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Order of the President of the People's Republic of China No.42

The revised Company Law of the People's Republic of China was adopted at the 1
8th Meeting of the Standing Committee of the Tenth National People's Congress
of the People's Republic of China on October 27, 2005, is hereby promulgated a
nd shall come into effect as of January 1, 2006.
 
 
The President of the People's Republic of China: Hu Jintao
October 27, 2005
 
  (Adopted at the fifth meeting of the standing committee of the eighth National
 People's Congress on December 29, 1993, revised for the first time in accorda
nce with the Decision on Amending the Company Law of the People's Republic of
China adopted at the 13th meeting of the Standing Committee of the 9th Nationa
l People's Congress on December 25, 1999; revised for the second time in accor
dance with the Decision on Amending the Company Law of the People's Republic o
f China adopted at the 11th Meeting of the Standing Committee of the tenth Nat
ional People's Congress on August 28, 2004; and revised for the third time in
accordance with the Decision on Amending the Company Law of the People's Repub
lic of China adopted at the 18th Meeting of the Standing Committee of the tent
h National People's Congress on October 27, 2005 )  
 
 
 
Chapter 1   General Provisions
 
 
Article 1  
This Law is enacted in order to standardize the organization and activities of
 companies, to protect the legitimate rights and interests of companies, share
holders and creditors, to maintain socio-economic order and to promote the dev
elopment of the socialist market economy. 
 
Article 2  
The Term "company" referred to in this Law shall mean a limited liability comp
any or a joint stock limited company incorporated within the territory of the
People's Republic of China in accordance with this Law. 
 
Article 3  
A company is an enterprise legal person, has independent property of legal per
son, and shall enjoy the right to the entire property of the legal person. A c
ompany shall be liable for its debts to the extent of all its assets.
 
In the case of a limited liability company, shareholders shall assume liabilit
y towards the company to the extent of the amount of the capital contribution
subscribed for by them respectively; in the case of a joint stock limited comp
any, shareholders shall assume liability towards the company to the extent of
the shares subscribed for by them respectively. 
 
Article 4  
The shareholders of a company shall, according to law, enjoy such rights of ow
ners as benefiting from assets of the company, making major decisions and sele
cting managerial personnel. 
 
Article 5  
A company must, when engaging in business activities, abide by the laws and ad
ministrative regulations, observe social morals and commercial ethics, be in i
ntegrity and good faith, accept supervision of the government and the public,
and undertake social liability.
 
The legitimate rights and interests of companies shall be protected by law and
 shall be inviolable. 
 
Article 6  
Application shall be made to the company registration authority for registrati
on of the incorporation of a company. Companies meeting the conditions on inco
rporation provided by this Law shall be registered as limited liability compan
ies or joint stock limited companies respectively; while companies failing to
meet the conditions on incorporation provided by this Law shall not be registe
red as limited liability companies or joint stock limited companies.
 
If the incorporation of a company must be reported for approval in accordance
with the provisions of laws or administrative regulations, the procedure for a
pproval shall be handled prior to the registration of the company according to
 law.
 
The public may apply to the company registration authority for enquiry of the
registered items of a company, and the company registration authority shall pr
ovide the service of such enquiry. 
 
Article 7  
The company registration authority shall issue a business license to a company
 incorporated according to law. The date of the issuance of the company's busi
ness license shall be the date of the incorporation of the company.
 
The business license of the company shall state such matters as the name, domi
cile, registered capital, business scope and the name of the legal representat
ive of the company.
 
In case of any change in any item recorded in the company's business license,
the company shall apply for registration of the change according to law, and t
he company registration authority shall reissue the business license. 
 
Article 8  
A limited liability company established according to this Law must clearly ind
icate the words "limited Liability company" in its name.
 
A joint stock limited company established according to this Law must clearly i
ndicate the words "joint limited company" in its name. 
 
Article 9  
If a limited liability company is to be converted into a joint stock limited c
ompany, it shall satisfy the requirements for a joint stock limited company st
ipulated by this Law. If a joint stock limited company is to be converted into
 a limited liability company, it shall satisfy the requirements for a limited
liability company stipulated by this Law.
 
Where a limited liability company is converted into a joint stock limited comp
any or a joint stock limited company is converted into a limited liability com
pany, the claims and debts of the original company shall be succeeded to the c
onverted company. 
 
Article 10  
A company's domicile shall be the place where its main administrative organiza
tion is located. 
 
Article 11
Articles of association must be formulated according to law when a company is
incorporated. A company's articles of association shall have binding force on
the company, its shareholders, directors, supervisors and senior executives. 

 
Article 12  
A company's scope of business shall be defined in its articles of association
and registered according to law. The company may revise its articles of associ
ation and change its business scope, provided that it shall apply for registra
tion of such revision and change.
 
Items within the company's business scope that shall be subject to approval un
der laws, administrative regulations shall be approved according to law. 
 
Article 13  
The post of a company's legal representative shall be held by the chairman of
the board of directors, executive director or the manager of the company and s
hall be registered according to law. If the company's legal representative is
changed, the company shall handle the procedure for registration of the change
. 
 
Article 14  
A company may establish branches. The company shall, if establishing branches,
 apply to the company registration authority for registration of the establish
ment and acquire the business license of the branches. The branches do not pos
sess the status of legal person and their civil liabilities shall be borne by
the company.
 
A company may establish subsidiaries, which shall possess the status of legal
person, and shall independently bear civil liabilities according to law. 
 
Article 15  
A company may invest in other enterprises; provided that, the company shall no
t become the investor undertaking the joint and several liability for the debt
s of the invested enterprises, except as otherwise provided by laws. 
 
Article 16  
Where a company is to invest in other enterprise or provide guarantee for othe
rs, it shall be decided by the board of directors or the shareholders meeting
or the shareholders general meeting in accordance with the provisions of its a
rticles of association; if the articles of association of the company stipulat
e the limit of the total amount of the investment or the guarantee, or the amo
unt of the investment or the guarantee in single item, then, the limit shall n
ot be exceeded.
 
If a company is to provide guarantee for its shareholders or actual controller
s, it shall be decided by the shareholders meeting or the shareholders general
 meeting.
 
The shareholders as provided in the preceding Paragraph and the shareholders c
ontrolled by the actual controllers as provided in the preceding Paragraph sha
ll not participate in the voting for the matter provided in the preceding Para
graph. Such voting shall be passed based on more than half of the voting right
s held by other shareholders attending the meeting. 
 
Article 17  
Companies must protect the lawful rights and interest of their staff and worke
rs, sign labor contracts with their staff and workers according to law, partic
ipate in social insurance, and strengthen labor protection so as to achieve sa
fety in production.
 
Companies shall apply various forms to strengthen professional education and o
n-the-job training for their staff and workers so as to improve their quality.
 
 
Article 18
Company's staff and workers shall, in accordance with the Trade Union Law of t
he People's Republic of China, organize a trade union to carry out the trade u
nion activities and protect the lawful rights and interests of the staff and w
orkers. The company shall provide its trade union with conditions necessary fo
r carrying out its activities. The trade union of the company shall, on behalf
 of the staff and works of the company and according to law, sign with the com
pany a collective contract on such matters as labor salaries, working hours, w
elfare, insurance and labor safety and health of the staff and works.
 
Companies shall, through the staff and workers congress or other forms, practi
ce democratic management in accordance with the provisions of the Constitution
 and relevant laws.
 
If a company is to make decision on system reform, major issues on business op
eration or formulation of important rules and regulations, it shall solicit th
e opinions of its trade union, and solicit the opinions and suggestions of its
 staff and workers through the staff and workers congress or other forms. 
 
Article 19  
In accordance with the Constitution of the Communist Party of China, the organ
ization of the Communist Party of China shall be established in a company so a
s to carry out their activities of the communist Party. The company shall prov
ide its communist organization with conditions necessary for carrying out its
activities. 
 
Article 20  
The shareholders of a company shall abide by laws, administrative regulations
and the articles of association of the company, exercise their rights accordin
g to law, and shall not abuse their rights to damage the interests of the comp
any or other shareholders nor abuse the independent status of corporate legal
person and shareholders' limited liability to damage the interests of the comp
any's creditors.
 
The shareholders, who abuse their rights so as to cause losses to the company
or other shareholders, shall undertake the liability for compensation.
 
If the shareholders of a company abuse the independent status of corporate leg
al person and shareholders' limited liability to avoid debts and damage the in
terests of the company's creditors, they shall undertake the joint and several
 liability for the company's debts. 
 
Article 21  
The holding shareholders, actual controllers, directors, supervisors, senior e
xecutives of a company shall not, by taking advantage of their affiliate relat
ionship, damage the interests of the company.
 
They shall, in violation of the provisions of the preceding Paragraph, underta
ke the liability for compensation if any loss is caused to the company thereby
. 
 
Article 22  
The contents in the resolutions of the shareholders meeting or the shareholder
s general meeting or the board of directors of a company, if in violation of t
he laws or administrative regulations, shall be null and void.
 
If the procedure for convening meetings or the voting method of the shareholde
rs meeting or the shareholders general meeting or the board of directors of a
company are in violation of the laws, administrative regulations or the articl
es of association of the company, or the contents in the resolutions thereof a
re in violation of the articles of association, the shareholders of the compan
y may, within 60 days upon the date of making the resolution, request the peop
le's court to cancel them.
 
If the shareholders bring a lawsuit in accordance with the provisions of the p
receding Paragraph, the people's court may, upon the request the company, requ
ire the shareholders to provide the relevant guarantee.
 
If the company has handled the procedure for registration of change in accorda
nce with such resolutions of its shareholders meeting or the shareholders gene
ral meeting or the board of directors, the people's court shall declare such r
esolutions invalid, or, after such resolutions are cancelled, the company shal
l apply to the company registration authority for cancellation of the registra
tion of change. 
 
Chapter 2   Incorporation and Organizational Structure of the Limited Liabilit
y Companies
 
 
Section 1   Incorporation
 
 
Article 23  
The following conditions shall be fulfilled for the incorporation of a limited
 liability company:
 
(1) the number of shareholders shall conform to the statutory number;
 
(2) the capital contributions of the shareholders shall reach the statutory mi
nimum amount of capital;
 
(3) the shareholders shall have jointly formulated the articles of association
 of the company;
 
(4) the company shall have a name and an organizational structure established
in compliance with the requirements for a limited liability company; and
 
(5) the company shall have a domicile. 
 
Article 24  
A limited liability company shall be jointly invested in and incorporated by n
ot more than 50 shareholders. 
 
Article 25  
The articles of association of a limited liability company shall specify the f
ollowing particulars:
 
(1) the name and domicile of the company;
 
(2) the scope of business of the company;
 
(3) the registered capital of the company;
 
(4) the names or titles of the shareholders;
 
(5) the method and amount of capital contributions by the shareholder;
 
(6) the organization of the company, its method of creation, functions and pow
ers and the rules of procedure;
 
(7) the legal representative of the company;
 
(8) other items which the shareholders meetings deem necessary to be specified
.
 
The shareholders shall sign and affix their seals to the company's articles of
 association. 
 
Article 26  
The registered capital of a limited liability company shall be the amount of t
he capital contributions subscribed for by all of its shareholders as register
ed with the company registration authority. The amount of initial capital cont
ributions paid by all the shareholders of the company shall not be less than 2
0% of the registered capital of the company nor less than the statutory minimu
m amount of registered capital, and the remaining of the registered capital ma
y be paid up by the shareholders within two year upon the incorporation of the
 company, provided that, in case of a investment company, it may be paid up wi
thin five years upon the incorporation of the company.
 
The minimum amount of the registered capital of a limited liability company sh
all be RMB 30,000. If a higher minimum amount of the registered capital of a l
imited liability company than that as stipulated in the preceding sentence is
provided by laws or administrative regulations, such provisions shall prevail.
 
 
Article 27  
A shareholder may make its capital contributions to a company in currency or b
y contributing such non-currency property as material objects, intellectual pr
operty rights, land-use rights at their appraised value that may be evaluated
in currency and may be transferred according to law; except those properties t
hat shall not be contributed as capital in accordance with the provisions of l
aws or administrative regulations.
 
