Limited Liability Company (People's Republic of China)

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The company with limited liability ( Chinese  有限 責任 公司  /  有限 责任 公司 , Pinyin Yǒuxiàn Zérèn Gōngsī ) is a legal entity according to the Corporation Act of the People's Republic of China (中华人民共和国 公司法) in its revised version of October 26, 2018 , which is to the Corporations owned. Chinese law differentiates between the regular GmbH (有限 责任 公司), the one-person GmbH (一 人 有限 责任 公司) and the state-owned GmbH (国有 独资公司). In the latter case, these are mostly subsidiaries of centrally managed companies .

Foundation of a GmbH

The GmbH is founded by one or more persons as founding shareholders (出资 股东), whereby the number of founding shareholders must not exceed 50. The Chinese state, represented by the Commission for the Control and Administration of State Assets or its organs, can also act as the sole shareholder. It is not permitted to raise public capital for the establishment of a GmbH. The statutes of the GmbH, which are signed by each partner and have a personal or company stamp, must contain the following points:

  • Headquarters and company . The company name must contain the term “limited liability company” (有限 责任 公司) or the abbreviation “GmbH” (有限公司).
  • Corporate purpose
  • Amount of share capital . Originally, the minimum share capital was 30,000 yuan for a regular limited liability company and 100,000 yuan for a one-person limited liability company. In order to lower the hurdles for company formation, the Standing Committee of the National People's Congress decided on December 28, 2013 to remove these lower limits with effect from March 1, 2014.
  • Name or company of the shareholders
  • Amount of the business shares of the individual partners, time and method of payment. Company shares can be paid in as cash , but also in kind , intellectual property or land use rights according to their estimated value. Incorrect valuations of contributions in kind are punishable by law. At least 30% of the share capital must consist of cash contributions.
  • Bodies of the company, the nature of their appointment, their rights and their rules of procedure
  • Legal representatives

After the establishment of the GmbH, each partner is to be issued a share certificate with a date and serial number, on which the name and date of establishment of the GmbH are noted, the share capital, as well as the name or company of the partner with the amount of his share and the date of payment.

registration

The GmbH must be registered with the office of the State Market Surveillance Authority of the independent city , district or district where it is based. The registration can only be made when at least 20% of each business share has been paid up. The remainder can be paid in by natural persons within two years from the date on which the GmbH was founded, and by legal entities within five years. When registering, the statutes of the GmbH and a capital audit certificate (验资 证明) from an auditing office about the actual existence of the cash and non-cash contributions must be submitted. Any change in the list of shareholders must be reported to the market surveillance authority.

Shareholders' meeting

The shareholders' meeting (股东 会) consists of the totality of the shareholders, it is the highest decision-making body of the GmbH. Your responsibility extends to the following things:

  • Business alignment and investment planning
  • Election and replacement of board members and supervisory boards not provided by the workforce, determination of their remuneration
  • Review, discussion and approval of the board reports
  • Examination, discussion and approval of the reports of the supervisory board or individual supervisory boards
  • Review, discussion and approval of the annual financial planning and the annual balance sheet
  • Examination, discussion and approval of proposals for the appropriation of profits and covering losses
  • Increase or decrease in the share capital
  • Issuance of bonds
  • Mergers, establishment of subsidiaries, dissolution of the GmbH, liquidation of the GmbH, change of legal form
  • Amendments to the statutes

Unless the articles of association provide otherwise, the shareholders have voting rights in proportion to their shares . The shareholders' meeting meets at the regular meetings specified in the articles of association. In addition, shareholders with 1/10 of the voting rights and 1/3 of the board members or supervisory board members can call an extraordinary meeting. As a rule, the shareholders' meeting is chaired by the chairman of the board of directors. Unless the articles of association provide otherwise, the shareholders must be informed 15 days before the meeting. Changes to the articles of association, an increase or reduction in the share capital, mergers, the establishment of subsidiaries, the dissolution of the GmbH or a change in the legal form must be resolved with at least 2/3 of the voting rights.

Board

Smaller GmbHs with few shareholders can appoint an incumbent board (执行 董事). This can also be the managing director of the GmbH. Otherwise a board consisting of 3 to 13 members (董事会) is to be appointed. In the case of a state-owned GmbH, employee representatives must be represented on the executive board; in the case of other forms of GmbH, employee representatives can be represented on the executive board. The employee representatives sent to the executive board are democratically elected by the workforce. The board of directors must appoint a chairman, deputy chairmen can be appointed. The term of office of the board of directors is set out in the articles of association, but may not exceed three years. However, a board of directors can be elected several times in a row. The board of directors is responsible to the shareholders' meeting. In the case of a state-owned GmbH, the commission for the control and administration of state assets can transfer part of the competences of the shareholders' meeting to the board of directors. In a regular GmbH, the board of directors is responsible for:

