The newly amended Company Law of the People’s Republic of China came into force on July 1st, 2024. In addition to the shortening of the capital contribution period, it raises another matter of concern.

The Company Law strengthened the obligations and responsibilities of Directors, Supervisors and Managers (“DSMs”) to perform their duties in corporate governance.

We hereby highlights some main duties below for your reference.

  1. The Duty of Loyalty and Diligence

Compared with the previous, the Company Law enriched the principles of diligence duty and brought supervisors into the regulated subjects of connected transactions and inter-industry competition.

  1. The Duty of Independent Compliance Performance

Directors and managers who are instructed by controlling shareholders or de factocontrollers to engage in acts detrimental to the interests of the company or shareholders in violation of the law will be held jointly and severally liable.

  1. The Duty to Maintain the Capital Adequacy

It reinforces and details the obligations of DSMs to maintain the capital adequacy of company. Otherwise, they will be being held jointly or severally liable for the damages.

  1. The Duty of Liquidation

Directors are listed as obligors in the liquidation of the company and are required to fulfil their liquidation obligations in a timely manner.

  1. New Criminal Offenses

What’s more, the 12th Amendment to the PRC Criminal Law was also adopted this year and effective from March 1st 2024. It has extended the applicability of the three related crimes to private enterprises, for the first time.

It also has brought within the scope of criminal law the serious violation of the diligence duty by DSMs which causes the company to suffer significant losses. These three new crimes that the DSMs should watch out are as following:

  • Operating the same type of business 
  • Seeking benefits for friends and relatives 
  • Selling company assets at low prices

During the transition period, we suggest DSMs actively focus on the significant impact of the new Company Law on their obligations and be fully aware of the legal consequences of non-compliance. In addition, to pay attention to the risks brought about by the new laws on criminal law, to avoid being charged in China during business activities.