Company Law of the People's Republic of China (revised in 2005) - Part 3

Chapter VI Qualifications and Obligations of the Directors, Supervisors and Senior Managers of a Company

Article 147 Anyone who is under any of the following circumstances shall not take the post of a director, supervisor or senior manager of a company:
(1) Being without or with limited capacity of civil conduct;
(2) He has been sentenced to any criminal penalty due to an offence of corruption, bribery, encroachment of property, misappropriation of property or disrupting the economic order of the socialist market economy and 5 years have not passed since the completion date of the execution of the penalty; or he has ever been deprived of his political rights due to any crime and 3 years have not passed since the completion date of the execution of the penalty;
(3) Where 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, three years have not passed since the date of completion of the bankruptcy and liquidation of the company or enterprise;
(4) Where he was the legal representative of a company or enterprise, and the business license of this company or enterprise was revoked and this company or enterprise was ordered to close due to violation of the law, and he is personally liable for the revocation, three years have not passed since the date of the revocation of the business license thereof;
(5) He has a relatively large amount of debt which is due but uncleared.
In case a company elects or appoints any director or supervisor, or hires any senior manager by violating the provisions in the preceding paragraph, the election, appointment or hiring shall be invalidated. In case any director, supervisor or senior manager, during his term of office, is under any of the circumstances as mentioned in the preceding paragraph, the company shall dismiss him from his post.

Article 148 The directors, supervisors and senior managers shall comply with laws, administrative regulations and the articles of association. They shall bear the obligations of fidelity and diligence to the company. No director, supervisor or senior manager may take any bribe or other illegal gains by taking the advantage of his authorities, or encroach on the properties of the company.

Article 149 No director or senior manager may have any of the following acts:
(1) Misappropriating funds of the company;
(2) Depositing the company’s funds into an account in his own name or in any other individual’s name;
(3) Without the consent of the shareholders?meeting, shareholders?assembly or board of directors, loaning the company’s fund to others or providing any guaranty to any other person by using the company’s property as in violation of the articles of association;
(4) Signing a contract or trading with this company by violating the articles of association or without the consent of the shareholders?meeting or shareholders?assembly;
(5) Without the consent of the shareholders?meeting or shareholders?assembly, seeking business opportunities for himself or any other person by taking advantages of his authorities, or operating for himself or for any other person any like business of the company he works for;
(6) Taking commissions on the transactions between others and this company into his own pocket;
(7) Disclosing the company’s secrets without permit;
(8) Other acts that are inconsistent with the obligation of fidelity to the company. The income of any director or senior manager from any act in violation of the preceding paragraph shall belong to the company.

Article 150 Where any director, supervisor or senior manager violates laws, administrative regulations or the articles of association during the course of performing his duties, if any loss is caused to the company, he shall make compensation.

Article 151 If the shareholder’s meeting or shareholders?meeting demands a director, supervisor or senior manager to attend the meeting as a non-voting delegate, he shall do so and shall answer the shareholders?inquiries.
The directors and senior managers shall faithfully offer relevant information and materials to the board of supervisors or the supervisor of the limited liability company with no board of supervisors, and none of them may obstruct the board of supervisors or supervisor from exercising its (his) authorities.

Article 152 Where a director or senior manager is under the circumstance as stated in Article 150 of this Law, 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 may require the board of supervisors or the supervisor of the limited liability company with no board of supervisors in writing to file a lawsuit in the people’s court. If the supervisor is under the circumstance as stated in Article 150 of this Law, the aforesaid shareholder(s) may require the board of directors or the acting director of the limited liability company with no board of directors to in writing lodge a lawsuit in the people’s court.
If the board of supervisors, or supervisor of a limited liability company with no board of supervisors, or the board of directors or the acting director refuses to lodge a lawsuit after it (he) receives a written request as mentioned in the preceding paragraph, or if it or he fails to file a lawsuit within 30 days after it receives the request, or if, in an emergency, the failure to lodge a lawsuit 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.
In case the legitimate rights and interests of a company are impaired and losses are caused to the company, the shareholders as mentioned in the preceding paragraph may initiate a lawsuit in the people’s court in light of the provisions of the preceding two paragraphs.