The non-currency property contributed as capital shall undergo an appraisal, v
aluation and verification, and shall not be overvalued or undervalued. If the
appraisal and valuation of such property is provided by laws or administrative
 regulations, such provisions shall apply.
 
The amount of capital contribution in currency by all shareholders shall not b
e less than 30% of the registered capital of the limited liability company. 

 
Article 28  
Each shareholder shall make in full the amount of the capital contribution sub
scribed for by it under the articles of association of the company. Where a sh
areholder makes its capital contribution in currency, it shall deposit the ful
l amount of such capital contribution in currency in the bank account opened b
y the limited liability company. Where a shareholder makes its capital contrib
ution in the form of non-currency property, the transfer procedures for the pr
operty rights shall be handled according to law.
 
Shareholders failing to make the capital contributions in accordance with the
preceding Paragraph shall be liable for breach of contract towards the shareho
lders who have made their capital contributions in full and on time. 
 
Article 29  
After all shareholders have made their capital contribution in full, such cont
ributions must be verified by a statutory capital verification institution whi
ch shall issue capital verification certificates. 
 
Article 30  
After the total capital contributions of the shareholders have been verified b
y a statutory capital verification institution, application shall be made to t
he company registration authority for registration of the incorporation of the
 company by a representative designated by all the shareholders or by an agent
 jointly entrusted by them, who shall submit such documents as an application
for registration, the articles of association and the capital verification cer
tificate. 
 
Article 31  
Where, after the incorporation of a limited liability company, it is discovere
d that the actual value of the non-currency property as capital is notably les
s than the value stated in the articles of association, the shareholders that
made such contributions shall make up the deficiency; those who are shareholde
rs at the time of the incorporation of the company shall bear joint and severa
l liability therefor. 
 
Article 32  
After a limited liability company has been incorporated, it shall issue capita
l contribution certificates to its shareholders.
 
A capital contribution certificate shall specify the following items:
 
(1) the name of the company;
 
(2) the date of the incorporation of the company;
 
(3) the registered capital of the company;
 
(4) the names or titles of the shareholders, the amount and date of their capi
tal contribution; and
 
(5) the serial number of the capital contribution certificate and the date of
its verification and issuance.
 
A capital contribution certificate shall bear the seal of the company on it. 

 
Article 33  
A limited liability company shall prepare a roster of its shareholders with th
e following items therein:
 
(1) the names or titles and domiciles of the shareholders;
 
(2) the amounts of capital contributions of the shareholders; and
 
(3) the serial numbers of the capital contribution certificates.
 
The shareholders recorded in the roster may claim to exercise the shareholder'
s right based on the roster.
 
The company shall register with the company registration authority the names o
r titles and the amounts of capital contributions of its shareholders; in case
 of change of such registered items, the registration of the change shall be h
andled. If the company fails to register such items or such change, it shall n
ot counter any third party. 
 
Article 34  
A shareholder shall have the right to look up and copy the articles of associa
tion, the minutes of shareholders meetings, the resolutions of the meeting of
the board of directors, the resolutions of the meetings of the supervisory boa
rd and the financial statements of the company.
 
The shareholders may require to look up the accounting books of the company. A
 shareholder shall, if requiring to look up the accounting books of the compan
y, submit to the company a written request specifying the purpose. If the comp
any reasonably holds that the shareholder's request for looking up the account
ing books is for undue purpose and may damage the legal interests of the compa
ny, it may refuse to provide the access to the accounting books, and shall, wi
thin 15 days upon its receipt of the shareholder's written request, give to th
e shareholder a written reply specifying the reason. If the company refuses to
 provide the access to the accounting books, the shareholder may request the p
eople's court to require the company to provide the access to the accounting b
ooks. 
 
Article 35  
Shareholders shall draw dividends in proportion to their paid-up capital contr
ibutions. Where a company increases capital, the existing shareholders shall h
ave the priority to subscribe for new shares in proportion to their paid-up ca
pital contributions, except as otherwise agreed by all the shareholders. 
 
Article 36  
Once a company is incorporated, its shareholders shall not withdraw their capi
tal contributions. 
 
Section 2   Organizational Structure
 
 
Article 37  
The shareholders meeting of a limited liability company shall be composed of a
ll the shareholders. The shareholders meeting shall be the organ of power of t
he company and shall exercise its functions and powers in accordance with this
 Law. 
 
Article 38  
The shareholders meeting shall exercise the following functions and power:
 
(1) to decide on the business policy and investment plan of the company;
 
(2) to elect and recall directors and supervisors not acted as by the represen
tatives of the staff and workers, and to decide on matters concerning the remu
neration of directors and supervisors;
 
(3) to examine and approve reports of the board of directors;
 
(4) to examine and approve the reports of the supervisory board or supervisors
;
 
(5) to examine and approve the annual financial budget plan and final accounts
 plan of the company;
 
(6) to examine and approve plans for profit distribution of the company and pl
ans for making up losses;
 
(7) to adopt resolution on the increase or reduction of the registered capital
 of the company;
 
(8) to adopt resolutions on the issuance of company bonds;
 
(9) to adopt resolutions on matters such as the merger, division, transformati
on, dissolution and liquidation of the company; and
 
(10) to amend the articles of association of the company; and
 
(11) to exercise other functions and powers as stipulated in the articles of a
ssociation.
 
If all the shareholders reach a written agreement upon the matters as listed i
n the preceding Paragraph, then a decision may be made directly instead of con
vening the shareholders meeting, and in such case, all the shareholders shall
sign and affix their seals on the written decision. 
 
Article 39  
The first shareholders meeting of a company shall be convened and presided ove
r by the shareholder who has made the biggest capital contribution to the comp
any and shall exercise its functions and powers in accordance with this Law. 

 
Article 40  
Shareholders meetings shall be divided into regular meetings and interim meeti
ngs. Regular shareholders meetings shall be convened on time as stipulated by
the articles of association of the company. Interim shareholders meetings shal
l be convened upon proposal made by shareholders representing one-tenth or mor
e of the voting rights, or, by one-third or more of directors or by the superv
isory board or by the supervisors of the company having no the supervisory boa
rd. 
 
Article 41  
Where a limited liability company has set up a board of directors, its shareho
lders meetings shall be convened by the board of directors and presided over b
y the chairman of the board. Where special circumstances preclude the chairman
 of the board from performing his functions, the meetings shall be presided ov
er by a vice-chairman; if the vice-chairman cannot or fails to perform his fun
ction, the meetings shall be presided over by a director elected by half or mo
re of the directors.
 
Where a limited liability company has not set up a board of director, the shar
eholders meetings shall be convened and presided over by the executive directo
r.
 
If the board of directors or the executive director of the company cannot or f
ails to perform the functions to convene the shareholders meetings, then the s
upervisory board or the supervisors of the company having no the supervisory b
oard shall be responsible for convening and presiding over the shareholders me
etings; if the supervisory board or the supervisors fail to convene and presid
e over the shareholders meeting, the shareholders representing one-tenth votin
g rights may convene and preside over the shareholders meeting at their own di
scretion. 
 
Article 42  
All shareholders shall be notified 15 days prior to the convening of a shareho
lders meeting; except as otherwise provided in the articles of association of
the company or otherwise agreed by all shareholders.
 
The shareholders meeting shall keep minutes of their decision on matters discu
ssed at it, and the shareholders present at the meeting shall sign the minutes
. 
 
Article 43  
Shareholders shall exercise their voting rights at the shareholders meeting in
 proportion to their capital contributions, except as otherwise provided in th
e articles of association of the company. 
 
Article 44  
The rules of deliberation and voting procedures of the shareholders meeting sh
all, except otherwise provided for by this Law, be stipulated by the articles
of association of the company.
 
Resolutions of the shareholders meeting on the increase or reduction of the re
gistered capital, the division, merger, dissolution, or transformation of the
company must be adopted by shareholders of the company representing two-thirds
 or more of the voting rights. 
 
Article 45  
A limited liability company shall have a board of directors, which shall be co
mposed of three to 13 members.
 
Except as otherwise provided in Article 51 of this Law, The members of the boa
rd of directors of a limited liability company invested in and established by
two or more State-owned enterprises, or by two or more other State-owned inves
tment entities shall include representatives of the staff and workers of the c
ompany. Such representative of the staff and workers shall be democratically e
lected by the staff and workers of the company through the staff and workers c
ongress, workers' assembly or other forms.
 
A board of directors shall have a chairman and may have vice-chairmen. The met
hod for the creation of the chairman and vice-chairmen shall be stipulated in
the articles of association of the company. 
 
Article 46  
The term of office of directors shall be stipulated by the articles of associa
tion of the company but shall not exceed three years. A director may, if refle
cted upon expiration of his term of office, serve consecutive terms.
 
If the members of the board of directors are less than the quorum because rese
lection is not conducted upon expiry of the tem office of a director, or a dir
ector resigns during his term of office, then, before the reselected director
takes his office, the original director shall, in accordance with the provisio
ns of laws, administrative regulations and the articles of association, perfor
m director's function. 
 
Article 47  
The board of directors shall be responsible to the shareholders meeting, and e
xercise the following functions and powers:
 
(1) to be responsible for convening shareholders meetings and to report on its
 work to the shareholders meetings;
 
(2) to implement the resolutions of the shareholders meetings;
 
(3) to decide on the business plans and investment plan of the company;
 
(4) to formulate the annual financial budget plan and final accounts plan of t
he company;
 
(5) to formulate plans for profit distribution and plans for making up losses
of the company;
 
(6) to formulate plans for the increase or reduction of the registered capital
 and issuance of company bond of the company;
 
(7) to formulate plans for the merger, division, transformation and dissolutio
n of the company;
 
(8) to decide on the establishment of the company's internal management organs
;
 
(9) to decide on appointment and dismiss the company's manager and the matter
on the manager's remuneration, and, upon recommendation of the manager, to dec
ide on appointment and dismiss the company's deputy manager(s) and persons in
charge of the financial affairs of the company and the matters concerning thei
r remuneration;
 
(10) to formulate the basic management system of the company; and
 
(11) to exercise other functions and powers provided in the articles of associ
ation of the company. 
 
Article 48  
Meetings of the board of directors shall be convened and presided over by the
chairman of the board. If the chairman cannot or fails to perform his function
, the meeting shall be convened and presided over by a vice-chairman; if the v
ice-chairman cannot or fails to perform his function, the meeting shall be con
vened and presided over by a director elected by half or more of the directors
. 
 
Article 49  
The rules of deliberation and voting procedures of the Board of directors shal
l, except as otherwise provided for by this Law, be stipulated by the articles
 of association of the company.
 
The board meeting shall keep minutes of decisions on matters discussed at it;
directors present at the meeting shall sign the minutes.
The voting of the board meeting shall practice the system of one man, one vote
. 
 
Article 50  
A limited liability company shall have a manager, who shall be appointed or di
smissed by the board of directors. The manager shall be responsible to the boa
rd of directors and shall exercise the following functions and powers:
 
(1) to be in charge of the production, operation and management of the company
, and to organize the implementation of the resolutions of the board of direct
ors;
 
(2) to organize the implementation of the annual business plans and investment
 plans of the company;
 
(3) to draw up plans on the establishment of the internal management organs of
 the company;
 
(4) to draw up the basic management system of the company;
 
(5) to formulate specific rules and regulations of the company;
 
(6) to recommend the appointment or dismissal of the deputy manager(s) and of
persons in charge of the financial affairs of the company;
 
(7) to appoint or dismiss management personnel other than those to be appointe
d or dismissed by the board of directors; and
 
(8) other functions and powers granted by the board of directors.
 
If the manager's functions and powers are otherwise provided in the articles o
f association, such provisions shall apply. The manager shall attend meetings
of the board of directors as a non-voting attendee. 
 
Article 51  
Where a limited liability company has a small number of shareholders or is com
paratively small in scale, it may have an executive director instead of a boar
d of directors. The executive director may concurrently serve as the manager o
f the company.
 
The functions and powers of the executive director shall be stipulated by the
articles of association of the company. 
 
Article 52  
A limited liability company shall have a supervisory board composed of no less
 than three members. Where a limited liability company has a small number of s
hareholders or is comparatively small in scale, it may have one or two supervi
sors instead of a supervisory board.
 
