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Fiduciary Duty in China’s 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 brought significant changes, under Articles 180, 182, 182 and 184, to the fiduciary duties of directors, supervisors, and senior managers.

 

The 2023 Company Law divides the obligations of directors, supervisors and senior managers into the duty of loyalty and the duty of diligence. Under the duty of loyalty, these key personnel must actively avoid conflicts of interest between their personal interests and those of the company. Importantly, they are prohibited from leveraging their positions to gain improper benefits. The duty of diligence requires directors, supervisors, and senior managers to exercise reasonable care expected of managers, always prioritizing the company's best interests.

 

Additionally, the amendments specify that directors, supervisors, and senior managers are now obligated to report their contracts and transactions with the company, whether directly or indirectly. Approval from the shareholders’ meeting or the board of directors is required and must be obtained in accordance with the company’s articles of association. These regulations extend to the close relatives of directors, supervisors, or senior executives, as well as businesses under the direct or indirect control of these individuals or their close relatives. Furthermore, they encompass any parties involved in related-party relationships with directors, supervisors, or senior officers who participate in contracts or transactions with the company.

 

Moreover, the provisions also specify that directors, supervisors, and senior managers are restricted from exploiting their position to seek business opportunities available to the company for personal gain, unless reported to and approved by the board of directors or the shareholders’ meeting under the articles of association or the company is unable to pursue such opportunities under any laws, administrative regulations or the company’s articles of association. Furthermore, engaging in similar businesses independently or on behalf of others requires reporting and approval from the shareholders’ meeting or board of directors as outlined in the company's articles of association.

 

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