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China’s Articles of Association, like a constitution, lay the foundation for a company’s structure and governance. They should be amended regularly to align with legal developments, internal changes, and shareholder needs.
Articles of Association
A company’s Articles of Association (AoA) outline its core foundation, governance model, and shareholder rights. Often likened to a constitution, they are legally binding and are the foundation for a business’s operations. These critical documents may require amendments due to changing legal requirements, external developments like mergers and acquisitions, or shifting strategic goals.
Any amendments to a company’s AoA should be done with the guidance of legal experts, to ensure they are in compliance with current regulations and fortify the company’s governance frameworks. This consultation also helps ensure that any drafted changes are crafted in a way that will be clear to shareholders. This may include rewording existing provisions or even adding new clauses. In some cases, bespoke AoA may need to be created from scratch.
Corporate Governance
As China’s capital markets continue to internationalise, investor stewardship is becoming increasingly important. But a gap persists between domestic and foreign market participants in their understanding of corporate governance (CG) and ESG issues in Chinese listed companies.
This ACGA report leverages new data and sources to illuminate a complex set of Chinese corporate governance issues. It highlights how the state’s national champions are opaque and poorly understood, and how China’s dangjian policy confers a formal role for the Party in enterprise affairs.
Rising domestic risks and expanding international stakes make improving the corporate governance of China’s SOEs an imperative. The report looks at the legal and regulatory basis for each of these governance institutions, identifies areas where reform remains elusive, and explains what looks the same but is different from other markets.
Company Law
The Articles of Association (AoA) is one of the most important documents for a company in China. It defines the internal governance structure and operational guidelines of a WFOE registered in China. It also details the rights, responsibilities, and powers of shareholders, directors, and managers.
Where the actual evaluation of the non-currency property used as capital contributions for the incorporation of a company is obviously less than that prescribed in the articles of association, the promoters making such capital contributions shall make up the difference; and they shall bear joint and several liability. Supervisors, directors, and senior managers of a company shall observe laws, administrative regulations, and the company’s articles of association, and not abuse their positions for illicit gains. They shall not accept bribes or illegally collect other earnings, nor take over illegally any of the company’s property.
Corporate Restructuring
Corporate restructuring is a business strategy to improve efficiency, profitability and competitiveness. It involves reducing redundancies, streamlining processes and optimizing resource allocation. It can also involve acquiring new technologies or changing standard operating procedures.
Some companies undergo reorganization as a result of a merger or acquisition, to address financial pressures or changes in the market. Restructuring strategies may include divesting non-core assets or renegotiating debt terms with creditors.
Regardless of the reason, a company undergoing restructuring may require significant amounts of working capital. This can be challenging for businesses to secure through traditional banking channels. Alternative finance companies can provide a simpler, more accessible path to funding. This can allow for quicker, more effective implementation of corporate restructuring. This can lead to higher productivity, better customer service and improved financial performance.
Shareholder Rights
The shareholder is the highest authority within a company. They appoint individuals to fulfill key legal roles – the legal representative, executive director or board of directors, supervisor or board of supervisors and general manager – who are ultimately responsible for the operations and governance of a company.
The Articles of Association, likened to a constitution, outline the company’s purpose, governance model, shareholder rights and managerial responsibilities. They are legally binding and require regular updates to reflect both new legislation and the company’s evolving strategic goals. The articles also detail meeting protocols, including quorum requirements, notification periods and voting procedures. A company must make financial reports available to shareholders for examination. Shareholders may also entrust a person to attend meetings of the shareholders general assembly on their behalf.