Article 171
Registered corporate bonds are transferred by the bondholder through endorsement or by other means as stipulated by law or administrative regulations.
Upon the transfer of a registered corporate bond, the company records in its corporate bond register the name and address of the transferee.
A transfer of a bearer corporate bond becomes effective upon the delivery of the corporate bond to the transferee at a legally established stock exchange.
Article 172
Subject to a resolution at a general meeting of the shareholders, a listed company may issue corporate bonds convertible into shares of the company. The procedures for conversion are specified in the corporate bond offer procedures.
The issue of corporate bonds convertible into shares shall be submitted to the securities administration departments of the State Council for approval. Corporate bonds convertible into shares shall meet not only the requirements for the issue of bonds but also the requirements
for the issue of shares.
Corporate bonds convertible into shares shall be marked "convertible corporate bonds", and the quantity of convertible corporate bonds shall be recorded in the corporate bond register.
Article 173
A company which issues corporate bonds convertible into shares shall issue share certificates to bondholders in accordance with its conversion procedures, provided that the bondholder has the option whether or not to convert.
Chapter 6 Financial Affairs and Accounting of A Company
Article 174
A company shall establish its financial and accounting systems according to laws, administrative regulations and the regulations of the responsible finance department of the State Council.
Article 175
At the end of each fiscal year, the company shall prepare a financial statement which shall be examined and verified as provided by law.
The company s financial statements shall include the following accounting statements and schedules:
(1) balance sheet;
(2) profit and loss statement;
(3) statement of financial changes;
(4) explanation of financial condition; and
(5) profit distribution statement.
Article 176
A limited liability company shall present its financial statements to the shareholders in accordance with the time periods specified in the company s articles of association.
A company limited by shares shall deposit its financial statements at the company for inspection by the shareholders at least twenty days before the convening of the annual general meeting of shareholders.
A company limited by shares established by the offer method shall make public its financial statements.
Article 177
When distributing each year s after-tax profits, the company shall set aside ten per cent of its after-tax profits for the company s statutory common reserve fund and five per cent to ten per cent of its profits for the company s statutory common welfare fund. When the aggregate balance in the statutory common reserve fund is fifty per cent or more of the registered capital of the company, the company need not make any further allocations to that fund.
When the company s statutory common reserve fund is not sufficient to make up for the company s losses of the previous year, current year profits shall be used to make up for the losses before allocations are set aside for the statutory common reserve fund or the statutory common welfare fund in accordance with the previous clause.
Subject to a resolution of the shareholders meeting, after the company has set aside funds from after-tax profits for the statutory common reserve fund, the company may set aside funds for a discretionary common reserve fund.
After the company has made up its losses and made allocations to its common reserve fund and statutory common welfare fund, the remaining profits are distributed in proportion to the shareholders capital contributions if the company is a limited liability company and in proportion to the number of shares held by the shareholders if the company is a company limited by shares.
If a shareholders meeting or the board of directors violates the above provisions and profits are distributed to the shareholders before the company makes up for losses or makes allocations to the statutory common fund and the statutory common reserve welfare fund, the profits distributed in violation of the provisions must be returned to the company.
Article 178
In accordance with this Law, the premium a company limited by shares obtains when it issues shares at a price which exceeds par value, and any other income designated for the capital common reserve fund by the regulations of the responsible finance department of the State Council shall be allocated to the company s capital common reserve fund.
Article 179
The common reserve fund of a company is used to make up its losses, expand its production and operations or for conversion into additional capital of the company.
When the common reserve fund of a company limited by shares is converted to capital in accordance with a resolution passed at a general meeting of the shareholders, the company either distributes new shares in proportion to the shareholders, number of shares, or increases the par
value of each share, provided, however, that when the statutory common reserve fund is converted to capital, the balance of the statutory common reserve fund may not fall below twenty-five percent of the registered capital.
Article 180
The company s statutory common welfare fund is used for the collective welfare of the company s staff and workers.
