China's 2024 Company Law: the changes that matter to foreign-invested companies

The headline: five years to pay in capital

Shareholders of a limited liability company must pay in their subscribed capital within five years of incorporation (Article 47). Before July 2024 they could choose almost any schedule, and many WFOEs had 20- or 30-year deadlines.

Companies set up before 30 June 2024 with longer schedules must bring the remaining period within five years. They have a transition period to make the change: see the 2027 capital deadline.

Capital becomes enforceable

• Acceleration: if the company can’t pay its debts as they fall due, the company or its creditors can demand unpaid capital before it’s due (Article 54).
• Forfeiture: a shareholder who misses a contribution can be sent a written demand with a grace period of at least 60 days. If they still don’t pay, the board can resolve to forfeit the unpaid equity (Article 52).
• Directors’ duty: the board must check that capital has been paid and chase it in writing. Directors who fail to do so are liable for resulting losses (Article 51).
• Transfers don’t escape the debt: if a shareholder sells equity before paying it in, the buyer must pay, and the seller remains liable for any shortfall (Article 88).

The practical message: set registered capital at a figure the parent will actually fund. See minimum registered capital.

Lighter governance

• Small companies can have a single director instead of a board.
• A board audit committee can replace the board of supervisors. Small companies can drop supervisors altogether if all shareholders agree.
• Companies with 300 or more employees need an employee director, unless the board of supervisors has employee members.
• Meetings and votes can be held electronically.

What this means for the articles is covered in articles of association.

Heavier personal exposure

• Directors, supervisors and senior managers owe express duties of loyalty and diligence.
• A de facto director, such as a controlling shareholder who directs the company’s affairs, is held to the same duties.
• A director who causes harm to a third party intentionally or through gross negligence is jointly liable with the company.
• The legal representative can resign along with their director or manager role. The company must appoint a replacement within 30 days.

Easier changes and exits

• Equity transfers: shareholders no longer need the others’ consent. They give written notice, and the other shareholders’ pre-emptive right lapses if they don’t answer within 30 days. See equity transfers.
• Simplified capital reduction: a company can reduce capital to cover losses without the usual creditor notice process, but can’t then pay dividends until reserves recover.
• Simplified deregistration: a company with no debts can close faster if all shareholders give a commitment. See how to close a company.

What to do now

1. Check the capital schedule in your articles.
2. Confirm your board and supervisor structure is still what you want.
3. Brief local directors and the legal representative on their personal duties.

Our Company Law compliance review covers all three.