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.