Article 181
A company shall not keep accounting books and records other than those provided by law.
The company s assets shall not be held in an account opened in the name of any individual.
Chapter 7 Merger and Division of A Company
Article 182
A resolution to effect the merger and division of a company shall be passed at a meeting of the shareholders.
Article 183
The merger and division of a company limited by shares shall be approved by the authorized department of the State Council or by the provincial government.
Article 184
The merger of a company may take the form of either merger by absorption or merger by the establishment of a new company.
Where one company is absorbed by another in a merger by absorption, the absorbed company is dissolved. Where two or more companies establish a new company in a merger by reestablishment, all merged parties are dissolved.
In the event of a merger, the merging parties shall execute a merger agreement and prepare a balance sheet and an inventory of property. The company shall notify its creditors within ten days of the date of the company s resolution to merge and shall publish public notices in a newspaper at least three times within thirty days of the date of the company s resolution to merge. A creditor has the right within thirty days of receiving such notice from the company (or, for creditors who do not receive the notice, within ninety days of the date of the first public
notice) to demand that the company repay its debts to that creditor or provide a corresponding guarantee for such debt. A company which does not repay its debts or provide corresponding guarantees for such debts shall not be merged.
At the time of merger, the creditors rights and indebtedness of each of the merged parties shall be assumed by the company which survives the merger or the newly established company.
Article 185
When a company is divided, its property shall be split up accordingly.
At the time a company is divided, the company shall prepare a balance sheet and an inventory of property. The company shall notify its creditors within ten days of the date of the company s resolution to divide and shall publish public notices in a newspaper at least three times within
thirty days of the date of the company s resolution to divide. A creditor has the right within thirty days of receiving such notice from the company (or, for creditors who do not receive the notice, within ninety days of the date of the first public notice) to demand that the company repay its debts to that creditor or provide a corresponding guarantee for such debt. A company which does not repay its debts or provide corresponding guarantees for such debts shall not be divided.
Debts of the company prior to division are assumed by the post-division companies in accordance with the agreements entered into.
Article 186
When a company needs to reduce its registered capital, it prepares a balance sheet and an inventory of property.
The company shall notify its creditors within ten days of the date of the company s resolution to reduce its registered capital and shall publish public notices in a newspaper at least three times within thirty days of the date of the company s resolution to reduce its registered capital. A creditor has the right within thirty days of receiving such notice from the company (or, for creditors who do not receive notice, within ninety days of the date of the first public notice) to demand that the company repay its debts to that creditor or provide a corresponding guarantee for such debt.
The registered capital of a company following such capital reduction shall not be less than the minimum levels set by law.
Article 187
When a limited liability company increases its registered capital, the shareholders subscription and payment of contributions for the newly increased capital are carried out in accordance with the relevant provisions of this Law governing payment of capital contributions for the establishment of a limited liability company.
When a company limited by shares issues new shares in order to increase its registered capital, the process by which shareholders subscribe for new shares shall be carried out in accordance with the relevant provisions of this Law governing payment for shares for the
establishment of a company limited by shares.
Article 188
When a company merges or divides and there is a change in any item in its registration, the company shall change its registration with the company registration authority in accordance with the law. When a company dissolves, the company shall cancel its registration in accordance with
the law. When a new company in established, its establishment shall be registered in accordance with the law.
When a company increases or decreases its registered capital, the company shall carry out a change of registration with the company registration authority.
Chapter 8 Insolvency, Dissolution and Liquidation of A Company
Article 189
In the case of a company legally declared bankrupt because it is unable to repay debts due, the people s court shall, in accordance with the provisions of relevant laws, organize the shareholders, relevant organizations and relevant professional personnel to establish a
liquidation group to carry out bankruptcy liquidation procedures with respect to the company.
Article 190
A company may dissolve in any of the following situations:
(1) pursuant to the provisions of the company s articles of association, the term of the company has expired or one of the other events which are grounds for dissolution has occurred;
(2) a resolution for dissolution is passed by a shareholders meeting;
(3) dissolution is necessary due to a merger or division of the company.