Article 153 If any director or senior manager damages the shareholders?interests by violating any law, administrative regulation or the articles of association, the shareholders may lodge a lawsuit in the people’s court.

Chapter VII Corporate Bonds

Article 154 The term "corporate bonds" as mentioned in this Law refers to the securities that are issued by a company according to the statutory procedures with guaranteed payment of the principal plus interest by a specified future date. To issue corporate bonds, a company shall meet the issuance requirements of the Securities Law of the People’s Republic of China.

Article 155 After an application for issuing corporate bonds is approved by the department authorized by the State Council, the company shall publish its bond issuance plan, which shall mainly state the following items:
(1) the name of the company;
(2) the purposes of use of the corporate bonds;
(3) the total amount of corporate bonds and par value thereof;
(4) the method for determining the interest rate of the bonds;
(5) the time limit and method for paying the principal plus interest;
(6) guarantee of the bonds;
(7) the issuing price of the bonds, and beginning and ending dates of the issuance;
(8) the net assets of the company;
(9) the total amount of corporate bonds having been issued but not yet due; and
(10) the underwriters of the corporate bonds.

Article 156 The physical bonds issued by a company shall state the name of company, par value, interest rate, time limit for repayment, and etc., and shall bear the signature of the legal representative and the seal of the company.

Article 157 The corporate bonds may be registered or unregistered bonds.

Article 158 A company shall prepare and keep the counterfoils of corporate bonds. If the company issues registered corporate bonds, the counterfoils thereof shall state the following items:
(1) the names and domiciles of the bondholders;
(2) the dates on which the bondholders acquires the bonds and the serial numbers of the bonds;
(3) the total amount of the bonds, par value, interest rate, time limit and method for repayment of principal plus interest; and
(4) the date on which the bonds are issued.
If the company issues unregistered corporate bonds, the counterfoils thereof shall state the total amount of the bonds, interest rate, time limit and method for repayment, issuance date and serial numbers of the bonds.

Article 159 The registration and settlement institutions of registered corporate bonds shall establish bylaws on the registration, preservation, interest payment and acceptance of bonds.

Article 160 The corporate bonds may be transferred. The transfer price shall be negotiated by the transferor and transferee.
The transfer of any corporate bonds, which gets listed and is traded in a stock exchange, shall comply with the dealing rules of the stock exchange.

Article 161 The transfer of registered corporate bonds shall be effected by the bondholder’s endorsement or by other methods prescribed by the relevant laws and administrative regulations. In the case of transfer of registered bonds, the company shall record the name and domicile of the transferee in the counterfoil of corporate bonds. The transfer of unregistered corporate bonds takes effect as soon as the bondholder delivers the bonds to the transferee.

Article 162 A listed company may, upon the resolution of the shareholders?meeting, issue corporate bonds that may be converted into stocks and shall work out concrete conversion measures in the corporate bond issuance plan. To issue corporate bonds that may be converted into stocks, the listed company shall file an application with the securities regulatory institution for examination and approval. The corporate bonds that may be converted into stocks shall be marked with the words "convertible corporate bonds", and the number of convertible company bonds shall be specified in the company’s records of bondholders.

Article 163 Where any convertible company bonds is issued, the company shall exchange its stocks for the bonds held by the bondholders in the prescribed method of conversion, provided that the bondholders have the option on whether or not to convert their bonds.

Chapter VIII Financial Affairs and Accounting of a Company

Article 164 A company shall establish its own financial and accounting bylaws according to laws, administrative regulations and provisions of the treasury department of the State Council.

Article 165 A company shall, after the end of each fiscal year, formulate a financial report, and shall have it checked by an accounting firm. The financial report shall be work out according to laws, administrative regulations and provisions of the treasury department of the State Council.