The supervisory board shall be composed of representatives of the shareholders
 and an appropriate proportion of the staff and workers of the company, among
which, the proportion of the staff and workers shall not be less than one-thir
d and the exact proportion shall be stipulated in the articles of association
of the company. The representatives of the staff and workers in the supervisor
y board shall be democratically elected by the staff and workers of the compan
y through the staff and workers congress, workers' assembly or other forms.

 
The supervisory board shall have a chairman who shall be elected by more than
half of all supervisors. The chairman of the supervisory board shall convene a
nd preside over the meetings of the supervisory board; if the chairman cannot
or fails to perform his function, the meetings shall be convened and presided
over by a supervisor elected by more than half of the supervisor.
 
Directors and senior executives of the company shall not concurrently serve as
 supervisors. 
 
Article 53  
The term of office of a supervisor shall be three years. A supervisor may, if
reflected upon expiration of his term of office, serve consecutive terms.
 
If the members of the supervisory board are less than the quorum because resel
ection is not timely conducted upon expiry of the tem office of a supervisor,
or a supervisor resigns during his term of office, then, before the reselected
 supervisor takes his office, the original supervisor shall, in accordance wit
h the provisions of laws, administrative regulations and the articles of assoc
iation, perform supervisor's function. 
 
Article 54  
The supervisory board or the supervisors of the company having no the supervis
ory board shall exercise the following functions and powers:
 
(1) to examine the financial affairs of the company;
 
(2) to supervise the acts of the directors and senior executives performing th
eir functions, and to bring the proposal to dismiss those directors and senior
 executives violating the laws, administrative regulations, the articles of as
sociation of the company or the resolutions of the shareholders meetings;
 
(3) to demand directors and senior executives to make corrections if any of th
eir acts is found to have damaged the interests of the company;
 
(4) to propose the convening of interim shareholders meetings, and to convene
and preside over the shareholders meetings in case the board of directors fail
s to its function of convening and presiding over the shareholders meetings as
 provided by this Law;
 
(5) to bring proposal to the shareholders meetings;
 
(6) to bring a lawsuit against the directors or senior executives in accordanc
e with the provisions of Article 152 of this Law; and
 
(7) to exercise other functions and powers as provided in the articles of asso
ciation of the company. 
 
Article 55  
The supervisors may attend the meetings of the board of directors as non-votin
g attendees, and may bring enquiry and suggestion on the matters decided by th
e board of directors.
 
The supervisory board or the supervisor of the company having no the superviso
ry board may, in case finding the business situation of the company abnormal,
conduct investigation, and, if necessary, may engage any accountant's firm to
assist its work at the expenses of the company. 
 
Article 56  
The meeting of the supervisory board shall be convened at least once each year
, and the supervisors may propose to convene interim meeting of the supervisor
y board.
 
Except as otherwise provided by this Law, the method of deliberation and votin
g procedures shall be stipulated by the articles of association of the company
.
 
The resolutions of the supervisory board shall be passed by more than half of
the supervisors. The supervisory board shall keep minutes of their decision on
 matters discussed at it, and the supervisors present at the meeting shall sig
n the minutes. 
 
Article 57  
The expenses required for exercise of the supervisor's functions and powers by
 the supervisory board or the supervisor of the company having no the supervis
ory board shall be borne by the company. 
 
Section 3   Special Provisions on One-person Limited Liability Companies
 
 
Article 58  
The incorporation and organizational structure of a one-person limited liabili
ty company shall be applied to by the provisions of this Section; in case of n
o relevant provisions in this Section, the provisions of Section 1 and Section
 2 of this Chapter shall apply.
 
A "One-person limited liability company" referred to in this Law shall mean a
limited liability company that has only one shareholder of natural person or l
egal person. 
 
Article 59  
The minimum amount of registered capital of a one-person limited liability com
pany shall be RMB 100,000. The shareholder of the company shall, in a lump sum
 and in full, pay the amount of capital contribution as provided in the articl
es of association.
 
One natural person may invest to establish only one one-person limited liabili
ty company. Such one-person limited liability company shall not invest to esta
blish another one-person limited liability company. 
 
Article 60  
Any one-person limited liability company shall clearly indicate "sole propriet
orship of natural person" or "sole proprietorship of legal person" in the regi
stration of the company, and shall record it in the business license of the co
mpany. 
 
Article 61  
The articles of association of any one-person limited liability company shall
be formulated by its shareholder. 
 
Article 62  
Any one-person limited liability company shall not have a shareholder meeting.
 The shareholder shall, when making the decisions as listed in Paragraph 1 of
Article 38 of this Law, adopt the form in writing and keep them in the company
 after they being signed by the shareholder. 
 
Article 63  
At the end of each fiscal year, any one-person limited liability company shall
 compile the financial statements that shall be audited by an accounting firm.
 
 
Article 64  
If the shareholder of a one-person limited liability company cannot prove that
 the property of the company is independent of the shareholder's own property,
 the shareholder shall bear the joint and several liability for the company's
debts. 
 
Section 4   Special Provisions on Wholly State-owned Companies
 
 
Article 65  
The incorporation and structural organizations of a wholly State-owned company
 shall be governed by the provisions of this Section; in case of no relevant p
rovision in this Section, the provision of Section 1 and Section 2 of this Cha
pter shall apply.
 
A wholly State-owned company referred to in this Law shall mean a limited liab
ility company invested solely by the State, and the investor's functions of wh
ich are performed by the State-owned assets supervision and administration aut
hority of the people's government at the corresponding level under the entrust
ment of the State Council or the local people's government. 
 
Article 66  
The articles of association of a wholly State-owned company shall be formulate
d by the competent State-owned assets supervision and administration authority
, or be formulated by the board of directors of the company and submitted for
the approval of the competent State-owned assets supervision and administratio
n authority. 
 
Article 67  
A wholly State-owned company shall not have a shareholder meeting, and the com
petent State-owned assets supervision and administration authority shall exerc
ise the functions and powers of the shareholder meeting. The competent State-o
wned assets supervision and administration authority may authorize the board o
f directors of the company to exercise part of the functions and powers of the
 shareholder meeting and to make decisions on important matters of the company
. However, the merger, division, dissolution, increase and reduction of capita
l, and issuance of company bonds must be decided by the competent State-owned
assets supervision and administration authority; among which, the merger, divi
sion, dissolution, application for bankruptcy of any major wholly State-owned
company shall, upon the examination and approval of the competent State-owned
assets supervision and administration authority, submitted to the people's gov
ernment at the corresponding level for approval.
 
The major wholly State-owned company referred to in the preceding Paragraph sh
all be defined according to the provisions of the State Council. 
 
Article 68  
A wholly State-owned company shall have a board of directors that shall exerci
se its functions and powers in accordance with the provisions of Article 47 an
d Article 67 of this Law. Each term of office of the board of directors shall
not exceed three years. The board of directors shall include representatives o
f the staff and workers of the company.
 
The members of the board of directors shall be appointed by the competent Stat
e-owned assets supervision and administration authority; provided that, the re
presentatives of the staff and workers on the board of directors shall be elec
ted by the staff and workers congress.
 
The board of directors shall have a chairman and may have vice-chairmen. The c
hairman and vice-chairmen shall be appointed by the competent State-owned asse
ts supervision and administration authority from the members of the board of d
irectors. 
 
Article 69  
A wholly State-owned company shall have a manager, who shall be engaged and di
smissed by the board of directors. The manager shall exercise his functions an
d powers in accordance with the provisions of Article 50 of this Law.
 
A member of the board of directors may, subject to the consent of the competen
t State-owned assets supervision and administration authority, serve concurren
tly as manager. 
 
Article 70  
The chairman, vice-chairmen and directors of the board of directors and the se
nior executives of a wholly State-owned company shall not, without the consent
 of the competent State-owned assets supervision and administration authority,
 serve concurrently a post in other limited liability companies, joint-stock l
imited companies or other business organizations. 
 
Article 71  
The members of the supervisory board of a wholly State-owned company shall be
no less than five persons, among which, the proportion of the representatives
of the staff and workers shall not be less than one-third and the exact propor
tion shall be stipulated in the articles of association of the company.
 
The members of the supervisory board shall be appointed by the competent State
-owned assets supervision and administration authority; provided that, the rep
resentatives of the staff and workers on the supervisory board shall be electe
d at the staff and workers congress of the company. The chairman of the superv
isory board shall be appointed by the competent State-owned assets supervision
 and administration authority from the members of the supervisory board.
 
The supervisory board shall exercise the functions and powers specified in Ite
ms (1) and (2) of Article 54 of this Law and other functions and powers specif
ied by the State Council. 
 
Chapter 3   Transfer of Stock Ownership of Limited Liability Companies
 
 
Article 72  
The shareholders of a limited liability company may transfer among themselves
all or part of their stock ownership.
 
Where a shareholder intends to transfer its stock ownership to persons who are
 not shareholders of the company, the consent of over half of all the sharehol
ders must be secured. Such shareholder shall notify in writing other sharehold
ers for consent of the matter on the transfer of its stock ownership, and, if
the other shareholders fail to give a reply within 30 days upon their receipt
of such written notice, they shall be deemed to have consented to such transfe
r. If over half of the other shareholders disapprove such transfer, then, thos
e shareholders disapproving the transfer shall purchase the stock ownership to
 be transferred. If such shareholders do not make the purchase, they shall be
deemed to have consented to the transfer.
 
Under equal conditions, the other shareholders shall have the priority to purc
hase the stock ownership to be transferred with the consent of the shareholder
s. If two or more shareholders claim to exercise the priority, they shall, thr
ough consultation, determine the respective proportion of purchase; failing wh
ich, they shall exercise the priority in proportion to their respective capita
l contributions at the time of the transfer.
 
If the transfer of stock ownership is otherwise provided in the articles of as
sociation, such provisions shall apply. 
 
Article 73  
When the people's court transfers the stock ownership of a shareholder of a li
mited liability company in accordance with the enforcement procedures as stipu
lated by laws, it shall notify the company and all of its shareholders, and in
 such case, other shareholders shall have the priority to purchase the stock o
wnership under equal conditions. If other shareholders fail to exercise their
priority to purchase within 20 days upon the date of the notice of the people'
s court, they shall be deemed to have waived their priority to purchase. 
 
Article 74  
After the stock ownership is transferred in accordance with Article 72 and Art
icle 73 of this Law, the company shall cancel the capital contribution certifi
cates of the original shareholders, issue the capital contribution certificate
s to the new shareholders, and revise the records on the shareholders and the
amounts of their capital contribution in the articles of association and the r
oster of shareholders. Such revision of the articles of association does not r
equire the voting of the shareholders meeting. 
 
Article 75  
Under any of the following conditions, any shareholder, who casts a negative v
ote against such resolution of the shareholders meeting, may require the compa
ny to purchase his stock ownership at a reasonable price:
 
(1) where the company fails to distribute profits to its shareholders for cont
inuous five years, while the company has been continuously profitable for such
 five years and meets the conditions on distribution of profits as stipulated
in this Law;
 
(2) where the company merges, divides or transfers its substantial assets; or

 
(3) where the term of operation of the company expires as stipulated in the ar
ticles of association or other events occur for dissolution as stipulated in t
he articles of association, while the shareholders meeting adopts a resolution
 on revision of the articles of association to make the company continue to ex
ist.
 
If, within 60 days upon the date of adoption of the resolution of the sharehol
ders meeting, the shareholders and the company cannot reach an agreement upon
purchase of the stock ownership the shareholders may bring a lawsuit in the pe
ople's court within 90 days upon the date of adoption of the resolution of the
 shareholders meeting. 
 
Article 76  
After a natural person shareholder is deceased, his legitimate heir may succee
d to his shareholder qualification; except as otherwise provided in the articl
es of association of the company. 
 
Chapter 4   Incorporation and Organizational Structure of Joint Stock Limited
Companies
 
 
Section 1   Incorporation
 
 
Article 77  
To incorporate a joint stock limited company, the following conditions must be
 satisfied;
 
(1) the number of sponsors shall conform to the statutory number;
 
(2) the share capital subscribed for by the sponsors and raised shall reach th
e statutory minimum amount of capital;
 
(3) the issuance of shares and preparations for incorporation shall be in conf
ormity with the provisions of laws;
 
(4) the articles of association of the company shall be formulated by the spon
sors, and, in case of incorporation by means of share offer, shall be adopted
at the inaugural meeting;
 
(5) the company shall have a name and an organizational structure required for
 the incorporation of a joint stock limited company; and
 
(6) the company shall have a domicile. 
 
