[Legal and Regulatory Provisions] Article-by-Article Analysis of the Company Law (2023 Revision) (Chapter I: General Principles) (Part I)

Background: On December 29, 2023, the Standing Committee of the National People’s Congress promulgated the Company Law (2023 Revision), effective July 1, 2024. Subsequently, the Supreme People’s Court issued its official interpretation and application guidance on the revised law. The author herein provides a line-by-line analysis of the law, aiming to present it in the simplest and most accessible manner for readers’ reference. Table of Contents I. Article 5 — Articles of Association 1. Interpretation of the Provision 2. Why the Articles of Association Do Not Bind Employees II. Article 7 — Company Type Indicated in the Company Name Identifying the company’s organizational form from its name III. Article 10 — Eligible Persons Who May Serve as Legal Representative IV. Article 11 — Legal Consequences of Acts Performed by the Legal Representative 1. Acts such as affixing the company seal, signing by the legal representative, or affixing the legal representative’s fingerprint are all presumed to express the company’s intent; however, when a contract exhibits only one of these formalities, how is its validity determined? 2. If the company fails to affix its official seal—or affixes a forged seal—can the act still be deemed the company’s genuine expression of intent? Is the contract valid? I. Article 5 [Articles of Association]: A company shall formulate its articles of association in accordance with the law upon establishment. The articles of association bind the company, its shareholders, directors, supervisors, and senior management. [Interpretation of the Provision] The articles of association bind three categories of parties, as follows: 1. Binding effect on the company: Internally, they govern the company’s organization and operations; externally, they define the company’s capacity for rights and conduct (particularly its business scope). 2. Binding effect on shareholders: Shareholders must fulfill obligations (e.g., capital contribution obligations) and exercise rights (e.g., refraining from abusing shareholder rights to harm the company or other shareholders). 3. Binding effect on directors, supervisors, and senior management. [Extended Discussion] Why do the articles of association not bind “employees”? Answer: During the revision process of the Company Law, members of the Standing Committee of the National People’s Congress proposed adding provisions binding employees—but this proposal was ultimately not adopted, primarily for the following reasons: 1. Division of functions within the legal system. (1) In nature and function, the articles of association constitute the company’s “constitution,” whose core purpose is to regulate internal corporate governance structures (e.g., delineating powers and responsibilities among the shareholders’ meeting, board of directors, and board of supervisors) and capital operations (e.g., equity distribution, capital increases or reductions). (2) The articles target parties directly involved in corporate decision-making and oversight (shareholders, directors, supervisors, and senior management), not ordinary employees. 2. Independent regulatory framework for employment relationships. (1) The relationship between employees and the company falls under “labor relations,” governed specifically by labor laws and the Labor Contract Law, and implemented concretely through labor contracts and internal rules (e.g., employee handbooks). (2) Including employees within the scope of the articles’ binding effect could lead to: (i) confusion in the legal system (blurring distinctions between corporate governance rules and labor management rules); and (ii) redundant regulation (overlap with labor law provisions, increasing compliance costs). II. Article 7 [Company Type Indicated in the Company Name]: A limited liability company established under this Law shall indicate the words “limited liability company” or “company limited by shares” in its name; a joint-stock limited company established under this Law shall indicate the words “joint-stock limited company” or “joint-stock company” in its name. [Extended Discussion] The author believes that the company’s organizational form should primarily be identified from its name. 1. “Limited liability company” and “company limited by shares” are merely two alternative expressions denoting the same organizational form, with no substantive difference.

If a board resolution makes a substantive amendment to the articles of association, is it valid? Should it be rescinded?

I. Core Position: The articles of association constitute the company’s “constitution”; the authority to make substantive amendments thereto belongs exclusively to the shareholders’ meeting; the board of directors has no such power. As the fundamental charter governing a company’s establishment and operation, the articles of association demarcate the respective powers and responsibilities of the shareholders’ meeting, the board of directors, and the management team, and possess supreme internal legal force. Under the Company Law and consistent judicial practice, amending the articles of association is a statutory exclusive power of the shareholders’ meeting; the board of directors may only exercise operational decision-making and execution powers within the scope of authorization granted to it. Where a board resolution—though not expressly labeled as an “amendment to the articles of association”—substantively undermines the governance structure prescribed therein, transfers statutorily allocated powers, or alters core operational rules, such action constitutes a substantive amendment to the articles of association. Even if the board meeting was duly convened and voting procedures fully complied with statutory requirements, the resolution exceeds the board’s statutory authority, and shareholders may petition the court for its rescission. In closely held limited liability companies, majority shareholders must not exploit their board seats to pass resolutions that effectively nullify minority shareholders’ legitimate managerial rights; courts will strictly uphold the foundational principle of checks and balances in corporate governance. II. Case Summary: Majority Shareholder Manipulates the Board to Undermine Minority Shareholder’s Management Rights Companies A and B jointly established the target company: Company A holds 30% (minority shareholder); Company B holds 70% (majority shareholder). The company’s articles of association explicitly stipulate three core governance rules: 1. The shareholders’ meeting is the supreme organ of authority; amendments to the articles require unanimous consent of all shareholders; 2. The company operates under a general manager–led system; the general manager is appointed by minority shareholder Company A and possesses full authority over daily operations, contract execution, approval of funds and expenses, property management, and all other operational matters; 3. The board of directors comprises directors appointed by both parties and is empowered solely to appoint and dismiss the general manager, without authority to interfere with the general manager’s routine operational powers as defined in the articles. Subsequently, disputes arose between the parties regarding control over the company’s operations. The majority shareholder convened a board meeting and adopted ten board resolutions, the key contents of which included: (i) entrusting custody of the company’s seals and certificates to the chairman; (ii) requiring the chairman’s final approval for all external contracts and fund/expense disbursements; (iii) unilaterally relocating the company’s registered office and leasing out the original premises; (iv) directly intervening in rent collection, project payment negotiations, and termination of property management contracts; and (v) dismissing the general manager appointed by the minority shareholder, while designating the majority shareholder–appointed chairman to assume all duties and powers of the general manager during the vacancy. Minority shareholder Company A contended that these board resolutions completely dismantled the pre-established allocation of powers and responsibilities set forth in the articles, severely infringing upon its shareholder rights, and thus filed suit requesting rescission of all ten board resolutions. After trial at first and second instance, the court ruled: Only the resolution dismissing the general manager was lawful and valid; the remaining nine resolutions constituted substantive amendments to the articles of association and were therefore rescinded in their entirety. III. Distinguishing the Board’s Lawful Authority from Its Ultra Vires Zone (A) Lawful Statutory Powers of the Board of Directors 1. Convening shareholders’ meetings and implementing resolutions adopted thereby; 2. Appointing and dismissing the company’s general manager and other senior executives, and determining their remuneration; 3. Formulating the company’s basic management systems and proposing business and investment plans; 4. Other matters expressly authorized by law or the articles of association. (B) Matters Outside the Board’s Decision-Making Authority 1. Unilaterally transferring core operational authorities—including custody of seals and certificates, approval of funds, and contract execution—to itself, thereby depriving the general manager of powers expressly conferred by the articles of association;

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