Article 166 A limited liability company shall submit the financial report to every shareholder within the time limit as prescribed in the articles of association. The financial report of a joint stock limited company shall be ready for the consultation of the shareholders at the company 20 days before the annual meeting of the shareholders is held. A joint stock limited company of public offer stocks shall make a public announcement of its financial report.

Article 167 Where a company distributes its after-tax profits of the current year, it shall draw 10 percent of the profits as the company’s statutory common reserve. The company may stop drawing if the accumulative balance of the common reserve has already accounted for over 50 percent of the company’s registered capital.

If the accumulative balance of the company’s statutory common reserve is not enough to make up for the losses of the company of the previous year, the current year’s profits shall first be used for making up the losses before the statutory common reserve is drawn therefrom according to the provisions of the preceding paragraph. After the company draws the statutory common reserve from the after-tax profits, it may, upon a resolution made by the shareholders?meeting, draw a discretionary common reserve from the after-tax profits. After the losses have been made up and common reserves have been drawn, a limited liability company shall distribute the remaining profits according to Article 35 of this Law; a joint stock limited company shall distribute the remaining profits in light of the proportions of shares held by shareholders, unless it is not permitted in the articles of association to distribute profits according to the proportions of shares held by shareholders.

If the shareholders?meeting, shareholders?assembly or board of directors distributes the profits by violating the provisions of the preceding paragraph before the losses are made up and the statutory common reserves are drawn, the profits distributed must be refunded to the company. No profit may be distributed for the company’s shares held by this company.

Article 168 The premium of a joint stock limited company from the issuance of stocks at a price above the par value of the stocks, and other incomes listed in the capital accumulation fund according to provisions of the treasury department of the State Council shall be listed as the capital accumulation funds of the company.

Article 169 The capital accumulation funds of the company shall be used for making up losses, expanding the production and business scale or increasing the registered capital of the company. But the capital accumulation funds shall not be used for making up the company’s losses.
When the statutory common reserve is changed to capital, the remainder of the common reserve shall not be less than 25 % of the registered capital prior to the increase.

Article 170 Where a company plans to hire or dismiss any accounting firm to undertake the auditing of the company, a resolution shall be made by the shareholders?meeting or shareholders?assembly or the board of directors according to the provisions of the articles of association. Where the shareholders?meeting or shareholders?assembly or the board of directors adopts a voting on the dismissal of any accounting firm, it shall allow the accounting firm to state its own opinions.

Article 171 A company shall provide to the accounting firm it hires truthful and complete accounting vouchers, account books, financial and accounting statements and other accounting materials, and may not refuse to do so or conceal any of them or make any false statements.

Article 172 Except for the statutory account books, a company shall not set up other account books.
No company asset may be deposited into any individual’s account.

Chapter IX Merger and Split-up of Company, Increase and Deduction of Registered Capital

Article 173 The merger of a company may be effected by way of merger or consolidation. In the case of merger, a company absorbs any other company and the absorbed company is dissolved; in the case of consolidation, two or more companies combine together for the establishment of a new one, and the existing ones are dissolved.

Article 174 As for a corporate merger, both parties to the merger shall conclude an agreement with each other and formulate balance sheets and checklists of properties. The companies involved shall, within ten days as of making the decision of merger, notify the creditors, and shall make a public announcement on a newspaper within 30 days. The creditors may, within 30 days as of the receipt of the notice or within 45 days as of the issuance of the public announcement if it fails to receive a notice, require the company to clear off its debts or to provide corresponding guarantees.

Article 175 In the case of a merger, the credits and debts of the companies involved shall be succeeded by the company that survives the merger or by the newly established company.

Article 176 As for the split-up of a company, the properties thereof shall be divided accordingly, and balance sheets and checklists of properties shall be worked out. The company shall, within 10 days as of the day when the decision of split-up is made, notice the creditors and shall make a public announcement on a newspaper within 30 days.