Article 78  
Joint stock limited companies may be incorporated by means of sponsorship or b
y means of share offer.
 
Incorporation by means of sponsorship means incorporation of a company by mean
s of subscription by the sponsors for all the shares to be issued by the compa
ny.
 
Incorporation by means of share offer means incorporation of a company by mean
s of subscription by the sponsors for a portion of the shares to be issued by
the company and offer of the rest to the general public or to specific target.
 
 
Article 79  
To incorporate a joint stock limited company, there shall be not less than two
 and not more than 200 sponsors, of which more than half must have their domic
ile within the territory of the People's Republic of China.
 
 
Article 80  
The sponsors of a joint stock limited company shall undertake the matters conc
erning the preparation for the incorporation of the company. The sponsors shal
l sign a sponsors' agreement defining their respective rights and obligations
during the incorporation of the company. 
 
Article 81  
Where a joint stock limited company is incorporated by means of sponsorship, t
he registered capital shall be the total amount of the share capital subscribe
d for by all sponsors and registered with the company registration authority.
The amount of initial capital contributions of all sponsors shall not be less
than 20% of the registered capital, and the remaining of the registered capita
l may be paid up by the sponsors within two year upon incorporation of the com
pany; provided that, in case of a investment company, it may be paid up within
 five years upon incorporation of the company. Prior to full payment of the re
gistered capital, the company shall not offer shares to others.
 
Where a joint stock limited company is incorporated by means of share offer, t
he registered capital shall be the total amount of the paid-up share capital r
egistered with the company registration authority.
 
The minimum amount of the registered capital of a join stock limited company s
hall be RMB 5,000,000. If a higher minimum amount of the registered capital of
 a joint stock limited company is provided by laws or administrative regulatio
ns, such provisions shall prevail. 
 
Article 82  
The articles of association of a joint stock limited company shall specify the
 following items:
 
(1) the name and domicile of the company;
 
(2) the scope of business of the company;
 
(3) the method of incorporation of the company;
 
(4) the total number of shares, the mount of each share and the registered cap
ital of the company;
 
(5) the names or titles of the sponsors, the numbers of shares subscribed for
by the sponsors, and the method and time of capital contribution by the sponso
rs;
 
(6) the composition, functions and powers, the term of office and the delibera
tion rules of the board of directors;
 
(7) the legal representative of the company;
 
(8) the composition, functions and powers, the term of office and the delibera
tion rules of the supervisory board;
 
(9) methods for the distribution of the company's profit;
 
(10) the reasons for dissolution of the company and liquidation method;
 
(11) methods for notices and announcements of the company; and
 
(12) other matters that the shareholders general meeting deems necessary to be
 specified. 
 
Article 83  
The method of capital contribution by the sponsors shall be governed by Articl
e 72 of this Law. 
 
Article 84  
Where a joint stock limited company is incorporated by means of sponsorship, t
he sponsors shall confirm in full and in writing their subscription of the sha
res to be issued to them according to the articles of association of the compa
ny; in case of payment in a lump sum, all capital contributions shall be paid
up immediately; in case of payment in installments, the initial capital contri
bution shall be paid up immediately. If the capital contributions are made in
non-currency, the transfer procedures for property rights shall be handled acc
ording to law.
 
If the sponsors fail to pay their capital contribution in accordance with the
provisions of the preceding Paragraph, they shall undertake the liability for
breach of contract in accordance with the sponsors' agreement.
 
After the sponsors make their initial capital contributions, they shall elect
the board of directors and supervisory board. The board of directors shall sub
mit the articles of association of the company, capital verification certifica
te issued by the capital verification institution established according to law
 and other documents required by laws or administrative regulations to the com
pany registration authority for registration of incorporation. 
 
Article 85  
Where a joint stock limited company is incorporated by means of share offer, t
he shares subscribed for by the sponsors shall not be less than 35% of the tot
al amount of the company's shares; except as otherwise provided by laws or adm
inistrative regulations. 
 
Article 86  
Where shares are to be offered to the general public, the sponsors must publis
h the company's prospectus on share offer and prepare subscription forms. The
subscription forms shall contain the items listed in Article 87 of this Law, a
nd the subscribers shall fill in the number of shares subscribed for, the amou
nt of money contributed to, and their respective domiciles on the forms, and s
hall sign and seal such forms. The subscribers shall pay their subscription mo
ney in accordance with the number of shares subscribed for. 
 
Article 87  
A prospectus on share offer shall have the articles of association of the comp
any formulated by the sponsors attached, and shall specify the following:
 
(1) the number of shares subscribed for by the sponsors;
 
(2) the face value and the issue price of each share;
 
(3) the total number of bearer shares issued;
 
(4) the purpose of the fund raised;
 
(5) the rights and obligations of the subscribers; and
 
(6) the term of the share offer and a statement to the effect that subscribers
 may withdraw their share subscriptions if all the shares are not taken up wit
hin the time limit. 
 
Article 88  
When sponsors offer shares to the public, the shares shall be distributed by a
 securities company established according to law, with which a distribution ag
reement shall be concluded. 
 
Article 89  
Where shares are to be offered to the public, the sponsors shall enter into an
 agreement with a bank on the collection of subscription money on behalf of th
e company.
 
The bank entrusted with collecting the subscription money shall, in accordance
 with its agreement, collect and keep the subscription money, issue receipts t
o the subscribers for their payments, and bear an obligation to issue certific
ation of receipts to the subscribers' money to the relevant departments. 
 
Article 90  
After payment in full of the subscription money for all shares is made, a stat
utory capital verification institution shall be commissioned to conduct a veri
fication of the funds and produce a verification certificate. The sponsors sha
ll, within 30 days thereafter, convene and preside over an inaugural meeting c
omposed of all the subscribers.
 
If the number of shares has not been fully subscribed for within the time limi
t specified in the prospectus on share offer or, if sponsors fail to hold an i
naugural meeting within 30 days after payment in full of the subscription mone
y for the total share is made, the subscribers may claim a refund from the spo
nsors according to the paid-up share subscription money plus bank deposit inte
rest calculated for the same period. 
 
Article 91  
The sponsors shall notify each subscriber of the date of the inaugural meeting
 or make a public announcement 15 days prior to the convening of the meeting.
The inaugural meeting may be convened only if subscribers representing more th
an half of the total shares issued are present.
 
The following functions and powers shall be exercised at an inaugural meeting:
 
 
(1) to examine the sponsors report on the preparation for the incorporation of
 the company;
 
(2) to adopt the articles of association of the company;
 
(3) to elect members of the board of directors;
 
(4) to elect members of the supervisory board;
 
(5) to examine and verify the expenses incurred in the incorporation of the co
mpany;
 
(6) to examine and verify the valuation of the property used by the sponsors t
o pay for subscription money; and
 
(7) to resolve not to incorporate the company in the event that a force majeur
e or major changes in business operation conditions directly affect the incorp
oration of the company.
 
The resolution made at the inaugural meeting on the issues listed in the prece
ding Paragraph must be approved by subscribers attending the meeting who repre
sent more than half of the voting rights. 
 
Article 92  
Sponsors and subscribers shall not withdraw their share capital after paying t
heir subscription money or making their capital contributions as substitutes f
or subscription money, except where the total share issue is not fully subscri
bed for within the time limit or the sponsors fail to convene the inaugural me
eting according to the schedule, or the inaugural meeting resolves not to inco
rporate the company. 
 
Article 93  
The board of directors shall, within 30 days after the inaugural meeting, subm
it the following documents to the company registration authority and apply for
 registration of the incorporation of the company;
 
(1) the written application for registration of the company;
 
(2) the minutes of the inaugural meeting;
 
(3) the articles of association of the company;
 
(4) the capital verification certificate;
 
(5) the appointment documents and identity certificates of the legal represent
ative, directors and supervisors;
 
(6) the certificates of legal person qualification or natural person identity
of the sponsors; and
 
(7) the certificate of the company's domicile.
 
Where the joint stock limited company is incorporated by means of share offer
and shares are issued publicly, the approval document of the securities regula
tory authority under the State Council shall be filed to the company registrat
ion company. 
 
Article 94  
Where, after the incorporation of a joint stock limited company, the sponsors
fail to make the capital contribution in full in accordance with the provision
s of the articles of association of the company, the sponsors shall make up th
e deficiency; other sponsors shall bear joint and several liability therefore.
 
 
Where, after the incorporation of a joint stock limited company, it is discove
red that the actual value of the property in non-currency contributed as capit
al is notably less than the value stated in the articles of association, the s
ponsors that made such contributions shall make up the deficiency; other spons
ors shall bear joint and several liability therefore. 
 
Article 95  
The sponsors of a joint stock limited company shall bear the following respons
ibilities:
 
(1) in the event of the company failing to be incorporated, joint and several
liabilities for all debts and expenses incurred in the act of the incorporatio
n;
 
(2) in the event of the company failing to be incorporated, joint and several
liabilities for refunding to the subscribers the paid-up subscription money pl
us bank deposit interest calculated for the same period of time; and
 
(3) in the event of the interests of the company being damaged during the cour
se of its incorporation due to fault of the sponsors, liability for compensati
on to the company. 
 
Article 96  
Where a limited liability company is converted into a joint stock limited comp
any, the total amount of its paid-up share capital converted shall not be more
 than the amount of its net assets. Where a limited liability company that is
converted into a joint stock limited company issues shares publicly for the pu
rpose of increasing its capital, it shall be handled according to law. 
 
Article 97  
A joint stock limited company shall keep its articles of association, roster o
f the shareholders, the counterfoil of company bonds, minutes of the sharehold
ers general meetings, minutes of the meetings of the board of directors, minut
es of the meetings of the supervisory board and financial statements at the co
mpany. 
 
Article 98  
The shareholders shall have the rigths to check and review the articles of ass
ociation of the company, the register of the shareholders, the stubs of the co
mpany bonds, the meeting minutes of the shareholders' general meeting, the res
olutions of the board of directors, the resolutions of the board of supervisor
s, and the financial and accounting reports, and to raise suggestions and inte
rpellation on the operations of the company. 
 
Section 2   Shareholders General Meetings
 
 
Article 99  
A joint stock limited company shall form a shareholders general meeting which
shall be composed of all the shareholders. The shareholders general meeting is
 the organ of power of the company and shall exercise its functions and powers
 in accordance with this Law. 
 
Article 100  
The provisions of Paragraph 1 of Article 38 of this Law on the functions and p
owers of a limited liability company shall be applicable to any joint stock li
mited company. 
 
Article 101  
The annual meeting of the shareholders general meeting shall be convened once
each year. An interim shareholders general meeting shall be convened within tw
o months if any of the following situations occurs:
 
(1) if the number of directors is less than the number stipulated by this Law,
 or less than two-thirds of the number required by the articles of association
 of the company;
 
(2) if the amount of the company's losses that have not been made up reaches o
ne-third of the total amount of its paid-up share capital;
 
(3) if shareholders holding separately or jointly ten percent or more of the c
ompany's shares request to convene a shareholders meeting;
 
(4) if the board of directors deems it necessary;
 
(5) if the supervisory board proposes that such a meeting be convened; and
 
(6) if other circumstances occur as stipulated in the articles of association
of the company. 
 
Article 102  
A shareholders general meeting shall be convened by the board of directors and
 presided over by the Chairman of the board. Where the Chairman is unable to o
r fails to perform his duties, the meeting shall be presided over by the vice-
chairman of the board; if the vice-chairman is unable to or fails to perform h
is duties, the meeting shall be presided over by a director jointly elected by
 half or more of shareholders.
 
Where the board of directors is unable to or fails to perform its function of
convening the shareholders general meeting, the supervisory board shall timely
 convene and preside over the meeting; if the supervisory board fails to conve
ne and preside the meeting, the shareholders, who separately or jointly hold t
en percent or more of the company's shares for continuous 90 days, may convene
 and preside over the meeting in their own discretion. 
 
