undoubtedly inject a strong impetus into the development of China's market economy.