Article 177 The post-split companies shall bear joint liabilities for the debts of the former company before it is split up, unless it is otherwise prescribed by the company and the creditors before the split-up with regard to the clearance of debts in written agreement.

Article 178 Where a company finds it necessary to reduce its registered capital, it must work out balance sheets and checklists of properties.
The company shall, within ten days as of the day when the decision of reducing registered capital, notify the creditors and make a public announcement on a newspaper within 30 days. The creditors shall, within 30 days as of the receipt of a notice or within 45 days as of the issuance of the public announcement if it fails to receive a notice, be entitled to require the company to clear off its debts or to provide corresponding guarantees. The registered capital of the company after reducing its registered capital shall not be any lower than the bottom line requirement as provided for by law.

Article 179 Where a limited liability company increases its registered capital, the capital contributions of the shareholders for the increased amount shall be subject to the relevant provisions of the present Law regarding the capital contributions for the establishment of a limited liability company. Where a joint stock limited company issues new stocks for increasing its registered capital, the subscription for new stocks by shareholders shall be subject to the relevant provisions of the present Law regarding the payment of stock money for the establishment of a joint stock limited company.

Article 180 Where any of the registered items is changed during the process of merger or split-up of a company, the company shall go through modification registration with the company registration authority. If it is dissolved, it shall be deregistered according to law. If any new company is established, it shall go through the procedures for company establishment according to law.
In the case of increasing or reducing its registered capital, a company shall go through the modification registration with the company registration authority according to law.

Chapter X Dissolution and Liquidation of a Company

Article 181 A company may be dissolved under any of the following circumstances:
(1) The term of business operation as stipulated by the articles of association expires or any of the matters for dissolution as stipulated in the articles of association of the company appears;
(2) The shareholders?meeting or the shareholders?assembly decides to dissolve it;
(3) It is necessary to be dissolved due to merger or split-up of the company;
(4) Its business license is canceled or it is ordered to close down or to be dissolved according to law; or
(5) The people’s court decides to dissolve it according to Article 183 of this Law.

Article 182 Where any of the circumstances as prescribed in Article 181 (1) of this Law occurs, a company may continue to exist by modifying its articles of association. To modifying its articles of association according to the provisions of the preceding paragraph, the consent of the shareholders who hold two thirds or more of the voting rights shall be obtained if it is a limited liability company, and the consent of two thirds or more of the voting rights the shareholders who attend the meeting of the shareholders shall be obtained if it is a joint stock limited company.

Article 183 Where a company meets any serious difficulty during its operation or management so that the interests of the shareholders will be subject to heavy loss if it continues to exist and it cannot be solved by any other means, the shareholders who hold ten percent or more of the voting rights of all the shareholders of the company may plead the people’s court to dissolve the company.

Article 184 Where any company is dissolved according to the provisions of
Article 181 (1), (2), (4) or (5) of this Law, a liquidation group shall be formed, within fifteen days as of the occurrence of the causes of dissolution, to carry out a liquidation. The liquidation group of a limited liability company shall comprise the shareholders, while that of a joint stock limited company shall comprise the directors or any other people as determined by the shareholders?meeting. Where no liquidation group is formed within the time limit, the creditors may plead the people’s court to designate relevant persons to form a liquidation group. The people’s court shall accept such request and form a liquidation group so as to carry out the liquidation in a timely manner.

Article 185 The liquidation group may exercise the following functions during the process of liquidation:
(1) liquidating the properties of the company, and producing balance sheets and asset checklists;
(2) informing creditors by notice or public announcement;
(3) disposing and liquidating the businesses of the company that have not been completed;
(4) clearing off the outstanding taxes and the taxes incurred in the process of liquidation;
(5) clearing off credits and debts;
(6) disposing the residual properties; and
(7) participating in the civil proceedings of the company.

Article 186 The liquidation group shall, within ten days as of its formation, notify the creditors, and shall make a public announcement within 60 days on newspapers. Creditors shall, within thirty days as of the receipt of a notice or within 45 days as of the issuance of the public announcement in the case of failing to receiving a notice, declare credits against the liquidation group.
To declare credits, a creditor shall explain the relevant matters and provide relevant evidential materials. The liquidation group shall check in the credits, and may not clear off any of the debts of any creditor during the period of credit declaration.

