CHINA Law and Practice Contributed by: Chen Ma, Michelle Gon, Xinjie Li and John Fitzpatrick, Han Kun Law Offices
Han Kun Law Offices 9/F, Office Tower C1 Oriental Plaza 1 East Chang An Ave Beijing PRC Tel: +86 10 8525 5500 Fax: +86 10 8525 5511 Email: beijing@hankunlaw.com Web: www.hankunlaw.com
1. Corporate Governance Requirements 1.1 Corporate Forms and Governance Requirements The principal forms of business organisation in China include the limited liability company (LLC) and the joint stock limited company. The LLC is the most common choice for private enterprises and foreign investors due to its flexible governance structure and lower administrative cost. Larger enterprises gener - ally select the joint-stock company form, particularly those that intend to list on public stock exchanges, as their equity is divided into equal shares. Beyond these forms, investors may also establish partnerships, which are further classified as general partnerships and limited partnerships. Limited part - nerships are frequently utilised by private equity and venture capital funds to separate investment manage - ment from passive capital contributions. Each organi - sational form is governed by specific statutes, primar - ily the PRC Company Law and the PRC Partnership Enterprise Law, which dictate their respective internal governance frameworks. 1.2 Corporate Governance Legislation and Regulation The primary source of corporate governance require - ments in China is the PRC Company Law, which underwent a significant overhaul effective July 2024. This legislation establishes the fundamental “three- tier” governance structure comprising the share - holders’ meeting, the board of directors (or a single director for smaller companies), and the board of
supervisors (or audit committee). The law defines the fiduciary duties of loyalty and care that a company’s directors, supervisors and senior management owe to the company. In addition to statutory law, governance is shaped by administrative regulations issued by the State Council and departmental rules from the State Administration for Market Regulation (SAMR). For state-owned enter - prises (SOEs), the requirements are further influenced by policies from the State-owned Assets Supervision and Administration Commission (SASAC). Further - more, a company’s articles of association serve as a critical, private contractual source of governance, allowing shareholders to tailor voting rights and man - agement powers within the bounds of mandatory law. 1.3 Companies With Publicly Traded Shares Publicly traded companies in China, primarily those listed on the Shanghai, Shenzhen and Beijing stock exchanges, are subject to more stringent and trans - parent governance standards. These requirements are largely administered by the China Securities Regu - latory Commission (CSRC) and the respective stock exchanges. Key regulatory instruments include the Code of Corporate Governance for Listed Compa - nies and various listing rules, which mandate specific board compositions and disclosure protocols. The requirements for listed companies are mandatory and constitute a prerequisite for maintaining a listing status. Key mandatory features include the following. • Independent directors – A requirement for a mini - mum proportion of independent directors on the
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