On December 29, 2023, the Seventh Session of the Standing Committee of the 14th National People's Congress voted to adopt the newly revised Company Law, which shall come into force on July 1, 2024. The new Company Law has 15 chapters and 266 articles. This article combs out some mandatory provisions involving directors , supervisors and senior managers :

Note: The provisions listed below are from the Companies Law (2023 Revision)

1. The articles of association are binding on the "five categories of subjects"

Article 5 A company formed in accordance with this Law shall formulate its bylaws, binding on the company and its shareholders, directors, supervisors, and senior executives.

Article 179 The directors, supervisors and senior executives shall comply with the laws, administrative regulations, and bylaw.

2. If a director or manager who serves as the legal representative resigns, he shall be deemed to have resigned the legal representative at the same time

Article 10 The legal representative of a company shall be the director or manager who represents the company in attending to company affairs in accordance with the company's bylaw.

If a director serving as the legal representative or manager resigns, he shall be deemed to have resigned as the legal representative concurrently.

If the legal representative resigns, the company shall determine a new legal representative within 30 days of resignation of the legal representative.

3. "Five categories of personnel" who use their affiliated relationship to damage the interests of the company shall be liable for compensation

Article 22 Neither the controlling shareholder, nor the actual controller, nor any of the directors, supervisors or senior management of the company may injure the interests of the company by taking advantage of its connection relationship.

Anyone who causes any loss to the company due to violating the preceding paragraph shall be liable for the compensation.

4. If the company fails to issue a written reminder to the shareholder who has not paid the capital contribution, thus causing losses to the company, the responsible director shall be liable for compensation

Article 51 After formation of a limited liability company, its board of directors shall check the capital contributions of its shareholders, and the company shall issue a written demand for payment to a shareholder, demanding payment of capital contribution, if it discovers that the shareholder has not made full payment of capital contributions on schedule according to the company's bylaw.

If the board of directors fails to promptly perform its obligations specified in the preceding paragraph and causes losses to the company, any liable director shall be liable for compensation.

5. If a shareholder withdraws funds and causes losses to the company, the directors, supervisors and supervisors shall be jointly and severally liable for compensation

Article 53 After the formation of a company, no shareholder may illegally take away the registered capital.

If the provisions of the preceding paragraph are violated, the shareholder shall return the registered capital illegally taken away; if losses are caused to the company, any liable director, supervisor, or officer shall be jointly and severally liable for compensation with the shareholder.

6. The company shall regularly disclose the remuneration of directors, supervisors and supervisors to shareholders

Article 129 A Company shall regularly disclose to its shareholders with the information about remunerations received by the directors, supervisors and senior managers from the company.

7. When the company improperly provides financial assistance to others and causes losses to the company, the directors, supervisors and supervisors shall be liable for compensation

Article 163 A company shall not provide gifts, loans, guaranties, or other financial assistance for another person to acquire shares of the company or its parent company, unless the company implements an employee stock ownership plan.

For the benefit of the company, the company may provide financial assistance for another person to acquire shares of the company or its parent company, under a resolution of the shareholders' meeting, or under a resolution adopted by the board of directors in accordance with the company's bylaw or under the authority of the shareholders' meeting, provided that the cumulative total of financial assistance shall not exceed 10% of the issued capital stock. The resolution adopted by the board of directors shall be approved by more than two-thirds of all directors.

If any loss is caused to the company by violating the provisions of the preceding two paragraphs, each liable director, supervisor, and senior manager shall be liable for compensation.

8. The election, appointment or employment of directors, supervisors and supervisors under five circumstances shall be invalid, and the company shall remove them from their posts

Article 178 A person may not serve as the director, supervisor or officer of a company if he falls under any of the following circumstances:

(1) He has no or limited capacity for civil conduct;

(2) He has been sentenced to criminal penalty due to an offense of corruption, bribery, encroachment of property, misappropriation of property or disrupting the order of the socialist market economy, or deprived of political rights for crime, and five years have not elapsed since the completion date of the execution of the penalty, or two years have not elapsed since the expiration of the probation period for suspended sentence, if applicable;

(3) He was a former director, factory director or manager of a company or enterprise which was bankrupt and liquidated, and was personally liable for the bankruptcy of such company or enterprise, and three years have not elapsed since the date of completion of the bankruptcy and liquidation of the company or enterprise;

(4) He was the legal representative of a company or enterprise whose business license was revoked and which was ordered to close due to a violation of the law, for which he is personally liable, and three years have not elapsed since the date of the revocation of the business license thereof or the order for its close;

(5) He is listed as a dishonest party subject to enforcement by the people's court for failure to pay a relatively large amount of debts when they become due.

Where any director or supervisor is elected or appointed, or any officer is hired, by violating the provisions in the preceding paragraph, such elections, appointments, or hiring shall be invalid.