Article 187 The liquidation group shall, after liquidating the properties of the company and producing balance sheets and checklists of properties, make a plan of liquidation, and report it to the shareholders?meeting or the shareholders?assembly or the people’s court for confirmation.
The residual assets that result from paying off the liquidation expenses, wages of employees, social insurance premiums and legal compensation premiums, the outstanding taxes and the debts of the company with the assets of the company may, in the case of a limited liability company, be distributed according to the proportions of capital contributions of the shareholders, and in the case of a joint stock limited company, according to the proportions of stocks held by the shareholders. During the term of liquidation, the company continues to exist, but may not carry out any business operation that has nothing to do with liquidation. None of the properties of the company may be distributed to any shareholder before they are used for the clearing off as stated in the preceding paragraph.

Article 188 If the liquidation group finds that the properties of the company is not sufficient for clearing off the debts after liquidating the properties of the company and producing balance sheets and checklists of properties, it shall file an application to the people’s court for bankruptcy. Once the people’s court makes a judge declaring the bankruptcy of the company, the liquidation group shall hand over the liquidation matters to the people’s court.

Article 189 After liquidation of the company is completed, the liquidation group shall formulate a liquidation report, which shall be submitted to the shareholders?meeting or the shareholders?assembly or the people’s court for confirmation and shall be submitted to the company registration authority for writing off the registration of the company. It shall also make a public announcement on its termination.

Article 190 The members of the liquidation group shall devote themselves to their duties and fulfill their obligations of liquidation according to law.
None of the members of the liquidation group may take any bribe or any other illegal proceeds by taking advantage of his position, nor may he misappropriate any of the properties of the company. Where any of the members of the liquidation group causes any loss to the company or any creditor by intention or due to gross negligence, he shall make corresponding compensations.

Article 191 Where a company is declared bankrupt according to law, it shall carry out a bankruptcy liquidation in accordance with the provisions concerning bankruptcy liquidation.

Chapter XI Branches of Foreign Companies

Article 192 The term "foreign company" as mentioned in this Law refers to a company established outside of the territory of China according to any foreign law.

Article 193 A foreign company, which plans to establish any branch within the territory of China, shall submit an application with the competent authority of China, and shall submit relevant documents such as the articles of incorporation, the company registration certificate as issued by the country of establishment and etc.. Upon the approval, it shall go through registration formalities with the company registration authority according to law and obtain a business license.
The measures for the examination and approval of the branches of foreign companies shall be separately formulated by the State Council.

Article 194 Where a foreign company establishes any branch within the territory of China, it must appoint a representative or an agent within the territory of China to take charge of the branch, and shall allocate to the branch corresponding funds for the business activities it is engaged in.

Article 195 The branch of any foreign company shall indicate in its name the nationality and the form of liability of the foreign company concerned.
The branch of a foreign company shall keep the articles of corporation of the foreign company at its own place.

Article 196 The branch of a foreign company established within the territory of China does not have the status of a juridical person.
The foreign company shall bear civil liabilities for the business operation of its branches undertaken within the territory of China.

Article 197 The branches of foreign companies which are established upon approval shall accord with the laws of China when undertaking their business activities within the territory of China, and may not injure the social public interests of China, and the lawful rights and interests thereof shall be protected by Chinese law.

Article 198 Where a foreign company relinquishes any of its branches within the territory of China, it shall clear off the debts thereof according to law, and shall carry out a liquidation in accordance with the provisions of this Law on the procedures for the liquidation of companies. Before the debts are cleared off, it may not transfer any of the properties of the branch out of China.

