CHINA Law and Practice Contributed by: Chen Ma, Michelle Gon, Xinjie Li and John Fitzpatrick, Han Kun Law Offices
5. Corporate Reporting and Disclosures 5.1 Financial Reporting Requirements Under the PRC Company Law, all companies estab - lished in China are required to prepare financial and accounting reports at the conclusion of each fiscal year. These reports must be audited by a certified public accounting firm and typically encompass: • a balance sheet; For LLCs, these audited reports must be presented to shareholders for approval, ensuring transparency regarding the company’s fiscal health and operational performance. Publicly traded companies face more rigorous peri - odic reporting obligations mandated by the CSRC. They are required to disclose audited annual reports within four months of the fiscal year-end, alongside unaudited semi-annual and quarterly reports within specified windows. These disclosures are central to market integrity, as they provide investors with the standardised data necessary to assess the company’s valuation and financial stability. 5.2 Corporate Governance Arrangement Disclosure Companies in China are increasingly required to dis - close their internal governance frameworks to provide stakeholders with clarity on oversight mechanisms. For private companies, such disclosures are primar - ily internal and are contained within the articles of association or shareholder resolutions. However, for listed companies, there is a mandatory requirement to include a dedicated “corporate governance” sec - tion in their annual reports, detailing the company’s compliance with the Code of Corporate Governance for Listed Companies. • a profit and loss statement; • a cash flow statement; and • comprehensive explanatory notes. These disclosures must specify: • the composition of the board; • the functions of independent directors; and
• the activities of specialised board committees, such as audit and remuneration committees. Any deviations from recommended governance stand - ards must be explained under a “comply or explain” regime, which encourages continuous improvement in corporate behaviour. Furthermore, significant related- party transactions and potential conflicts of interest involving directors or senior officers must be trans - parently reported to prevent the abuse of corporate power. 5.3 Incorporation and Registration The primary body responsible for the incorporation and registration of companies in China is the SAMR through its local branches. Companies are required to file their articles of association, capital structure, and identity information of legal representatives and direc - tors with the SAMR’s registry. Most of these filings are accessible to the public via the National Enterprise Credit Information Publicity System, which serves as a critical tool for commercial due diligence and trans - parency. Failure to maintain accurate and timely filings can result in administrative penalties, including fines or being placed on the List of Enterprises with Abnor - mal Business Operations. In severe cases of non- compliance, the registry has the authority to revoke a company’s business licence. The registry maintains significant supervisory powers and conducts periodic “double random” inspections to ensure that the infor - mation of each registrant aligns with the actual opera - tional status of the business. 5.4 Global Anti-Money Laundering Chinese anti-money laundering (AML) regulations require companies to implement robust Know Your Customer (KYC) protocols and maintain detailed records of high-value transactions. Boards are increasingly expected to oversee AML compliance as part of their broader risk management mandate, ensuring that internal control systems can detect and report suspicious activities to the China Anti-Money Laundering Monitoring and Analysis Centre. This oversight is particularly critical for companies in the financial services sector or those engaged in exten - sive cross-border investment activities.
155 CHAMBERS.COM
Powered by FlippingBook