CHINA Law and Practice Contributed by: Chen Ma, Michelle Gon, Xinjie Li and John Fitzpatrick, Han Kun Law Offices
board to oversee related-party transactions and audit functions. • Special committees – The mandatory establish - ment of committees under the board that focus on decision-making related to audit, nomination and remuneration functions. • Stringent disclosure – Compulsory periodic report - ing and immediate disclosure of material events that could impact the company’s share price. • Internal controls – Rigorous requirements for main - taining and auditing internal control systems to ensure financial integrity and compliance. 1.4 Stock Exchange Requirements Developments Recent changes to listing requirements in China have been significantly influenced by the 2024 revision to the PRC Company Law and the CSRC’s guidance on independent directors. These updates aim to strengthen the oversight role of independent directors and improve the protection of minority shareholders. A notable development is the transition from a tradi - tional “board of supervisors” to an “audit committee” model within the board, providing companies with more flexibility with respect to their governance. These changes have direct implications for board structures and shareholder engagement. Compa - nies are now required to refine their internal voting mechanisms to prevent the abuse of control by major - ity shareholders. Furthermore, there is an increasing emphasis on ESG (environmental, social and govern - ance) disclosures, with stock exchanges introducing mandatory reporting frameworks for larger listed com - panies. These developments reflect a shift towards a more market-oriented and internationally aligned governance environment.
• the executive arm. The power authority is the shareholders’ meeting (or the general meeting of shareholders), which serves as the highest authority of the company and deter - mines the company’s business policies and invest - ment plans. The decision-making body is the board of directors, which is responsible for implementing shareholder resolutions and deciding on specific busi - ness plans and programmes. The supervisory body is represented by the board of supervisors (or individual supervisors), whose duty is to oversee the conduct of directors and senior management in the performance of their duties. The executive arm consists of the management team, led by the general manager, who is responsible for daily operations. According to the PRC Company Law, LLCs now have the option to forgo a board of supervisors and instead establish an audit committee composed of directors within the board to exercise supervisory functions, providing greater flexibility in their governance. 2.2 Types of Decisions The shareholders’ meeting is typically responsible for major decisions involving the company’s fundamental interests, such as amending the articles of association, increasing or decreasing registered capital, mergers, divisions, dissolution, or changes in corporate form. It also has the authority to elect and replace directors and supervisors. These matters are often “statutory reserved matters” under the law and must be resolved by the shareholders. The board of directors is primarily responsible for spe - cific operational decisions, including formulating the company’s annual financial budget, final accounts, profit distribution plans, and loss recovery plans. Furthermore, the appointment or dismissal of the company manager and their remuneration is a core function of the board. In daily operations, the manage - ment team is authorised to handle specific business execution and administrative affairs, but their actions remain subject to the resolutions and oversight of the board of directors.
2. Corporate Management 2.1 Principal Bodies or Functions
Under the Chinese corporate governance framework, the core management structure typically consists of: • the power authority;
• the decision-making body; • the supervisory body; and
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