Amended company law helps modern enterprise system construction

China's amended Company Law comes into effect on July 1. Analysts said its implementation will bring about extensive enterprise reforms, enhance the operational safety of market entities, and promote the healthy development of China's capital market amid the economic transformation.

The revision, passed by China's NPC Standing Committee on December 28, aims to adapt to the country's new economic development environment, and is expected to lay a robust legal foundation to enhance the modern enterprise system with Chinese characteristics, and drive high-quality development of the Chinese economy, the lawmakers said.

Chinese experts emphasize the new Company Law's role in standardizing corporate organizational behavior, reinforcing the responsibilities of all market entities, and enhancing market operation safety to ensure China's economic high-quality development.

The new law will improve the corporate registration system for limited liability companies and add punishments for fraud concerning registered capital and company information, aiming to strengthen transaction security on the market and protect creditors' lawful interests.

The evolution of the Company Law reflects the government's considerations for market access and operational security, Hu Qimu, deputy secretary-general of the Digital-Real Economies Integration Forum 50, told the Global Times on Sunday.

Hu noted that transitioning from paid-up capital to subscribed capital through policy adjustments would lower costs for establishing companies. The change will help foster diversified development among market entities, boosting their healthy expansion and their market competitiveness.

In addition, the registered capital system acts as a market filter, challenging companies that inflate their scale with minimal subscribed capital, Hu said.

"Previously, the registered capital directly impacts the operation of business entities, especially micro, small, and medium-sized enterprises (MSMEs), to participate in government tenders and other market activities, which was disadvantageous for them," Hu said, noting the new policies will support MSMEs' development.

The new Company Law encompasses a series of institutional innovations and measures aimed at addressing issues such as how to optimize corporate governance, strengthen the protection of the shareholders' legitimate rights, and enhance executive accountability, among others.

PwC commented on Friday that the implementation of the new Company Law plays a significant role in advancing reforms in state-owned enterprises, refining China's distinctive modern corporate system, and strengthening China's capital market performance, according to media reports.

Chinese experts stressed that the healthy development of the Chinese economy requires the establishment of mechanisms to prevent significant risks at the enterprise level. This is crucial not only for national economic security but also ensures business resilience amid a highly volatile global landscape.

China's Company Law was enacted in 1993 and has undergone multiple revisions, including a major revision in 2005. Each of its revisions or amendments has been closely tied to the macroeconomic conditions and market trends, experts said.