Article 103  
Where a shareholders general meeting is to be held, the shareholders shall be
notified of the time and place of holding the meeting and matters to be consid
ered at the meeting 20 days prior to the holding of the meeting; where an inte
rim shareholders general meeting is to be held, the shareholders shall be noti
fied of the same fifty days prior to the holding of the meeting; Where bearer
shares are issued, the same shall be publicly announced 30 days prior to the h
olding of the meeting.
 
The shareholders separately or jointly holding three percent of the company's
shares may bring interim proposals and submit them to the board of directors t
en days prior to the holding of the shareholders general meeting; the board of
 directors shall notify other shareholders within two days upon its receipt of
 the proposals and submit the proposals to the shareholders general meeting fo
r consideration. The contents of the interim shall fall within the scope of th
e functions and powers of the shareholders general meeting and shall have defi
nite topics and specific matters to be discussed.
 
No resolutions may be adopted at the shareholders general meeting in respect o
f matters not listed in the notices referred to in the two preceding Paragraph
s. Holders of bearer shares attending the shareholders general meeting shall d
eposit their share certificates with the company for the period from five days
 prior to the holding of the meeting until the end of the meeting. 
 
Article 104  
Shareholders attending a shareholders general meeting shall have the right to
one vote for each share held, but the company's shares held by the company sha
ll have no voting right. A resolution of the shareholders general meeting must
 be passed by more than one half of the voting rights held by the shareholders
 present at the meeting. Resolutions on the merger, division, dissolution or t
ransformation of the company adopted by the shareholders general meeting must
require more than two-thirds of the voting rights held by the shareholders pre
sent at the meeting. 
 
Article 105  
In respect of such matters as transfer or acceptance major assets or provision
 of external guarantee on which a resolution must be made at the shareholders
general meeting in accordance with this Law and the articles of association, t
he board of directors shall timely convene a shareholders general meeting and
the meeting shall vote on the said matters. 
 
Article 106  
When a shareholders general meeting elects directors or supervisors, the accum
ulative voting system may be practiced in accordance with the provisions of th
e articles of association or the resolution of the shareholders general meetin
g. The accumulative voting system referred to in this Law shall mean the syste
m that, when a shareholders general meeting elects directors or supervisors, e
ach share has the voting rights equal to the number of the directors or superv
isor to be elected, and concentrated use of the voting rights held by a shareh
older is permitted. 
 
Article 107  
A shareholder may entrust a proxy to attend the shareholders general meeting o
n his behalf. The proxy shall present the shareholder's power of attorney to t
he company and exercise voting rights within the scope of authorization. 
 
Article 108  
Resolutions on matters discussed at a shareholders general meeting shall be mi
nuted down. The directors attending the meeting shall sign the minutes. The mi
nutes of the meeting shall be kept together with the roster of the signatures
of the shareholders attending the meeting and the powers of attorney of attend
ing proxies. 
 
Section 3   Board of Directors and Manager
 
 
Article 109  
A joint stock limited company shall have a board of directors composed of five
 to 19 members.
 
The board of directors shall be responsible to the shareholders general meetin
g and exercise the following functions and powers:
 
The members of the board of directors may include the representatives of the s
taff and workers of the company. The representatives of the staff and workers
on the board of directors shall be democratically elected by the staff and wor
kers of the company through the staff and workers congress, workers' assembly
or other forms.
 
The provision of Article 46 of this Law on the term of office of the directors
 of a limited liability company shall be applicable to the directors of a join
t stock limited company.
 
The provision of Article 47 of this Law on the functions and powers of the boa
rd of directors of a limited liability company shall be applicable to the boar
d of directors of a joint stock limited company. 
 
Article 110  
The board of directors shall have one chairman and may have vice-chairmen. The
 chairman and vice-chairmen shall be elected by the affirmative votes of more
than half of all the directors.
 
The chairman shall convene and preside over the board meeting and examine the
implementation of resolutions of the board of directors. The vice-chairmen sha
ll assist the chairman in his work. Where the Chairman is unable to or fails t
o perform his duties, a vice-chairman shall perform the duties; if the vice-ch
airman is unable to or fails to perform his duties, half or more of the direct
ors shall jointly elect a director to perform the duties. 
 
Article 111  
Meetings of the board of directors shall be held at least twice a year. All th
e directors and supervisor shall be notified of the meeting ten days prior to
the holding of the meeting. Interim board meetings may be convened upon propos
al made by shareholders representing one-tenth or more of the voting rights, o
r, by one-third or more of directors or the supervisory board. The chairman sh
all, within ten days upon its receipt of the proposal, convene and preside ove
r the board meeting. The notification method and notification period for conve
ning interim board meetings may be separately decided. 
 
Article 112  
A meeting of the board of directors shall be convened only if more than one ha
lf of all the directors are present. Any resolution of the board must be adopt
ed by the affirmative votes of more than one half of all the directors.
 
The voting for the resolution of the board shall practice the system of one ma
n, one vote. 
 
Article 113  
Meetings of the board of directors shall be attended by the directors in perso
n. If a director is unable to attend the meetings for certain reasons, he may
entrust another director in writing with attending the meeting on his behalf.
The power of attorney shall define the scope of authorization.
 
Decisions on matters discussed at a meeting of the board of directors shall be
 minutes. Such minutes of the meeting shall be signed by the directors present
 at the meeting.
 
Directors shall be responsible for resolutions passed by the board of director
s. If a resolution of the board violates the law, administrative regulations o
r the articles of association of the company and thus causes serious losses to
 the company, the directors who participated in the adoption of such a resolut
ion shall be liable for compensation to the company. However, if a director is
 proved to have expressed his objection to such a resolution when it was put t
o the vote and his objection was recorded in the minutes of the meeting, he ma
y be exempted from such liability. 
 
Article 114  
A joint stock limited company shall have a manager, who shall be engaged or di
smissed by the board of directors.
 
The provision of Article 50 of this Law on the functions and powers of the man
ager of a limited liability company shall be applicable to the manager of a jo
int stock limited company. 
 
Article 115  
The board of directors may decide that one of its members shall concurrently s
erve as the manager of the company. 
 
Article 116  
The company shall not, directly or through its subsidiaries, provide any loan
to any of its directors, supervisors or senior executives. 
 
Article 117  
The company shall periodically disclose to its shareholders the information on
 the remuneration obtained by its directors, supervisors or senior executives
from the company. 
 
Section 4   Supervisory Board
 
 
Article 118  
A joint stock limited company shall have a supervisory board composed of no le
ss than three members.
 
The supervisory board shall be composed of shareholders' representatives and a
n appropriate proportion of representatives of the staff and workers of the co
mpany, the proportion of such representatives shall not be less than one-third
 and the specific proportion shall be provided for by the articles of associat
ion of the company. The representatives of the staff and workers on the superv
isory board shall be democratically elected by the staff and workers of the co
mpany through the staff and workers congress, workers' assembly or other forms
.
 
The supervisory board shall have a chairman and may have vice-chairmen. The ch
airman and vice-chairmen shall be elected by affirmative votes of more than ha
lf of all supervisors. The meetings of the supervisory board shall be convened
 and presided over by the chairman; if the chairman is unable to or fails to p
erform his duties, the meetings shall be presided over by a vice-chairman; if
the vice-chairman is unable to or fails to perform his duties, the meetings sh
all be convened and presided over by a supervisor jointly elected by half or m
ore of all supervisors.
 
Directors and senior executives shall not serve concurrently as supervisors.

 
The provisions of Article 53 of this Law on the term of office of the supervis
ors of a limited liability company shall be applicable to the supervisors of a
 joint stock limited company. 
 
Article 119  
The provisions of Article 54 and Article 55 of this Law on the term of office
of the supervisory board of a limited liability company shall be applicable to
 the supervisory board of a joint stock limited company.
 
The expenses required for exercise of the functions and powers of the supervis
ory board shall be borne by the company. 
 
Article 120  
The meetings of the supervisory board shall be held at least once for each six
 months. The supervisors may propose to hold interim meetings of the superviso
ry board.
 
The method of deliberation and voting procedures of the supervisory board shal
l be stipulated in the articles of association of the company.
 
The supervisory board shall make minutes of the decisions on the matters discu
ssed at its meetings, and the supervisors present at the meetings shall sign t
he minutes. 
 
Section 5   Special Provisions on Organizational Structure of Listed Companies
 
 
 
Article 121  
A listed company referred to in this Law shall mean a joint stock limited comp
any which has its stocks listed and traded at stock exchanges. 
 
Article 122  
Where the major assets purchased or sold by a listed company or the amount of
guarantee provided by it may exceed 30% of the total amount of its assets with
in one year, it shall be resolved at the shareholders general meeting and adop
ted on an affirmative vote of two-thirds of the voting rights held by the shar
eholders attending the meeting. 
 
Article 123  
A listed company shall have independent directors and the specific measures th
erefor shall be stipulated by the State Council. 
 
Article 124  
A listed company shall have a secretary of the board of directors, who shall b
e responsible for such matters as preparing for the shareholders general meeti
ngs and the meetings of the board of directors, keeping files, managing the co
mpany's equity and handling the information disclosure affairs. 
 
Article 125  
Where any director of a listed company has the affiliate relationship with the
 enterprises related to the matters to be resolved at the meetings of the boar
d of directors, such director shall not exercise the voting rights upon such r
esolutions nor may exercise the voting rights on behalf of other directors. Th
e meetings of the board of directors may be held if more than half of the dire
ctors having no such affiliate relationship attend the meetings, and the resol
ution made at the meetings of the board of directors shall be passed by more t
han half of directors having no such affiliate relationship. Where the number
of the directors having no such affiliate relationship who attend the meetings
 is less than three, such matters shall be submitted to the shareholders gener
al meeting of the listed company for examination and discussion. 
 
Chapter 5   Issue and Transfer of Shares of Joint Stock Limited Companies
 
 
Section 1   Issue of Shares
 
 
Article 126  
The capital of a joint stock limited company shall be divided into shares of e
qual value.
 
The shares of the company shall take the form of share certificates, which are
 vouchers issued by the company to certify the shares held by their shareholde
rs. 
 
Article 127  
The issue of shares shall be in compliance with the principles of fairness and
 justice. Each share of the same class shall carry the same rights.
 
Shares of the same issue shall be issued on the same conditions and at the sam
e price. A unit or an individual subscribing to shares shall pay the same pric
e for each share. 
 
Article 128  
Shares may be issued at or above par but not below par. 
 
Article 129  
Share certificates may be in paper form or in such other forms as stipulated b
y the securities regulatory authority under the State Council.
 
The following main particulars shall be clearly stated on a share certificate:
 
 
(1) the name of the company;
 
(2) the date of the incorporation of the company;
 
(3) the class of the shares, the par value and the number of shares represente
d by the certificate; and
 
(4) the serial number of the share certificate.
 
A share certificate shall be signed by the legal representative and affixed wi
th the seal of the company.
 
In the case of share certificates owned by sponsors, the words "sponsor's shar
e certificate" shall be clearly stated on the share certificates. 
 
Article 130  
Shares issued by a company may be either registered shares or bearer shares.

 
Shares issued by a company to sponsors or legal persons shall be registered sh
ares which shall state the names or titles of the sponsors or legal person. Su
ch shares shall not be registered in other names, nor in the names of their re
presentatives. 
 
Article 131  
Where registered shares are issued, the company shall prepare a roster of the
shareholders, in which the following items shall be recorded:
 
(1) the names or titles, and domiciles of the shareholders;
 
(2) the number of shares held by each shareholder;
 
(3) the serial numbers of the share certificates held by each shareholder; and
 
 
(4) the date on which each shareholder obtained his share.
 
Where bearer shares are issued, the company shall keep a record of the number,
 the serial numbers and the issue date of the share certificates. 
 
Article 132  
The State Council may formulate separate regulations on the issue of other cla
sses of shares which are not provided for in this Law. 
 
Article 133  
A joint stock limited company shall formally deliver share certificates to its
 shareholders upon its incorporation. No company may deliver share certificate
s to its shareholders prior to its incorporation. 
 
