CHINA's new Company Law contains few surprises. Due to take effect on July 1, it will initially have rather limited application, but in the long term it is clearly intended to standardise the corporate forms of business entities in China. Like most laws in China, the Company Law is based on existing interim provisions. It also draws heavily on local legislation in Shanghai and Shenzhen. The new law does, however, contain a number of significant new details. It will be of interest not only to those involved directly in Chinese securities markets (i.e. the issue and trading of B shares and H shares) but also to businessmen dealing with Chinese importers and manufacturers, banks lending to Chinese borrowers, and investors who have a business presence in China or are considering establishing one. It is important to note that the new law will not apply many existing Chinese business entities, unless they are converted into one of the two corporate forms covered by the new law. In particular, it will not apply to state enterprises, collective enterprises, private enterprises, domestic joint operations, Sino-foreign equity joint ventures, Sino-foreign co-operative joint ventures, or wholly foreign-owned enterprises, among others. Only two types of business entities are governed by the new law. These are known as ''limited liability companies'' and ''companies limited by shares''. Some provisions in the Company Law apply only to one type of company or the other. Others are common to both. Unless the context indicates otherwise, references to ''companies'' include both types. Limited liability companies have a number of similarities with private companies in Hong Kong. However, despite the use of the term ''shareholder'' in the law, the registered capital of Companies limited by shares may be established by way of ''promotion'' where the promoters subscribe for the entire share capital, or by way of ''subscription'' where the promoters must subscribe for at least 35 per cent of share capital and the remainder must be offered to the public. As with limited liability companies, the law sets out different levels of minimum registered capital for companies limited by shares. In addition to registered shares, a company limited by shares may issue bearer shares. Previously, this was not possible under the nationally applicable legislation, although it was provided for in Shenzhen's companies regulations. Bearer shares cannot be transferred simply by delivery but may only be transferred through securities trading houses established according to law. One chapter of the Company Law is devoted to the issue of bonds by companies. These provisions supplement the generally applicable regulations on the issue of bonds that were promulgated in August 1993. The law also provides for the issue of convertible bonds by companies limited by shares that are already listed on a stock exchange. The Company Law makes a clear distinction between the legal nature of a branch and a subsidiary of a company. This is a matter which has caused some confusion in the past as Chinese enterprises have often refused to bear responsibility for the debts of ''branches'' on the grounds that they were established as independent economic entities responsible for their own profits and losses. The new law confirms that a branch of a company is not a separate legal entity with limited liability and the debts of a branch should be treated as the debts of the company that established the branch. On the other hand, a subsidiary of a company must be established as a separate legal entity with its liability limited to the amount of its registered capital, and the company which established it will therefore not be responsible for the subsidiary's debts. While this clarifications is welcome in respect of the branches and subsidiaries of companies, it does nothing to clarify the existing confusion in respect of branches and subsidiaries of banks, state enterprises, and other business entities in China. While the new Company Law represents a significant move towards standardisation of corporate forms in China, in the short term it will be of limited applicability and leaves many questions unanswered. The new law promises that the State Council will issue regulations on various matters such as the listing of Chinese companies overseas, and until such regulations are issued we will have to rely upon administrative practice in these areas. Practitioners involved in the listing of H shares of Chinese companies in Hong Kong have already noted that some provisions of the new law are incompatible with listing requirements in Hong Kong (such as limitations on the issue of new shares, transfer of shares by promoters and ''cancellation'' of the status of a company) and these points will need to be addressed by such regulations. The relationship between the Company Law and local regulations in Shanghai and Shenzhen is also unclear. One would expect a national law to prevail over local regulations, but the practice in China has been to retain local regulations in so far as they do not conflict with national legislation, and to implement the terms of local legislation where they are in more detail than national legislation. There have already been indications from the People's Congress in Shenzhen that they consider that the current Shenzhen companies regulations will continue in effect. Stuart Velantine is a solicitor with Clifford Chance.