Chapter XII Legal Liabilities

Article 199 Where anyone, in violation of the provisions of this Law, obtains the registration of a company by making a false report of his register capital, submitting false materials or by any other fraudulent means so as to conceal important facts, he shall be ordered by the company registration authority to make corrections. In the case of making a false report of his register capital, he shall be fined not less than 5% but not more than 15% of the fabricated registered capital; in the case of submitting false materials or by any other fraudulent means so as to conceal important facts, he shall be fined not less than 5,000 Yuan but not more than 50,000 Yuan; if the circumstances are serious, the company registration certificate shall be revoked or the business license shall be cancelled.

Article 200 Any of the initiators or shareholders of a company, who makes any false capital contribution, or fails to deliver or fails to deliver in good time the monetary or non-monetary properties used as capital contributions, shall be ordered by the company registration authority to make corrections, and shall be fined not less than 5% but not more than 15% of the sum of false capital contributions.

Article 201 Where any initiator or shareholder unlawfully take away its capital contribution after the company is established, he shall be ordered by the company registration authority to make corrections, and shall be fined not less than 5% but not more than 15% of the capital contribution he has unlawfully taken away.

Article 202 Any company which has established another account books apart from the legally prescribed account books and violates of the present Law shall be ordered by the treasury department of the people’s government at the county level or above to make corrections, and shall be fined not less than 50,000 Yuan but not more than 500, 000 Yuan.

Article 203 Where a company makes any false records or conceals any important fact in such materials as financial and accounting statements submitted to the relevant departments in charge, the relevant department in charge shall impose a fine of not more than 30, 000 Yuan but not more than 300, 000 Yuan upon the directly liable persons in charge and other directly liable persons.

Article 204 Where a company fails to draw legal accumulation funds according to the present Law, it shall be ordered by the treasury department of the people’s government at the county level or above to make up the amount it is due, and may be fined up to 200, 000 Yuan.

Article 205 Where any company fails to inform its creditors by notice or by public announcement during the process of merger, split, reducing its registered capital or liquidation, it shall be ordered by the company registration authority to make corrections, and may be fined not less than 10, 000 Yuan but not more than 100, 000 Yuan.
Where, during the process of liquidation, any company hides any of its properties or makes any false record in its balance sheet or property checklist, or distributes any of the company’s properties before clearing off its debts, it shall be ordered by the company registration authority to make corrections, and may be fined not less than 5% but not more than 10% of the value of the company properties it has hidden or distributed prior to the clearing of company debts, and the directly liable person-in-charge as well other directly liable persons may be fined not less than 10, 000 Yuan but not more than100, 000 Yuan.

Article 206 Where, during the process of liquidation, any company undertakes any business activity which has nothing to do with the liquidation, it shall be admonished by the company registration authority, and its illegal proceeds shall be confiscated.

Article 207 Where the liquidation group fails to submit a liquidation report to the company registration authority according to the provisions of the present Law, or where any important fact is concealed or there is any important omission in the liquidation report it submits, it shall be ordered by the company registration authority to make corrections.

Where any member of the liquidation group takes advantage of his power to seek unlawful benefits for himself or any of his relatives, procures any unlawful gains or misappropriates any of the properties of the company, he shall be ordered by the company registration authority to return the properties of the company with his illegal gains being confiscated, and shall be fined 1 up to 5 times of the illegal proceeds.

Article 208 Where any institution that undertakes the evaluation or verification of assets or the verification of certificates provides any false materials, its illegal proceeds shall be confiscated by the company registration authority, and be fined 1 up to 5 times of the illegal proceeds, and may be ordered by the competent administrative department to suspend its business operation or to withdraw the qualification certificates of the directly liable persons, and cancel its business license.

Where any institution that undertakes the evaluation or verification of assets or the verification of certificates makes any important omission in the report it submits, it shall be ordered by the company registration authority to make corrections; if the circumstances are serious, it shall be fined 1 up to 5 times of the proceeds it has obtained, and may be ordered by the competent administrative department to suspend its business operation and to withdraw the qualification certificates of the directly liable persons, and cancel its business license. Where the evaluation result or proof of asset verification or certificate verification, as provided by any institution that undertakes the evaluation or verification of assets or the verification of certificates, is proved to be untrue, which has caused any loss to the creditors of the company, it shall bear the compensation liabilities within the sum which is found to be untrue, unless it can prove that it has no fault in the incurrence of the loss.