Article 134  
Where a company issues new shares, resolutions on the following matters shall
be adopted by the shareholders general meeting or the board of directors in ac
cordance with the provisions of the articles of association:
 
(1) the class and number of the new shares;
 
(2) the issue price of the new shares;
 
(3) the opening and closing dates of the new share issue; and
 
(4) the class and number of new shares issued to existing shareholders. 
 
Article 135  
When a company obtains the approval of the securities regulatory authority und
er the State Council to publicly issue new shares, it must publicly announce i
ts prospectus on new share offer and its financial accounting statements, and
shall prepare subscription application forms.
 
The provisions of Article 88 and Article 89 of this Law shall be applicable to
 public issue of new shares by a company. 
 
Article 136  
Where a company issues new shares, it may determine the pricing proposal for n
ew shares based upon its business operation situation and financial standing.
 
 
Article 137  
Where the new share issue of a company is fully subscribed for, the company sh
all apply to the company registration authority for registration of the change
 and make a public announcement thereafter. 
 
Section 2   Transfer of Shares
 
 
Article 138  
Shares held by shareholders may be transferred according to law. 
 
Article 139  
Transfer of shares by shareholders shall be conducted through stock exchanges
established according to law or through other forms as stipulated by the State
 Council. 
 
Article 140  
Registered shares shall be transferred by means of endorsement by the sharehol
ders or by such other means as provided for by laws and administrative regulat
ions; When registered shares are transferred, the company shall register the t
ransferee's name or title and domicile in its roster of shareholders.
 
No registration of change in the roster of shareholders as stipulated in the p
receding Paragraph shall be made within 20 days prior to the convening of a sh
areholders general meeting or within five days prior to the base date decided
by the company for the distribution of dividends, except as otherwise stipulat
ed by laws on the registration of change in the roster of shareholders. 
 
Article 141  
Transfer of bearer shares shall become effective immediately after the shareho
lder delivers the share certificates to the transferee. 
 
Article 142  
Shares held by the sponsors of a company shall not be transferred within one y
ears upon the date of incorporation of the company. The shares issued prior to
 public issue of shares of a company shall not be transferred within one year
upon the date when the company's share certificates are listed and traded at s
tock exchanges.
 
Directors, supervisors and senior executives shall declare to the company the
numbers of shares of the company held by them and the change therein, and such
 shares transferred by them each year during their terms of office shall not e
xceed 25% of the total number of the shares of the company held by them; the s
hare of the company held by them shall not be transferred within one year upon
 the date when the company's share certificates are listed and traded at stock
 exchanges. The above personnel shall not the shares of the company held by th
em within half a year after they leave their posts. The articles of associatio
n of the company may impose other restrictive provisions on the transfer by th
e company's directors, supervisors and senior executives of the company's shar
es held by them. 
 
Article 143  
A company shall not purchase its own shares except under any of the following
conditions:
 
(1) where the company is to reduce its registered capital;
 
(2) where the company merges with other companies holding its shares;
 
(3) where the company is to offer its shares to its staff and workers as a rew
ard; or
 
(4) where any shareholder of the company has objection to the resolution on di
vision or merger of the company adopted by the shareholders general meeting, s
o, requires the company to purchase his shares.
 
Where the company purchases its own share by reason of Item (1) to (3) of the
preceding Paragraph, a resolution thereupon shall be adopted at the shareholde
rs general meeting. After the company purchases its own share in accordance wi
th the provisions of the preceding Paragraph, in case of the circumstances of
Item (1), the shares purchased by the company shall be cancelled within ten da
ys upon the purchase; in case of the circumstances of Item (1) or (4), the sha
res purchased by the company shall be transferred or cancelled within six mont
hs upon the purchase.
 
The shares of the company purchased by the company in accordance with the prov
isions of Item (3) of Paragraph 1 shall not exceed 5% of the total amount of t
he shares issued by the company; the fund for the purchase shall be paid from
the after-tax profits of the company; the shares purchased shall be transferre
d to the staff and workers within one year upon the purchase.
 
A company shall not accept its own shares as the subject matter of pledge. 

 
Article 144  
Where any registered share certificate are stolen, lost or destroyed, the shar
eholder may, in accordance with the procedure of public summons for exhortatio
n provided for in the Civil Procedure Law of the People's Republic of China, r
equest a people's court to declare such share certificate as void.  After the
share certificate has been declared void by a people's court, the shareholder
may apply to the company for a replacement of the share certificates. 
 
Article 145  
The shares of a listed company shall be listed and traded in accordance with t
he relevant laws and administrative regulations and the transaction rules of t
he stock exchanges. 
 
Article 146  
A listed company must, in compliance with the provisions of the laws and admin
istrative regulations, make public its financial and business situations and m
ajor lawsuits, and shall publicize the financial statements every half year of
 each fiscal year. 
 
Chapter 6   Qualification and Obligations of Corporate Directors, Supervisors
and Senior Executives
 
 
Article 147  
None of the following persons may hold the position of director, supervisor or
 senior executive of a company:
 
(1) A person without capacity or with restricted capacity for civil acts;
 
(2) A person who was sentenced to criminal punishment for the crime of embezzl
ement, bribery, seizure of property or misappropriation of property or for und
ermining the socialist market economy order, where not more than five years ha
ve elapsed since the expiration of the enforcement period; or a person who was
 deprived of his political rights for committing a crime, where not more than
five years have elapsed since the expiration of the enforcement period;
 
(3) A director, or factory head or manager of a bankrupt and liquidated compan
y or enterprise who was personally responsible for the bankruptcy of the compa
ny or enterprise, where not more than three years have elapsed since the date
of completion of the bankruptcy liquidation;
 
(4) A legal representative of the company or enterprise that had the business
license revoked for violating the law, where such legal representative bears i
ndividual liability therefor and not more than three years have elapsed since
the date of revocation of the business license; and
 
(5) A person with relatively large amount of personal debts that have fallen d
ue but have not been repaid.
 
Where a company elects or appoints a director or supervisor or engages senior
executives in violation of the preceding Paragraph, such election, appointment
 or engagement shall be invalid.  Where any director, supervisor or senior exe
cutive of a company during his term of office occurs any circumstance as liste
d in Paragraph 1 of this Article, the company shall remove him from office. 

 
Article 148  
The directors, supervisors and senior executives of a company shall comply wit
h the laws, administrative regulations and the articles of association of the
company, and bear the duties of loyalty and due diligence towards the company.
 
 
The directors, supervisors and senior executives of a company shall not, by ta
king advantage of their positions and powers, accept bribes or other unlawful
incomes, nor may they misappropriate the property of the company. 
 
Article 149  
The directors, supervisors and senior executives of a company shall not commit
 any of the following acts:
 
(1) Misappropriate the company's funds;
 
(2) Deposit the company's assets in their own personal accounts or in personal
 accounts of other individuals;
 
(3) In violation of the company's articles of association and without the cons
ent of the shareholders meeting or the shareholders general meeting or the boa
rd of directors, lend the company's funds to others or use the company's prope
rty to provide guarantee to others;
 
(4) In violation of the company's articles of association or without the conse
nt of the shareholders meeting or the shareholders general meeting or the boar
d of directors, enter into contracts or conduct transactions with the company;
 
 
(5) Without the consent of the shareholders meeting or the shareholders genera
l meeting, by taking advantage of their positions, seek for themselves or othe
rs the commercial opportunity that should belong to the company, or operate fo
r themselves or others the same category of business as that of the company;

 
(6) Accept and possess the commission in the transaction between others and th
e company;
 
(7) Disclose the company's secrets without authorization; and
 
(8) Commit other acts in violation of the duty of loyalty to the company. 
 
Article 150  
If the directors, supervisors and senior executive of a company violate the la
ws, administrative regulations or the articles of association of the company i
n performance of their functions and thus cause loss to the company, they shal
l be liable for compensation. 
 
Article 151  
Where the shareholders meeting or the shareholders general meeting of a compan
y requires any director, supervisor or senior executive to attend its meetings
 as non-voting attendee, such director, supervisor or senior executive shall a
ttend the meeting and accept the inquiry of the shareholders.
 
The directors, supervisors or senior executives of a company shall faithfully
provide the relevant information and materials to the supervisory board or the
 supervisor of a limited liability company having no supervisory board, and sh
all not hinder the supervisory board or supervisor from exercising their funct
ions and powers. 
 
Article 152  
Where any director or senior executive of a company is under the circumstances
 of Article 150 of this Law, in case of a limited liability company, the share
holders, or in case of a joint stock company, the shareholders separately or j
ointly holding one percent or more of the company's shares for 180 consecutive
 days may request in writing the supervisory board or the supervisor of the li
mited liability company having no supervisory board to bring a lawsuit before
the people's court; where any supervisor of the company is under the circumsta
nces of Article 150 of this Law, the said shareholders may request in writing
the board of directors or the executive director of the limited liability comp
any having no board of directors to bring a lawsuit before the people's court.
 
 
If the supervisory board or the supervisors of the limited liability company h
aving no supervisory board, or the board of directors or the executive directo
r of the limited liability company having no board of directors, upon its rece
ipt of the shareholders' written request as stipulated in the preceding Paragr
aph, refuses to raise a lawsuit, or fails to raise a lawsuit within 30 days up
on its receipt of such request, or in case of emergency, the company's interes
ts will suffer irreparable damage if no lawsuit is raised immediately, then, t
he shareholders as stipulated in the preceding Paragraph may, for the benefits
 of the company, directly bring a lawsuit before the people's court in their o
wn name.
 
Where others infringe the lawful rights and interests of a company and cause l
oss to the company, the shareholders as stipulated in the Paragraph 1 of this
Article may raise a lawsuit in accordance with the preceding two Paragraphs. 

 
Article 153  
Where any director or senior executive of a company in violation of the provis
ions of the laws, administrative regulations and the articles of association o
f the company, cause damage to the interests of any shareholder of the company
, such shareholder may bring a lawsuit before the people's court. 
 
Chapter 7   Company Bonds
 
 
Article 154  
Company bonds referred to in this Law mean negotiable instrument issued by a c
ompany in accordance with the legal procedures with repayment of the principal
 and payment of the interest within a definite time limit.  Issue of company b
onds shall conform to the conditions on issue as stipulated in the securities
law of the People's Republic of China. 
 
Article 155  
After an application for the issue of company bonds is approved by the departm
ent authorized by the State Council, the company shall make a public announcem
ent of the method of offer of the company bonds.
 
The method of offer of company bonds shall specify the following main particul
ars:
 
(1) the name of the company;
 
(2) the purpose of the funds raises from the offer of the company bonds;
 
(3) the total amount of the bonds and their par value;
 
(4) the method for determining the interest rate of the bonds;
 
(5) the time limit for and the method of the repayment of the principal and th
e payment of interest;
 
(6) the information on security for the bonds;
 
(7) the bond issue price and the beginning and ending dates of the bond issue;
 
 
(8) the amount of the net assets of the company;
 
(9) the total amount of the undue bonds issued by the company; and
 
(10) the selling agency of the company bonds. 
 
Article 156  
Where a company issues its company bonds in the form of in-kind coupons, it mu
st clearly record thereon such items as the name of the company, the par value
 of the bonds, the interest rate and the time limit for repayment, and the bon
ds shall be signed by the legal representative and sealed by the company. 
 
Article 157  
Company bonds may be either registered bonds or bearer bonds. 
 
Article 158  
A company issuing company bonds shall prepare the counterfoils of bands issued
.
 
When registered company bonds are issued, the counterfoils of bonds shall spec
ify the following items:
 
(1) the name or title and domicile of each bondholder;
 
(2) the date on which each bondholder acquired the bonds and their serial numb
ers;
 
(3) the total amount of the bonds, the par value, the interest rate of the bon
ds and the method of and time limit for repayment of the principal and payment
 of interest; and
 
(4) the issuing date of the bonds.
 
Where bearer company bonds are issued, the counterfoils of the company bonds s
hall specify the total amount of the bonds, the interest rate, the time limit
for and method of repayment of the principal and payment of interest, the issu
ing date of the bonds and the serial numbers. 
 
Article 159  
The registration and clearing institutions for registered company bonds shall
establish the relevant systems such as registration, maintenance and managemen
t, payment of interest, conversion into cash of the bonds. 
 