Article 191
A liquidation group shall be set up within fifteen days of a company being dissolved pursuant to provisions (1) or (2) of the preceding article. The liquidation group of a limited liability company is made up of its shareholders. The composition of the liquidation group of a company limited by shares is determined by a general meeting of the shareholders. If a liquidation group to carry out liquidation procedures is not set up within the specified time limit, the creditors may apply to the people s court to have it designate relevant persons to form a liquidation group in order to carry out liquidation procedures. The people s court shall accept and hear such applications and timely designate the members of the liquidation group in order to carry out liquidation procedures.
Article 192
A company which is ordered according to law to close down for violating laws and administrative regulations shall be dissolved, and the relevant responsible authority shall organize the shareholders, relevant institutions and professional personnel to establish a liquidation group
to carry out liquidation procedures.
Article 193
During the liquidation period, the liquidation group shall exercise the following powers:
(1) to check the company s property and separately prepare a balance sheet and an inventory of property;
(2) to send notices to creditors or notify them by public notice;
(3) to deal with and liquidate relevant uncompleted business matters of the company;
(4) to pay off outstanding taxes;
(5) to clear creditors rights and indebtedness;
(6) to deal with the property remaining after the company s debts have been repaid; and
(7) to represent the company in any civil litigation proceedings.
Article 194
The liquidation group shall, within ten days of its establishment, send notices to creditors, and within sixty days of its establishment publish public notices in a newspaper at least three times. A creditor shall, within thirty days of receiving notice, report its creditors rights to the liquidation group, or for creditors who do not receive notice, within ninety days of the date of the first public notice.
When reporting creditors rights, the creditor shall provide and explanation of matters relevant to the creditor s rights and shall provide evidentiary materials. The liquidation group shall carry out registration of creditors rights.
Article 195
After checking the company s property and preparing a balance sheet and an inventory of property, the liquidation group shall formulate a liquidation plan and present it to a meeting of the shareholders or to the relevant responsible authority for confirmation.
To the extent that the company is able to repay its debts, it shall respectively pay all liquidation expenses, wages of staff and workers, labour insurance fees and taxes owing, and shall repay the company s debts.
The assets of the company remaining after its debts have been repaid in accordance with the provisions of the previous clause are distributed in proportion to the shareholders capital contributions if the company is a limited liability company and in proportion to the number of shares held by the shareholders if the company is a company limited by shares.
During the liquidation period, a company shall not commence any new operational activities. The property of the company shall not be distributed to the shareholders until the settlement provided for in the second paragraph of this article is complete.
Article 196
After putting the company s property in order and preparing a balance sheet and an inventory of property in connection with liquidation of the company resulting from dissolution, the liquidation group discovers that the company s assets are insufficient to repay the company s debts, the
liquidation group shall immediately apply to the people s court for a bankruptcy declaration.
After a company is declared bankrupt by a ruling of the people s court, the liquidation group shall transfer liquidation matters to the people s court.
Article 197
After liquidation of the company is completed, the liquidation group shall prepare a liquidation report and present it for confirmation to a meeting of the shareholders or to the relevant responsible authority, apply to the company registration authority for cancellation of the
company s registration and publish by public notice of the termination of the company. Where no application is made for cancellation of the company s registration, the company s business license is revoked by the company registration authority and a public notice is published.
Article 198
The members of a liquidation group shall faithfully attend to their duties and carry out their liquidation tasks in accordance with the law.
The members of a liquidation group shall not exploit their position to accept bribes or other illegal income, nor shall they wrongfully take over the property of the company.
The members of a liquidation group who intentionally or through gross negligence cause losses to the company or its creditors shall be responsible for providing compensation.
Chapter 9 Branches of Foreign Companies
Article 199
Pursuant to this Law, a foreign company may set up branches within Chinese territory, and may engage in production and operational activities.