Where any director, supervisor or officer, during his term of office, is under any of the circumstances as mentioned in the preceding paragraph, the company shall remove him from his post.

9. The controlling shareholders, actual controllers, directors, supervisors and supervisors shall strictly perform their obligations of loyalty and diligence

Article 180 Directors, supervisors, and senior executives shall have a duty of loyalty to the company, and take measures to avoid conflicts between their own interests and the interests of the company, and shall not use their powers to seek improper interests.

Directors, supervisors, and senior executives shall have an obligation of diligence to the company, and exercise reasonable care that managers shall ordinarily exercise, in the best interests of the company in performing their duties.

If a controlling shareholder or actual controller of the company does not serve as its director, but attends to the company's affairs, the provisions of the first two paragraphs shall apply.

10. The income derived by the directors, supervisors and supervisors in violation of the provisions of Articles 181 to 184 shall belong to the company

Article 181【Duty of loyalty】 No director, supervisor, or officer may commit any of the following acts:

(1) Embezzling company property and misappropriating the company's funds;

(2) Depositing the company's fund into an account under his own name or any other individual's name;

(3) Taking advantage of power to accept bribes or other illegal income;

(4) Taking commissions on the transactions between others and the company into his own pocket;

(5) Illegally disclosing the company's confidential information;

(6) Other acts inconsistent with the obligation of fidelity to the company.

Article 182【Related party transactions】 A director, supervisor, or officer who directly or indirectly contracts or conducts a transaction with the company shall report to the board of directors or the shareholders' meeting on matters related to the contracting or conducting the transaction, and seek approval by resolution of the board of directors or the shareholders' meeting in accordance with the company's bylaw.

If the close relatives of directors, supervisors, and senior executives, enterprises under direct or indirect control of directors, supervisors, senior executives, or their close relatives, and affiliates in any other affiliation relationship with directors, supervisors, and senior executives contract or conduct transactions with the company, the provisions of the preceding paragraph shall apply.

Article 183【Business opportunities】 A director, supervisor, or officer shall not take advantage of his position to take a business opportunity belonging to the company for himself or another person, except under any of the following circumstances:

(1) He has reported to the board of directors or the shareholders' meeting and received approval by resolution of the board of directors or the shareholders' meeting according to the company's bylaw.

(2) According to laws, administrative regulations, or the company's bylaw, the company is unable to take the business opportunity.

Article 184 【Horizontal competition】A director, supervisor, or officer of a company shall not conduct the same kind of business as the company on his own account or on the account of another person, without reporting to the board of directors or the shareholders' meeting, without approval by resolution of the board of directors or the shareholders' meeting according to the company's bylaw.

Article 186【Income attributable to the Company】 The income of any director, supervisor, or officer from any act in violation of Articles 181 through 184 of this Law shall belong to the company.

11. When the board of directors makes a resolution on the matters specified in Articles 182 to 184 (note: there are no matters specified in Article 181), the affiliated directors shall not have the right to vote

Article 185 When the board of directors resolves as to a matter specified in Articles 182 through 184 of this Law, an affiliated director shall not participate in the vote, and their voting rights shall not be counted in the total number of voting rights. If the number of unrelated directors in presence is less than three persons, the matter shall be submitted for deliberation at the shareholders' meeting.

12. The directors, supervisors and supervisors shall attend the shareholders' meeting as nonvoting delegates as required by the shareholders' meeting and accept inquiries from shareholders

Article 187 If the shareholder's meeting demands a director, supervisor or officer to attend the meeting as a non-voting representative, he shall do so and shall answer the shareholders' inquiries.

13. Directors, supervisors and senior managers who violate laws and regulations in performing their duties and cause losses to the company shall be liable for compensation

Article 188 Where any director, supervisor or officer violates any law, administrative regulation, or the bylaw during the course of performing his duties, if any loss is caused to the company, he shall be liable for compensation.

Article 189 Where a director or officer is under the circumstance as mentioned in the preceding article, the shareholder(s) of the limited liability company or joint stock limited company separately or aggregately holding 1% or more of the total shares of the company for 180 consecutive days or more may request in writing the board of supervisors to initiate a lawsuit in the people's court. If a supervisor is under the circumstance as mentioned in the preceding article, the aforesaid shareholder(s) may request in writing the board of directors to lodge an action in the people's court.

If the board of supervisors or board of directors refuses to lodge a lawsuit after receiving a written request as mentioned in the preceding paragraph, or if they fail to initiate a lawsuit within 30 days after receiving the request, or if, in an emergency, the failure to lodge an action immediately will cause unrecoverable damages to the interests of the company, the shareholder(s) as listed in the preceding paragraph may, on their own behalf, directly lodge a lawsuit in the people's court.

If the legitimate rights and interests of a company are impaired and any losses are caused to the company, the shareholders as mentioned in the preceding paragraph may initiate a lawsuit in the people's court according to the provisions of the preceding two paragraphs.