Article 160  
Company bonds may be transferred, and the price for the transfer shall be agre
ed upon by the transferor and transferee.
 
If the company bonds are listed and traded at a stock exchange, the transfer t
hereof shall be bound by the transaction rules of the stock exchange. 
 
Article 161  
Registered bonds shall be transferred by means of endorsement by the bondholde
r or by other means provided for by the laws or administrative regulations; wh
ere registered bonds are transferred, the name or title and domicile of the tr
ansferee shall be recorded in the counterfoils of the company bonds.
 
Where bearer bonds are transferred, the transfer becomes effective immediately
 after the bondholder delivers his bonds to the transferee. 
 
Article 162  
Upon adoption of a resolution by the shareholders general meeting, a listed co
mpany may issue company bonds which can be converted into shares. The specific
 measures for the conversion shall be stipulated in the method of offer of the
 company bonds.
 
The issue of company bonds convertible into shares shall be subjected to the a
pproval of the securities regulatory authority under the State Council.
 
In issuing company bonds convertible into shares, the words "convertible compa
ny bonds" shall be clearly indicated on the bonds and the amount of convertibl
e company bonds shall be recorded in the counterfoils of company bonds. 
 
Article 163  
A company that issues company bonds convertible into shares shall let the bond
holders convert their bonds into shares in accordance with the conversion meas
ures. However, bondholders shall have an option whether or not to convert thei
r bonds into shares. 
 
Chapter 8   Financial Affairs and Accounting of Companies
 
 
Article 164  
A company shall establish its financial and accounting system in accordance wi
th the laws, administrative regulations and the stipulations of the department
 in charge of financial affairs under the State Council. 
 
Article 165  
At the end of each fiscal year, a company shall prepare its financial statemen
ts, which shall be audited by an accountant's firm according to law.
 
The financial statements shall be formulated in accordance with the laws, admi
nistrative regulations and the stipulations of the department in charge of fin
ancial affairs under the State Council. 
 
Article 166  
A limited liability company shall send the financial statements to each of its
 shareholders within the time limit stipulated in its articles of association.
 
 
A joint stock limited company shall make the financial statements available at
 the company for examination by its shareholders 20 days prior to the convenin
g of the shareholders annual general meeting; a joint stock limited company pu
blicly issuing shares must announce its financial statements. 
 
Article 167  
When a company distributes the annual after-tax profits, it shall allocate ten
 percent of its profits to its statutory common reserve fund. Where the accumu
lated amount of the statutory common reserve fund has exceeded 50 percent of t
he registered capital of the company, the company may make no further allocati
on.
 
Where the statutory common reserve fund is insufficient to make up the company
's losses of the previous fiscal year, the company shall apply its annual afte
r-tax profits to making up its losses before allocating such profits to the st
atutory common reserve fund in accordance with provisions of the preceding Par
agraph.
 
After making its allocation to the statutory common reserve fund from the comp
any's after-tax profits, the company may, upon resolution made by the sharehol
ders meeting or the shareholders general meeting, make allocations to the disc
retionary common reserve fund.
 
After a company makes up its losses and makes allocations to the statutory com
mon reserve fund, a limited liability company shall distribute the remaining a
fter-tax profits to its shareholders according to the provisions of Article 35
 of this Law; and a joint stock limited company shall distribute the remaining
 after-tax profits to its shareholders according to the proportion of the shar
es held by each shareholder, except the articles of association of the company
 stipulates the profits shall not be distributed according to the proportion o
f shareholding.
 
Where the shareholders meeting or the shareholders general meeting or the boar
d of directors violates the provisions of the preceding Paragraphs by distribu
ting profits to the shareholders before making up the company's losses and mak
ing allocations to the statutory common reserve fund, the profits distributed
in violation of the legal provisions must be returned by the shareholders to t
he company.  No profits may be distributed upon a company's shares held by the
 company itself. 
 
Article 168  
The premium income derived from issuing shares above par by a joint stock limi
ted company and other income which according to the rules set by the departmen
ts in charge of financial affairs under the State Council should be entered in
to the capital common reserve fund, shall be entered into the capital common r
eserve fund of the company. 
 
Article 169  
A company's common reserve fund shall be used to make up the company's losses,
 to expand the production and operation of the company or to increase the capi
tal of the company by means of conversion, but the capital common reserve fund
 shall not be used to make up the company's losses.
 
When the statutory common reserve fund of a company is converted into its capi
tal, the remaining amount of the statutory common reserve fund shall not be le
ss than 25 percent of the registered capital. 
 
Article 170  
If a company is to engage or dismiss any accountant's firm handling the audit
affairs of the company, it shall be decided by the shareholders meeting or the
 shareholders general meeting or the board of directors in accordance with the
 articles of association of the company.
 
When the shareholders meeting or the shareholders general meeting or the board
 of directors of the company votes for engagement or dismiss of the accountant
's firm, the accountant's firm shall be permitted to state its opinions. 
 
Article 171  
A company shall provide to the accountant's firm engaged by it true and comple
te accounting vouchers, accounting books, financial statements and other accou
nting materials, and shall not refuse to provide or conceal or falsely provide
 the same. 
 
Article 172  
A company shall not have any other account books in addition to its statutory
account books.
 
No account may be opened in the name of any individual for deposit of a compan
y's assets. 
 
Chapter 9   Merger, Division, Increase and Reduction of Capital of Companies

 
 
Article 173  
The merger of a company may take the form of merger by absorption or merger by
 new establishment.
 
When a company absorbs another, it is an absorption merger, and the company be
ing absorbed shall be dissolved. When two or more companies merge to establish
 a new company, it is merger for new establishment, and all parties being merg
ed shall be dissolved. 
 
Article 174  
When companies merge, the parties to a merger shall sign a merger agreement an
d formulate a balance sheet and a detailed inventory of assets. The company sh
all inform its creditors of the intended merger within ten days following the
date on which the merger resolution is adopted, and make at least three announ
cements in newspaper within 30 days. The creditors shall have the right to cla
im full repayment of their debts or provision of a corresponding guarantee for
m the company with 30 days from the date of receipt of the notice or, within 4
5 days from the date of the first public announcement for those who have not r
eceived the notice. 
 
Article 175  
When companies merge, the claims and debts of the parties to the merger shall
be succeeded to the absorbing company or the newly established company when co
mpanies are merged. 
 
Article 176  
Where a company proceeds into a division, its assets shall be divided correspo
ndingly.
 
Where a company decides to divide itself, it shall formulate a balance sheet a
nd a detailed inventory of assets and shall inform its creditors of the intend
ed division within ten days following the date on which the division resolutio
n is adopted, and make at least three announcements in newspaper within 30 day
s. 
 
Article 177  
The companies following the division shall assume the joint and several liabil
ity for the debts prior to the division of the company, except as otherwise pr
ovided in an written agreement upon satisfaction of the debts reached between
the company and its creditors prior to the division. 
 
Article 178  
Where a company intends to reduce its registered capital, it must formulate a
balance sheet and a detailed inventory of assets.
 
The company shall inform its creditors of the planned reduction of its registe
red capital within ten days following the date on which the resolution to redu
ce its capital is adopted, and make at least three announcements in newspaper
within 30 days following the aforesaid date. The creditors shall have the righ
t to claim full repayment of their debts or provision of a corresponding guara
ntee from the company within 30 days from the date of the receipt of the notic
e or, within 45 days from the date of the first public announcement for those
who have not received the notice.
 
After the reduction of capital, the amount of a company's registered capital s
hall not be lower than the statutory minimum amount. 
 
Article 179  
Where a limited liability company increase its registered capital, the capital
 contributions to the newly increased capital subscribed for by the shareholde
rs shall be governed by the relevant provisions of this Law regarding the paym
ent of capital contributions in connection with the incorporation of a limited
 liability company.
 
Where a joint stock limited company issues new shares to increase its register
ed capital, subscription for the new shares by shareholders shall be governed
by the relevant provisions of this Law regarding the payment of subscription m
oney in connection with the incorporation of a joint stock limited company. 

 
Article 180  
Where the merger or division of a company involves changes in registered items
, such changes shall be registered according to law with the company registrat
ion authority. Where a company is dissolved, it shall apply for cancellation o
f its registration according to law. Where a new company is incorporated, the
registration of the incorporation of the company shall be handled according to
 law.
 
Where a company increase or reduces its registered capital, it shall apply to
the company registration authority for registration of the changes according t
o law. 
 
Chapter 10   Dissolution and Liquidation of Companies
 
 
Article 181  
Where any of the following circumstances occurs, a company shall be dissolved:
 
 
(1) the term of operation as stipulated by the articles of association of the
company expires or other reasons for dissolution as stipulated by the articles
 of association occur:
 
(2) the shareholders meeting or the shareholders general meeting resolves to d
issolve the company;
 
(3) dissolution is necessary as a result of the merger or division of the comp
any;
 
(4) the company's business license is cancelled or the company is ordered to b
e closed down or is revoked according to law; and
 
(5) the company is dissolved by the people's court in accordance with Article
183 of this Law. 
 
Article 182  
If a company is under the circumstances of Item (1) of Article 181 of this Law
, it may continue to exist by means of revision of its articles of association
.
 
The revision of the articles of association under the preceding Paragraph shal
l be, in case of a limited liability company, passed by the shareholders holdi
ng two-thirds or more of the voting rights, or, in case of a joint stock limit
ed company, passed upon an affirmative votes of two-thirds or more of the voti
ng rights held by the shareholders attending the shareholders general meeting.
 
 
Article 183  
If the operation and management of a company occur serious difficulty, continu
ed existence of the company will cause major loss to the shareholders' interes
ts and the situation cannot be solved through other approaches, the shareholde
rs holding ten percent of all shareholders' voting rights of the company may r
equest the people's court to dissolve the company. 
 
Article 184  
Where a company is to be dissolved in accordance with the provisions of Item (
1), (2), (4) or (5) of the Article 181, a liquidation committee shall be forme
d within 15 days after the reason for dissolution occurs and commence the liqu
idation. The liquidation committee of a limited liability company shall be com
posed of its shareholders, and the membership of the liquidation committee of
a joint stock limited company shall be decided upon by the directors or the sh
areholders general meeting of the company. Where a company fails to form a liq
uidation committee to conduct liquidation within the time limit, its creditors
 may request a people's court to designate relevant personnel to form a liquid
ation committee and conduct liquidation. The people's court shall accept such
request and without delay form the liquidation committee to conduct liquidatio
n. 
 
Article 185  
During liquidation, a liquidation committee shall exercise the following funct
ions and powers:
 
(1) to check up on the company's assets, and separately formulate a balance sh
eet and a detailed inventory of assets;
 
(2) to notify creditors by notice or public announcement;
 
(3) to dispose of and liquidate the relevant unfinished business of the compan
y;
 
(4) to pay off taxes owed by the company and incurred during liquidation;
 
(5) to clear up claims and debts;
 
(6) to dispose of, after paying off the debts of the company, its remaining pr
operty; and
 
(7) to participate in civil lawsuits on behalf of the company. 
 
Article 186  
A liquidation committee shall inform the company's creditors of its establishm
ent within ten days following the date of its establishment, and make at least
 three announcements in newspaper within 60 days following the aforesaid date.
 The creditors shall declare their claims to the liquidation committee within
30 days from the date of receipt of the notice or, within 45 days from the dat
e of the first public announcement for those who have not received the notice.
 
 
A creditor shall, when declaring his claims, specify the relevant items of the
 claim and provide supporting materials. The liquidation committee shall regis
ter the claims. During the period of declaration of claims, the liquidation co
mmittee shall not satisfy the creditors. 
 
Article 187  
After the liquidation committee has checked up on the company's assets, formul
ated the balance sheet and a detailed inventory of assets, it shall formulate
a liquidation plan and shall submit such plan to the shareholders meeting or t
he shareholders general meeting or the people's court for confirmation.
 
After all liquidation fees, wages, social insurance premiums and statutory com
pensatory amounts of the staff and workers, due taxes and debts of the company
 are respectively paid off from the company's property, the remaining assets o
f the company shall be distributed, in the case of a limited liability company
, in proportion to the shareholders' capital contributions, or, in the case of
 a joint stock limited company, in proportion to the shares held by the shareh
olders.
 