  • Convocation of the shareholders 'meeting, reporting to the shareholders' meeting
  • Implementation of the resolutions of the shareholders' meeting
  • Business and investment planning
  • Preparation of the annual financial plan and the annual balance sheet
  • Elaboration of proposals for the use of profits and coverage of losses
  • Development of proposals to increase or decrease the share capital and, if necessary, the issue of bonds
  • Development of proposals for mergers, establishment of subsidiaries, dissolution of the GmbH, change of legal form
  • Determination of the administrative structure of the GmbH
  • Hiring and dismissing the managing director, setting his remuneration. Appointment and dismissal of the deputy managing directors and authorized signatories proposed by the managing director as well as the determination of their remuneration
  • Establishing the management system of the GmbH

In a state-owned GmbH, board members, managing directors and authorized signatories are not allowed to work in other companies or business organizations without the approval of the Commission for the Control and Administration of State Assets.

executive Director

A GmbH can provide for the office of managing director (经理). This is appointed and dismissed by the board and is responsible to the board. The managing director is responsible for:

  • Production, business management and administration; Implementation of the resolutions of the Board of Directors
  • Implementation of the annual plan of the GmbH and the investments planned by it
  • Elaboration of suggestions for the internal administrative processes of the GmbH
  • Establishing the specific regulations
  • Propose his deputies and authorized signatories
  • Hiring and dismissing senior executives

The managing director takes part in the board meetings.

Supervisory board

Smaller GmbHs with a few shareholders can appoint one or two supervisory boards. For a regular GmbH, a supervisory board (监事会) with at least three members must be formed, for a state-owned GmbH at least five. The supervisory board must consist of employer and employee representatives, whereby the proportion of employee representatives must not be less than one third. The specific relationship is stipulated in the statutes of the GmbH. The employee representatives on the supervisory board are democratically elected by the workforce. The chairman of the supervisory board must be elected by all members of the supervisory board with more than half of the votes; he calls the supervisory board meetings. Board members, managing directors and authorized signatories may not act as members of the supervisory board. The term of office of a supervisory board is three years, but it can be elected several times in a row. The supervisory board is responsible for:

  • Control of the finances of the GmbH. If it is necessary to use the support of an external auditor for this, the GmbH has to bear the costs.
  • Monitoring the activities of board members, managing directors and authorized signatories. Propose the dismissal of board members, managing directors and authorized signatories who have violated laws , ordinances , the statutes of the GmbH or resolutions of the shareholders' meeting.
  • Requesting board members, managing directors and authorized signatories to change their behavior if this harms the interests of the GmbH
  • Claiming compensation payments in the event of misconduct by board members, managing directors and authorized signatories, which leads to losses for the GmbH
  • Convocation of extraordinary shareholders' meetings
  • Submit motions at shareholders' meetings

Supervisory boards can take part in the board meetings. The Supervisory Board itself meets at least once a year. Resolutions in a Supervisory Board meeting require the approval of at least half of the Supervisory Board.

Liability of the GmbH and its shareholders

The GmbH is liable for the company's liabilities with its entire company assets. The partners are only liable with their contribution, their private assets remain unaffected. If the owner of a one-person GmbH cannot prove that the assets of the GmbH are separated from his private assets, he is liable with his private assets for debts of the GmbH.

Annual report

The GmbH has to prepare an annual report at the end of each accounting year , which has to be checked by a sworn auditor. After a period specified in the articles of association, the annual report must be sent to each shareholder. In contrast to a stock corporation with limited liability (股份有限公司), the business reports of the GmbH do not need to be published.

Legal reserve

If the GmbH distributes the annual surplus , it has to add 10% of the surplus to the legal reserve (法定 公积金) until 50% of the share capital is reached. For comparison: in Switzerland the legal reserve is 20% of the share capital. At the decision of the shareholders' meeting, further funds can flow into the reserve from the annual surplus. The reserve serves the following purposes:

  • Compensation for losses of the GmbH
  • Expansion of production and services
  • Capital increase. If the statutory reserve is used to increase capital, at least as much reserve must be retained as corresponds to 25% of the share capital before the increase.

Rights and duties of the shareholders

The shareholders are entitled to the annual surplus after deduction of payments into the legal reserve, which is divided according to the ratio of the shares. If the GmbH increases its share capital, the existing shareholders have a preferential right to increase their contribution according to the ratio of their shares. However, the shareholders' meeting can regulate this differently in the event of unanimity.

Each partner can request inspection of the books on presentation of a written justification. If there is a reasonable assumption that inspection of the books is not justified and that it could harm the legitimate interests of the GmbH, the GmbH can refuse inspection of the books. In this case, the shareholder must be given a written justification within 15 days of the application. If the GmbH denies access to the books, the shareholder can try to enforce this in court.