Under this Law, "foreign company" means a company registered and established outside Chinese territory in accordance with the law of a foreign country.
Article 200
To set up a branch or branches within Chinese territory, a foreign company shall file an application with the responsible Chinese authorities, and present its company s articles of association, the company s registration certificate issued by its home country and other
relevant documents. After receiving approval, the company shall register with the company registration authority as provided by law and obtains a business license.
The approval procedures for branches of foreign companies are separately provided for in regulations issued by the State Council.
Article 201
A foreign company which establishes a branch within Chinese territory shall appoint a representative or agent in charge of the branch and allocate to the branch appropriate funds for the operational activities it is engaged in.
Where it is necessary to provide for a minimum amount of operational funds for branches of foreign companies, separate regulations are issued by the State Council.
Article 202
The branch of a foreign company shall indicate in its name the nationality of the foreign company and whether it has limited or unlimited liability.
The articles of association of the foreign company shall be available at its branches.
Article 203
A foreign company is a foreign legal person and its branches established within Chinese territory do not have the status of Chinese legal persons.
A foreign company assumes civil liability for the operational activities of its branches within Chinese territory.
Article 204
A branch of a foreign company established with approval and engaging in business activities within Chinese territory shall abide by the laws of China and shall not harm the social and public interests of China. Its legitimate rights and interests shall be protected by the laws of China.
Article 205
When a foreign company withdraws its branches from Chinese territory, it shall repay its debts according to law and carry out liquidation in accordance with the provisions of the relevant company liquidation procedures set out in this Law. Until such debts are repaid, the property
of the branch shall not be transferred outside of Chinese territory.
Chapter 10 Legal Liabilities
Article 206
A company which violates this Law by falsely reporting its registered capital when registering, presenting false documentation or employing other deceptions to conceal important facts in order to obtain registration of the company shall be ordered to remedy the situation. A company that falsely reports its registered capital shall be fined at least five per cent and no more than ten per cent of the amount of the registered capital falsely reported. A company that presents false documentation or employs other deceptions to conceal important facts shall
be fined at least RMB 10,000 and no more than RMB 100,000. In serious cases, the company s registration shall be canceled. If the violation constitutes a criminal offence, criminal liability shall be investigated in accordance with the law.
Article 207
A company which prepares a false prospectus, share subscription application or corporate bond offer procedure in connection with the issue of shares or corporate bonds shall be ordered to halt such issue and return all funds raised together with interest, and is fined an amount of at least one per cent and no more than five per cent of the amount of the funds illegally raised. If the violation constitutes a criminal offence, criminal liability shall be investigated in accordance with the law.
Article 208
A promoter or shareholder who does not pay cash or property in kind or does not transfer property rights, so making a false capital contribution and committing fraud against creditors and the general public, shall be ordered to remedy his wrongs and is fined at least five per cent and no
more than ten per cent of the capital which he falsely contributed. If the violation constitutes a criminal offence, criminal liability shall be investigated in accordance with the law.
Article 209
A promoter or shareholder who illicitly withdraws his capital contribution after the establishment of the company shall be ordered to correct his wrongs and is fined at least five per cent and no more than ten per cent of the capital contribution illicitly withdrawn. If the violation constitutes a criminal offence, criminal liability shall be investigated in accordance with the law.
Article 210
A company which, without having obtained approval as provided by this Law from the relevant responsible authority, arbitrarily issues shares or corporate bonds is ordered to halt such issue and return all funds raised together with interest, and shall be fined at least one per cent and no
more than five per cent of the amount of the funds illegally raised. If the violation constitutes a criminal offence, criminal liability shall be investigated in accordance with the law.
Article 211
A company which violates this Law by keeping accounting books and records other than those provided for by law shall be ordered to remedy the situation and shall be fined at least RMB 10,000 and no more than RMB 100,000. If the violation constitutes a criminal offence, criminal
liability shall be investigated in accordance with the law.