During liquidation, a company still exists but shall not engage in new busines
s activities unrelated to the liquidation. No assets of the company may be dis
tributed to the shareholders prior to full payments as stipulated by the prece
ding Paragraph. 
 
Article 188  
If the liquidation committee of a company, having checked up on the company's
asset and formulating the balance sheet and a detailed inventory of assets, di
scovers that there are insufficient assets in the company to pay off its debts
, the committee shall apply to the people's court for a declaration of bankrup
tcy of the company.
 
After the people's court has ruled to declare the company bankrupt, the liquid
ation committee shall turn the liquidation matters over to the people's court.
 
 
Article 189  
After the completion of liquidation, the liquidation committee shall formulate
 a liquidation report and submit the report to the shareholders meeting or the
 shareholders general meeting or the people's court for confirmation and submi
t it to the company registration authority in order to cancel the registration
 of the company and publicly announce the company's termination. 
 
Article 190  
Members of a liquidation committee shall be devoted to their duties and perfor
m their liquidation obligations.
 
Members of a liquidation committee shall not accept bribes or other illegal in
come, or misappropriate the property of the company by taking advantage of the
ir positions and powers.
 
Members of a liquidation committee who cause losses to the company or to its c
reditors, either will fully or through gross negligence, shall be liable for c
ompensation. 
 
Article 191  
If a company is declared bankrupt according to law, the bankruptcy liquidation
 of the company shall be conducted in accordance with the laws on enterprise b
ankruptcy. 
 
Chapter 11   Branches of Foreign Companies
 
 
Article 192  
A foreign company referred to in this Law shall mean a company incorporated ou
tside the territory of the People's Republic of China in accordance with forei
gn laws. 
 
Article 193  
A foreign company that intends to establish a branch within the territory of t
he People's Republic of China must submit an application to the authorities in
 charge in China together with relevant documents such as its articles of asso
ciation and the company's registration certificate issued by its country. Upon
 approval, it shall apply to the company registration authority for registrati
on and for a business license for the branch according to law.
 
Measures for examining and approving the establishment of branches of foreign
companies shall be formulated separately by the State Council. 
 
Article 194  
A foreign company that establishes a branch within the territory of the People
's Republic of China must appoint its representative or agent within the terri
tory of the People's Republic of China to take charge of the branch and shall
allocate to the branch funds commensurate with the business which it is to eng
age in.
 
Where a minimum amount of operational funds is required for a branch of a fore
ign company, the State Council shall separately prescribe to that effect. 
 
Article 195  
A branch of a foreign company shall clearly indicate in its name the nationali
ty and the form of liability of such foreign company.
 
The branch shall keep at its domicile a copy of the articles of association of
 such foreign company. 
 
Article 196  
A branch established by A foreign company within the territory of the People's
 Republic of China shall not have the status of a Chinese legal person.
 
A foreign company shall bear civil liability for the operational activities en
gaged in by its branch within the territory of the People's Republic of China.
 
 
Article 197  
The business activities engaged in within the territory of the People's Republ
ic of China by foreign companies' branches established upon approval must comp
ly with the laws of China and shall not harm the social and public interest of
 China. The lawful rights and interests of such branches shall be protected by
 the laws of China. 
 
Article 198  
Where a foreign company dissolves its branch established within the territory
of the People's Republic of China, it must pay off the branch's debts accordin
g to law and carry out liquidation in accordance with the relevant procedures
concerning company liquidation provide for in this Law. The assets of the bran
ch shall not be transferred out of the territory of the People's Republic of C
hina prior to the full payment of its debts. 
 
Chapter 12   Legal Liability
 
 
Article 199  
Where a company obtains its registration by making a false report on its regis
tered capital, submitting falsified materials, or resorting to other fraudulen
t means to conceal important facts in violation of this Law, it shall be order
ed to make a rectification; where a company makes a false report on its regist
ered capital, it shall be fined an amount of not less than five percent but no
t more than 15 percent of the registered capital falsely reported; where a com
pany submits falsified materials or resorts to other fraudulent means to conce
al important facts, it shall be punished with a fine of not less than RMB 50,0
00 but not more than RMB 500,000; If the circumstances are serious, the regist
ration of the company shall be cancelled or its business license shall be revo
ked. 
 
Article 200  
Where a sponsor or a shareholder makes a false capital contribution or fails t
o pay or fails to pay within the stipulated time limit the promised currency o
r property in non-currency as capital contribution, he shall be ordered to mak
e a rectification and imposed a fine of not less than five percent but not mor
e than 15 percent of the false capital contributions. 
 
Article 201  
Where a sponsor or a shareholder of a company surreptitiously withdraws his ca
pital contribution after the incorporation of the company, he shall be ordered
 to make a rectification and imposed a fine of not less than five percent but
not more than 15 percent of the amount of capital contribution surreptitiously
 withdrawn. 
 
Article 202  
Where a company violates the provisions of the Law by setting up accounting bo
oks in addition to its statutory accounting books, it shall be ordered to make
 a rectification and imposed a fine of not less than RMB 50,000 but not more t
han RMB 500,000 by the department in charge of financial affairs of the people
's government at or above county level. 
 
Article 203  
Where a company submits to the competent department in charge such materials f
inancial statements having false records or concealing important facts, the pe
rsons in charge and other persons held directly responsible shall be imposed u
pon a fine of not less than RMB 30,000 but not more than RMB 300,000. 
 
Article 204  
Where a company fails to make allocations to its statutory common reserve fund
 in accordance with this Law, it shall be ordered to make up the amount that i
t is required to allocate and shall be imposed upon a fine of not more than RM
B 200,000. 
 
Article 205  
Where a company fails to issue a notice or make an public announcement to its
creditors according to this Law in case of merger, division, reduction of its
registered capital or liquidation, it shall be ordered to make a rectification
 and be imposed upon a fine of not less than RMB 10,000 but not more than RMB
100,000.
 
Where a company, in the process of its liquidation, conceals property, records
 false information in its balance sheet or detailed inventory of assets or, di
stributes the company's assets prior to the full payment of its debts, it shal
l be ordered to make a rectification by the company registration authority and
 be imposed upon a fine of not less than five percent but not more than ten pe
rcent of the amount concealed or of the amount distributed prior to the full p
ayment of the debts of the company. The persons in charge and others held dire
ctly responsible shall be imposed upon a fine of not less than RMB 10,000 but
not more than RMB 100,000. 
 
Article 206  
Where a company, in the process of its liquidation, carries out any business a
ctivity unrelated to the liquidation, it shall be given a warning by the compa
ny registration authority and the illegal earnings shall be confiscated. 
 
Article 207  
Where a liquidation committee fails to submit a liquidation report to the comp
any registration authority in accordance with this Law, or where a liquidation
 report submitted conceals major facts or contains major omission, it shall be
 ordered to make a rectification by Company Registration Authority.
 
Where a member of the liquidation committee takes advantage of his position an
d power to practice favouritism for personal gains, seek illegal incomes or mi
sappropriate the property of the company, he shall be ordered to return the pr
operty to the company, confiscated of his illegal gains and imposed upon a fin
e from one to five times the amount of his illegal gains. 
 
Article 208  
Where an institution in charge of asset valuation, capital verification or cer
tificate verification provides false materials, the illegal income derived the
refrom shall be confiscated by the company registration authority and a fine f
rom one to five times the amount of the illegal income shall be imposed; the r
elevant department in charge may, according to law, order the institution to s
uspend its business or revoke the qualification certificates of those held dir
ectly responsible or revoke the business license of the institution.
 
Where an institution in charge of asset valuation, capital verification or cer
tificate verification provides by negligence reports with major omissions, it
shall be ordered to make a rectification; where the circumstances are relative
ly serious, a fine from one the five times the amount of the income derived th
erefrom shall be imposed, and the relevant department in charge may, according
 to law, order the institution to suspend its business or revoke the qualifica
tion certificates of those held directly responsible or revoke the business li
cense of the institution.
 
Where an institution in charge of asset valuation, capital verification or cer
tificate verification provides untrue evaluation results, capital verification
 or certificate verification and therefore cause losses to the company's credi
tors, it shall undertake the liability for compensation to the extent the amou
nt is under untrue evaluation or verification, except the institution can prov
e it has no fault. 
 
Article 209  
Where the company registration authority approves an application for registrat
ion which does not meet the requirements as stipulated in this Law, or disappr
oves an application for registration which does meet the requirements as stipu
lated in this Law, the persons in charge and others held directly responsible
shall be given administrative sanctions according to law. 
 
Article 210  
Where departments at a level higher than the company registration authority fo
rce the company registration authority to approve an application for registrat
ion which does not meet the requirements as stipulated in this Law, or force t
he company registration authority to disapprove an application for registratio
n which does meet the requirements as stipulated in this Law, or covers up an
illegal registration, the persons in charge and others held directly responsib
le shall be given administrative sanctions according to law. 
 
Article 211  
Where a company that has not registered according to law as a limited liabilit
y company or a joint stock limited company assumes the name of "limited liabil
ity company" or "joint stock limited company", or a branch that has not regist
ered according to law as a branch of a limited liability company or a joint st
ock limited company assumes the name of "branch of limited liability company"
or "branch of joint stock limited company", it shall be ordered to make a rect
ification or be banned, and a fine of not more than RMB 100,000 may be imposed
 concurrently. 
 
Article 212  
Where a company fails to commence its business without justification within th
e period of more than six months of its incorporation or, after commencing its
 business, suspends business at its own will for a period of six consecutive m
onths or more, the company registration authority shall revoke the company's b
usiness license.
 
Where a company fails to apply for registration of change in accordance with t
his Law whenever change occurs in registered items of the company, it shall be
 ordered to handle the registration within a specified time limit; and if the
company still fails to register within the specified time limit, a fine of not
 less than RMB 10,000 but not more than RMB 100,000 shall be imposed. 
 
Article 213  
Where a foreign company, in violation of the provisions of this Law, establish
es a branch within the territory of the People's Republic of China without aut
horization, it shall be ordered to make a rectification or to be closed down,
and a fine of not less than RMB 50,000 but not more than RMB 200,000 may be im
posed concurrently. 
 
Article 214  
Where a company, in the name of the company, commits serious illegal acts of e
ndangering the State security or social public interests, its business license
 shall be revoked. 
 
Article 215  
Where a company violating the provisions of this Law shall assume civil liabil
ity for compensation and pay fines and penalties, and the company's property i
s insufficient to pay such compensation, fines and penalties, the company shal
l assume the civil liability for compensation first. 
 
Article 216  
Where any circumstance, in violation of the provisions of this Law, constitute
s a crime, the criminal liability shall be investigated. 
 
Chapter 13   Supplementary Provisions
 
 
Article 217  
The meaning of the following terms for the purposes of this Law:
 
(1) "Senior executive" shall mean any manager, deputy manager and person in ch
arge of financial affairs of any company, and the secretary of the board of di
rectors of any listed company and other personnel as stipulated in the article
s of association of any company.
 
(2) "Holding shareholder" shall mean any shareholder whose capital contributio
n amount accounts for 50% or more of the total amount of the capital of a limi
ted liability company or the shares held by whom accounts for 50% of the total
 amount of the share capital of a joint stock limited company; and any shareho
lder, although whose capital contribution amount or shares held by whom is les
s than the said 50%, who can, through his voting rights upon his capital contr
ibution amount or shares held by him, have a major effect upon the resolutions
 of the shareholders meeting or the shareholders general meeting.
 
(3) "Actual controller" shall mean any person who is not a shareholder of a co
mpany but can control the company's acts through investment relationship, agre
ements or other arrangements.
 
(4) "affiliate relationship" shall mean the relationship between a company's h
olding shareholders, actual controllers, directors, supervisors, senior execut
ives and a enterprise directly or indirectly controlled by the forgoing person
s, and any relationship that may transfer a company's interests. However, the
State-holding enterprises shall not be deemed to have affiliate relationship o
nly because they are under common State holding. 
 
Article 218  
This Law shall apply to limited liability companies and joint stock limited co
mpanies with foreign investment. Where laws concerning foreign investment prov
ide otherwise, such provisions shall prevail. 
 
Article 219  
This Law shall come into effect as of January 1, 2006.