Chinese corporate law

A broader interpretation of the Chinese corporate law includes not only the rules governing the internal organisation of the companies, but also various licensing and registration requirements that are necessary for the establishment and the continued existence of these companies.

1. For a Limited Liability Company, which is the usual legal form for foreign companies in China, the Chinese company law provides that the internal structure must always have the following four organs:

• The shareholders' meeting/the shareholder
• Supervisory Board
• Board of Directors
• A General Manager

Yet two major deviations from this structure are permitted by law: Instead of a supervisory board it is possible to have one or two individual supervisors. In contrast to the regular supervisory board, no employee participation is required in this simplified structure.

For smaller companies, it is also permitted to combine the functions of the Board of Directors and the General Manager in one person - the Executive Director. In fact, most foreign-invested companies only have a purely nominal Shareholders' Meeting, a Supervisor and an Executive Director. The Executive Director has far reaching responsibilities to lead and represent the company.

The organisational structure (Organstruktur) needs be included in the articles of association of the company.

Although provisions on the personal liabilities of the company organ do exist in Chinese corporate law, it is in practice only relevant if the person has committed misconducts in his/her function.

2. In contrast to Germany, freedom of trade does not exist in China. All business activities are subject to regulatory registration and/or approvals of the authority; this applies in particular to foreign-invested companies.

Specifically, the requirements for registration and/or approval vary in practice widely from location to location. In any case, prior to the start of a project, it should be discussed with the local regulatory authorities accurately and bindingly, what requirements actually apply.

The various permits and/or registrations required to operate a business in China must be renewed at regular intervals. Due to the high number and importance of these documents, it is highly recommended to create a uniform calendar for this and to entrust a certain person taking care of all the deadlines.

For further information on other aspects of Chinese corporate law, please see the chapters concerning "Foreign direct investment" and "Restructuring".

Our consulting services concerning Chinese corporate law include:

• Advice on company structure
• Preparation of the company's Articles of Association
• Advice on personal liabilities that may be encountered by company personnel
• Handling application and renewal of permits, licenses and registrations, etc. where applicable