Board of Directors in China and the New Company Law
On December 29, 2023 the National People’s Congress revised and approved the sixth amendment to the Company Law of the People’s Republic of China, following many years of deliberation. According to the latest revision of the Company Law, the sixth amendment contributes 112 newly added or revised articles. These amendments address significant aspects, including corporate governance, capital contribution, management responsibilities. Coming into effect on July 1, 2024, these amendments have made notable revisions to the governance structure, specifically the powers and composition of the board of directors.
The functions and powers of the board of directors are organized into three categories: statutory, those prescribed in the Articles of Association and authorized powers granted by the shareholders’ meeting. Whilst these functions and powers mostly remain the same, one modification aligns with the adjustments made to the shareholders’ meeting, as the board of directors is no longer tasked with formulating the company’s annual financial budget plan and final accounts plan. However, unlike the shareholders’ meeting, the board of directors maintain the power to determine the company’s operating plans and investment proposals. Similarly, the board of directors are now empowered to exercise specific functions authorized by the shareholders’ meeting, such as the issuance of bonds.
The 2023 amendments allow small enterprises, determined by the company’s small scale or limited number of shareholders, to appoint a sole director to execute the responsibilities of the entire board of directors, regardless of being a limited liability company (LLC) or a joint stock company (JSC). Moreover, the provisions redefine the composition of the board, removing the previous upper limit on the number of directors but comprising of at least three directors for both LLCs and JSCs. Furthermore, employee representation on boards, while generally optional, becomes mandatory in wholly state-owned companies and companies with a significant employee count of no less than 300 employees and no employee representative on the supervisory board.