Where assets of the company are held in an account opened in the name of an individual, illegal income shall be confiscated and there shall be fine of at least the same amount and less than five times the amount of the illegal income. If the violation constitutes a criminal offence,
criminal liability shall be investigated in accordance with the law.
Article 212
If a company furnishes to shareholders or the general public financial statements which are false or which conceal important facts, the personnel in charge of the matter who have direct responsibility and other personnel with direct responsibility shall be fined at least RMB 10,000 and no more than RMB 100,000. If the violation constitutes a criminal offence, criminal liability shall be investigated in accordance with the law.
Article 213
If in violation of this Law, state assets are converted into shares or sold at a low price or given to individuals without compensation, the personnel in charge of the matter who have direct responsibility and other personnel with direct responsibility are subject to administrative
sanctions in accordance with the law. If the violation constitutes a criminal offence, criminal liability shall be investigated in accordance with the law.
Article 214
If a director, supervisor or manager exploits his position to accept bribes or other illegal income or to take property of the company wrongfully, the illegal income is confiscated, he shall be ordered to return the company s property and he is subject to sanctions by the company. If the violation constitutes a criminal offence, criminal liability shall be investigated in accordance with the law.
If a director or manager misappropriates company funds or takes company funds and lends them to another, he shall be ordered to return the funds to the company, is subject to sanctions by the company, and turns over to the company all income obtained. If the violation
constitutes a criminal offence, criminal liability shall be investigated in accordance with the law.
When a director or manager in violation of this Law uses the company s assets to provide a guarantee for the debts of its shareholders or other individuals, he is ordered to cancel the guarantee, is responsible according to law for providing compensation, and turns over to the company all income derived from the illegal provision of the guarantee. If the circumstances are serious, he shall be subject to sanctions by the company.
Article 215
If a director or manager in violation of this Law operates for himself or on behalf of another a business in the same line of business as the company in which he holds a position, in addition to turning over all income obtained, he shall be subject to sanctions by the company.
Article 216
If a company does not make allocations to its statutory common reserve fund or its statutory common welfare fund in accordance with this Law, the company shall be ordered to make up the exact amount which should have been allocated and shall be subject to a fine of at least RMB 10,000 and no more than RMB 100,000.
Article 217
In the event of a merger, division, reduction of registered capital or liquidation, if the company does not send notice to or publish public notices for its creditors in accordance with the provisions of this Law, the company shall be ordered to remedy the situation and shall be subject to a fine of at least RMB 10, 000 and no more than RMB 100,000.
If at the time of liquidation, a company conceals its property, makes false entries on its balance sheet or its inventory of property, or distributes the company s property before repaying its debts, the company shall be ordered to remedy the situation and shall be subject to a fine of
at least one per cent and no more than five per cent of the assets concealed or the debts not repaid before distribution. The personnel in charge of the matter who have direct responsibility and the other personnel with direct responsibility shall be subject to a fine of at
least RMB 10,000 and no more than RMB 100,000. If the violation constitutes a criminal offence, criminal liability shall be investigated in accordance with the law.
Article 218
If a liquidation group does not file a liquidation report with the company registration authority in accordance with the provisions of this Law, or the liquidation report conceals important facts or contains significant omissions, the wrongs shall be ordered to be remedied.
If a member of the liquidation group exploits his position for corrupt or improper ends, obtains illegal income or wrongfully takes over assets belonging to the company, he shall be ordered to return the company s property, the illegally obtained income shall be confiscated, and he shall be fined at least the amount of and no more than five times the amount of the income illegally obtained. If the violation constitutes a criminal
offence, criminal liability shall be investigated in accordance with the
law.
Article 219
If an institution responsible for assessing, verifying, or examining and certifying assets provides false documentation, its unlawful income is confiscated and it is subject to a fine of at least the amount of and no more than five times the amount of the unlawful income. The institution
shall also be ordered to cease doing business, and the certification of the qualifications of the personnel directly responsible shall be revoked by the relevant responsible authority. If the violation constitutes a criminal offence, criminal liability shall be investigated in accordance
with the law.
