CHINA Law and Practice Contributed by: Chen Ma, Michelle Gon, Xinjie Li and John Fitzpatrick, Han Kun Law Offices
2.3 Decision-Making Processes The deliberation methods and voting procedures of each corporate body are usually stipulated by law and detailed in the company’s articles of association. Shareholder meetings are divided into regular and extraordinary meetings, with voting typically follow - ing the “one share, one vote” principle for joint stock companies or based on capital contribution ratios for LLCs. For major matters such as amending the arti - cles, approval by shareholders representing more than two thirds of the voting rights is required. The board of directors operates on a “one person, one vote” system. Board resolutions generally require more than half of all directors to be present and must be passed by a majority of all directors. To ensure the validity of decisions, the law requires that a board meeting be held only when more than half of the direc - tors are in attendance, and directors must attend in person or appoint another director in writing to attend on their behalf. These procedural requirements aim to balance efficiency with compliance, ensuring the robust operation of corporate governance. In China, the board structure typically follows a one-tier model, although it incorporates elements of oversight that resemble two-tier systems. A com - pany generally establishes a board of directors as its decision-making body, which is accountable to the shareholders’ meeting. For smaller LLCs with a lim - ited number of shareholders, the company may elect to appoint a single executive director instead of a full board to streamline management. Recent legislative changes have introduced more flex - ibility with respect to governance. Companies can now choose between a traditional board of directors accompanied by a board of supervisors, or a board of directors that includes an internal audit committee. This change allows the board to have a more inte - grated oversight mechanism. In listed companies, the board must also include independent directors to ensure balanced decision-making and to protect the interests of minority shareholders. 3. Directors and Officers 3.1 Board Structure
3.2 Board Members The company board of directors is composed of mul - tiple members who are each required to fulfil distinct roles. The chairperson of the board serves as the prin - cipal decision-maker, presides over meetings, and ensures the board functions effectively. In many Chi - nese companies, the chairperson also serves as the “legal representative” as a result of previous mandato - ry legal requirement, which means they have authority to sign contracts and represent the company in legal proceedings. The legal representative role can be held by any director or manager who manages company affairs under the current framework. In corporate practice, board members are often func - tionally categorised into executive directors, who are involved in the daily operations of the company, and non-executive directors who provide strategic guid - ance. For listed companies, independent directors play a crucial role by providing unbiased opinions on significant matters such as related-party transactions and executive compensation. These diverse roles are designed to create a system of checks and balances that enhances the quality of corporate governance. 3.3 Board Composition Chinese law prescribes certain requirements for board composition to ensure professional and ethical man - agement. An LLC board of directors typically consists of three members or more, while a joint stock limited company is similar. There is a growing emphasis on diversity and professional expertise, particularly for companies in regulated industries or those listed on stock exchanges. A popularly elected employee representative may need to be appointed to the board for companies in which the state is a shareholder or for those with a significant employee base. In the case of listed com - panies, at least one third of the board must consist of independent directors, and at least one independent director must be an accounting professional. These composition rules aim to prevent the concentration of power and ensure that the board possesses the nec - essary skills to oversee complex business operations.
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