Unlike in Germany, for example, the shareholder cannot freely dispose of his business share. Although business shares can be partially or fully transferred between the shareholders, such a transfer to natural or legal persons outside the group of shareholders requires the consent of more than half of the other shareholders. The consent must be obtained in writing. If another partner does not respond to the notification within 30 days, this counts as approval. If more than half of the shareholders do not agree to a transfer of the shares, these shareholders must purchase the shares to be transferred. If they don't buy it, it counts as approval.

If the other shareholders agree to a transfer of the business shares, they have a right of first refusal subject to the same conditions. If two or more shareholders intend to exercise this right of first refusal, they can agree on the relationship in which they take over the shares. If no agreement is reached in this regard, the right of first refusal applies in relation to their own shares. If the statutes of the GmbH stipulate other rules for the transfer of business shares, then the statutes apply.

A capital withdrawal by a shareholder after the establishment of the GmbH is not possible. If, however, the GmbH does not distribute any profit for five consecutive years , although it has generated an annual surplus every year in these five years, a shareholder who has voted against it at the shareholders' meeting can request that the GmbH buy his share of the business at a reasonable price. The same applies if a partner has not consented to a merger, the establishment of a subsidiary or the assignment of important assets . If the shareholder does not come to an agreement with the GmbH on the purchase of his business share 60 days after such a resolution by the shareholders 'meeting, he can file a lawsuit against the GmbH in a court of 90 days after said shareholders' meeting.

When a partner dies, his legal heirs can take over his share, unless the statutes of the GmbH provide otherwise.

Dissolution and liquidation of the GmbH

A GmbH is dissolved under the following conditions:

  • Expiry of the time specified in the statutes. This can be extended by an amendment to the Articles of Association resolved with 2/3 of the voting rights.
  • Resolution of the shareholders' meeting
  • If this is necessary by merging or setting up subsidiaries
  • Withdrawal of license, officially ordered closure
  • In the case of damage to the interests of the shareholders with 10% of the voting rights that cannot be averted otherwise, the application for legal dissolution

Except in the case of a merger or split, a liquidator group of shareholders must be formed within 15 days of the dissolution resolution or the corresponding order and the liquidation of the GmbH must begin. If no group of liquidators is formed within the given time, creditors can apply for the judicial appointment of suitable persons as liquidators. The group of liquidators must notify the creditors within 10 days of their establishment and publish an announcement of the liquidation in the press within 60 days. Creditors must register their claims within 30 days of receiving the notification letter, otherwise 45 days after publication of the notification of liquidation, otherwise they will expire. After deduction of the liquidation costs, payment of wages and salaries, social security contributions and statutory bonus payments as well as settlement of tax and other debts, the remaining assets of the GmbH are distributed to the shareholders according to the ratio of their shares. If the liquidator group notices that the GmbH's assets are insufficient to service the liabilities , bankruptcy is to be filed with a court and the liquidation procedure to be handed over to the court.

After completion of the liquidation or insolvency proceedings, a report must be prepared and sent to the local office of the State Market Surveillance Authority, which then deletes the GmbH from the commercial register . The public must be informed about this.

Web links

Individual evidence

  1. ↑ 刘雪敬: 有限 责任 公司 与 股份有限公司 的 区别. In: zhuanlan.zhihu.com. February 10, 2018, accessed April 2, 2020 (Chinese).
  2. ↑ 胡锦涛 : 中华人民共和国 主席令 ， 第 四 十二 号. In: gov.cn. October 27, 2005, accessed March 29, 2020 (Chinese). There was no minimum share capital for a state-owned GmbH.
  3. ↑ 余 晨: 取消 公司 注册 资本 最低 限额. In: npc.gov.cn. December 23, 2013, accessed March 29, 2020 (Chinese).
  4. ↑ 肖亚庆: 国家 市场 监督 管理 总局 令 ， 第 14 号. In: gov.cn. August 8, 2019, accessed March 29, 2020 (Chinese).
  5. ↑ Legal reserves. In: gesellschaft-mit-beschraenkener-haftung.ch. Retrieved April 1, 2020 .
  6. ↑ 讴 吧 财经: 提取 法定 公积金 是否 确实 可以 防范 经营 亏损 风险 和 增加 公司 财力？ In: zhihu.com. January 28, 2018, accessed April 1, 2020 (Chinese).
  7. ↑ 胡锦涛: 中华人民共和国 主席令 ， 第 四 十二 号. In: gov.cn. October 27, 2005, accessed April 2, 2020 (Chinese).
  8. ↑ 张维: 全国人民 代表 大会 常务委员会 关于 修改 《中华人民共和国 公司法》 的 决定. In: gov.cn. October 27, 2018, accessed April 2, 2020 (Chinese).