If an institution responsible for assessing, verifying, or examining and certifying assets, as a result of negligence, prepares a report which contains important omissions, the institution shall be ordered to remedy the situation. If the circumstances are relatively serious, it shall be subject to a fine of at least the amount of and no more than three times the amount of the income received. The institution shall also be ordered to cease doing business, and the certification of the qualifications of the personnel directly responsible shall be revoked by the relevant
responsible authority.
Article 220
If the relevant department authorized by the State Council approves an application for the establishment of a company which does not meet the requirements of this Law or approves an application for an issue of shares which does not meet the requirements of this Law, and the circumstances are serious, the personnel in charge of the matter who have direct responsibility and other personnel with direct responsibility shall be subject to administrative sanctions in accordance with the law. If the
violation constitutes a criminal offence, criminal liability shall be
investigated in accordance with the law.
Article 221
If the securities administration departments of the State Council grant approval for share offers, listings of shares and issues of bonds which do not meet the requirements of this Law, and the circumstances are serious, the personnel in charge of the matter who have direct responsibility and other personnel with direct responsibility are subject to administrative sanctions in accordance with the law. If the violation constitutes a criminal offence, criminal liability shall be investigated in accordance with the law.
Article 222
If the company registration authority registers a company which does not meet the registration requirements of this Law, and the circumstances are serious, the personnel in charge of the matter who have direct responsibility and other personnel with direct responsibility shall be
subject to administrative sanctions in accordance with the law. If the violation constitutes a criminal offence, criminal liability shall be investigated in accordance with the law.
Article 223
If a higher level department orders the company registration authority to register a company which does not meet the registration requirements of this Law, or covers up an unlawful registration, the personnel in charge of the matter who have direct responsibility and such other persons with
direct responsibility shall be subject to administrative sanctions in accordance with the law. If the violation constitutes a criminal offence, criminal liability shall be investigated in accordance with the law.
Article 224
A company not lawfully registered as a limited liability company or a company limited by shares which falsely makes use of the title "limited liability company" or "company limited by shares" is ordered to remedy the situation or is canceled. It may also shall be subject to a fine of at least RMB 10,000 and no more than RMB 100,000. If the violation constitutes a criminal offence, criminal liability shall be investigated in accordance with the law.
Article 225
A company which without justification fails to commence business more than six months after establishment or ceases to do business for more than six consecutive months after commencing business, has its business license revoked by the company registration authority.
When items in a company s registration have changed, and the company fails to carry out a change of registration as required by this Law, the company shall be ordered to register such changes within a certain time period, and if the company fails to do so, it shall be subject to a fine
of at least RMB 10,000 and no more than RMB 100,000.
Article 226
If a foreign company in violation of the provisions of this Law, arbitrarily establishes a branch or branches within Chinese territory, it shall be ordered to remedy the situation or to close down, and may shall be subject to a fine of at least RMB 10,000 and no more than RMB 100,000.
Article 227
If the responsible authority whose duty it is to process approvals pursuant to this Law fails to grant approval to an application which meets the requirements of this Law or the company registration authority fails to register a company whose application meets the requirements of this Law, the interested party may apply for reconsideration according to law or may bring an administrative suit.
Article 228
If a company which violates the provisions of this Law shall be subject to civil claims for compensation and to payment of fines and penalties, but has insufficient assets, it first assumes responsibility for payment of the civil claims.
Chapter 11 Supplementary Articles
Article 229
Companies registered and established prior to the effective date of this Law pursuant to laws, administrative regulations, local regulations and pursuant to the "Standard Opinion on Limited Liability Companies" or the "Standard Opinion on Companies Limited by Shares" issued by the
relevant responsible department of the State Council continue to exist. Those companies not completely satisfying the requirements of this Law shall meet the requirements of this Law within the specified time limit. Specific methods for implementation of this Law are to be set out in
separate regulations issued by the State Council.
Article 230
This Law comes into effect on July 1, 1994.