If a director, supervisor, or officer of the company's wholly-owned subsidiary falls under the circumstances specified in the preceding article, or if another person infringes upon the legitimate rights and interests of the company's wholly-owned subsidiary, causing losses, the shareholders of a limited liability company or a joint-stock company separately or aggregately hold 1% or more of the company's shares may, in accordance with the provisions of the first three paragraphs, request in writing the board of supervisors or board of directors of the wholly-owned subsidiary to file a lawsuit with the people's court, or directly file a lawsuit with the people's court in their own name.

14. If the directors or senior managers violate laws and regulations and damage the interests of shareholders, the shareholders shall have the right to sue for compensation

Article 190 If any director or officer damages the shareholders' interests by violating any law, administrative regulation, or the bylaw, the shareholders may lodge a lawsuit in the people's court.

15. If a director or senior officer causes damage to others intentionally or through gross negligence in performing his duties, he shall be liable for compensation

Article 191 Where directors and senior executives cause damage to others by performing their duties, the company shall be liable for compensation; if directors and senior executives are intent or grossly negligent, they shall also be liable for compensation.

16. If the controlling shareholder or the actual controller instructs the director or the senior manager to engage in acts harmful to the interests of the company or shareholders, he shall bear joint and several liabilities

Article 192 Where the controlling shareholder or actual controller of a company instructs a director or officer to engage in an act against the interests of the company or shareholders, the controlling shareholder or actual controller shall be jointly and severally liable with the director or officer.

17. Where the company illegally distributes profits and causes losses to the company, the shareholders and the responsible directors, supervisors and supervisors shall be liable for compensation

Article 211 If a company distributes profit to shareholders in violation of this Law, the shareholders shall return to the company the profit so distributed; and shareholders and each liable director, supervisor, and officer shall be liable for compensation for losses caused to the company, if any.

18. If the company's illegal capital reduction causes losses to the company, the shareholders and the responsible directors, supervisors and supervisors shall be liable for compensation

Article 226 If registered capital is reduced in violation of this Law, shareholders shall return the funds they received, and if shareholders are granted exemption from or a reduction in capital contributions, the original state shall be restored; and shareholders and each liable director, supervisor, and officer shall be liable for compensation for losses caused to the company, if any.

19. If a director, as the obligor of the company's liquidation, fails to perform his liquidation obligations in time and causes losses to the company or its creditors, he shall be liable for compensation

Article 232 Where a company is dissolved under the provisions of paragraph 1(1), (2), (4), or (5) of Article 229 of this Law, it shall go into liquidation. Directors as persons with obligations of liquidation of the company shall form a liquidation group to effect liquidation within 15 days from the date when the cause of dissolution occurs.

The liquidation group shall be composed of directors, unless otherwise provided for by the company's bylaw or a resolution of the shareholders' meeting.

Where a person with obligations of liquidation of the company causes any loss to the company or any creditor by failing to perform the obligations of liquidation in a timely manner, he shall make respective compensations.

20. The articles of association of a listed company shall specify the assessment mechanism for directors, supervisors and high salaries

Article 136 A listed company shall have independent directors, and specific administrative measures shall be prescribed by the securities regulatory agency of the State Council.

In addition to the matters specified in Article 95 of this Law, the bylaw of a listed company shall state the composition and powers of the committees of the board of directors, the compensation and assessment mechanism for directors, supervisors, and senior managers, and other matters in accordance with laws and administrative regulations.

21. Directors, supervisors and supervisors shall strictly abide by the restrictive provisions on the transfer of shares of listed companies

Article 160 The shares issued before the company publicly issues shares shall not be transferred within one year from the day when the stocks of the company get listed and are traded in a stock exchange, subject to the provisions on the transfer of shares of a listed company by its shareholders and actual controllers, as established by laws, administrative regulations, or the securities regulatory authority of the State Council.

The directors, supervisors and senior managers of the company shall declare to the company the shares held by them and the changes thereof. According to the determination at the time of taking office, during the term of office, the shares transferred by any of them each year shall not exceed 25% of the total shares of the company he holds. The shares of the company held by the aforesaid persons shall not be transferred within 1 year from the day when the stocks of the company get listed and are traded in a stock exchange. Within six months after any of the aforesaid persons is removed from his post, he shall not transfer the shares of the company he holds. The bylaw may have other restrictions on the transfer of shares held by the directors, supervisors and senior managers.

If shares are pledged within the transfer restriction period specified by laws and administrative regulations, the pledgee shall not exercise the pledge within the transfer restriction period.

Many of our lawyers at Concord & Sage Law Firm are licensed to practice law in both China and the United States. If you have questions on Chinese legal topics, please feel free to email us at contact@concordsage.com. You may also contact the main author of this article, Attorney Qin Li (licensed in China and California), at liqin@concordsage.com.