Article 209 Where any company registration authority registers any application that does not meet the conditions as provided for in the present Law, or fails to register any application that meets the conditions as prescribed in the present Law, the directly liable person-in-charge and other directly liable persons shall be imposed upon an administrative sanction.

Article 210 Where the superior organ of any company registration authority forces the latter to register any application that does not satisfy the conditions as prescribed in the present Law or to refuse any application that meets the conditions as provided for in the present Law, or covers up for any illegal registration, the directly liable person-in-charge and other directly liable persons shall be imposed upon an administrative sanction according to law.

Article 211 Where anyone fails to register as a limited liability company or joint stock limited company according to law but undertakes business operation in the name of a limited liability company or joint stock limited company, or fails to register as a subsidiary of a limited liability company or joint stock limited company according to law but undertakes business operation in the name of a subsidiary of the limited liability company or joint stock limited company, it shall be ordered by the company registration authority to make corrections or be clamped down on, and may be fined not more than 100,000 Yuan.

Article 212 Where any company fails to start its business operation six months after the establishment of it without justifiable reasons, or suspends its business operation on its own initiative for consecutively six months after it has started the business operation, its business license may be revoked by the company registration authority.
Where any registered item of any company changes, and the company fails to go through the corresponding modification formalities according to the present Law, it shall be ordered by the company registration authority to make modification registration within a time limit; if it still fails to make the registration, it shall be fined not less than 10, 000 Yuan but not more than 100, 000 Yuan.

Article 213 Where any foreign company violates this Law by unlawfully establishing any branch within China, it shall be ordered by the company registration authority to make corrections or to close it down, and may be fined not less than 50,000 Yuan but not more than 200, 000 Yuan.

Article 214 Where anyone commits, in the name of a company, any serious violation of law so that the security of the state or the public interests of the society is injured, the business license of the company shall be revoked.

Article 215 Where a company violates any provision of this Law, it shall bear the corresponding civil liabilities of compensation, and shall pay the corresponding fines and pecuniary penalties; if the property thereof is not enough to pay for the compensation, it shall bear the civil liabilities first.

Article 216 Where any company violates the present Law and any crime is constituted, it shall be subject to criminal liabilities.

Chapter XIII Supplementary Provisions

Article 217 Definitions of the following terms:
(1) The "senior manager" refers to the manager, vice manager, person in charge of finance of a company, and the secretary of the board of directors of a listed company as well as any other person as stimulated in the articles of association.
(2) The "controlling shareholder" refers to a shareholder whose capital contribution occupies 5% or more of the total capital of a limited liability company, or a shareholder whose stocks occupy more than 50% of the total equity stocks of a joint stock limited company, or a shareholder whose capital contribution or proportion of stocks is less than 50% but who enjoys a voting right according to its capital contribution or the stocks it holds is large enough to impose an big impact upon the resolution of the shareholders?meeting or the shareholders?assembly.
(3) The "actual controller" refers to anyone who is not a shareholder but is able to hold actual control of the acts of the company by means of investment relations, agreements or any other arrangements.
(4) The "connection relationship" refers to the relationship between the controlling shareholder, actual controller, director, supervisor, or senior manager of a company and the enterprise directly or indirectly controlled thereby, and any other relationship that may lead to the transfer of any interests of the company. However, the enterprises controlled by the state do not incur a connection relationship simply because their shares are controlled by the state.

Article 218 The limited liability companies and joint stock limited companies invested by foreign investors shall be governed by the present Law. Where there are otherwise different provisions in any law regarding foreign investment, such provisions shall prevail.

Article 219 This Law shall go into effect on January 1, 2006.

Promulgated by the Standing Committee of the National People’s Congress on October 27, 2005.