The Standing Committee of the National People’s Congress released the Second Review Draft of the Amendment to the Company Law (the “Second Review Draft”) on 30 December 2022 to further collect public comments.
The Second Review Draft has remained the main body of the First Review Draft but also made some alterations to it. For example, limited liability company is allowed to choose not to establish a board of supervisors or supervisor at all even such company does not establish an audit committee (in the First Review Draft, only limited liability company establishing an audit committee can choose to completely omit the supervisor). In the First Review Draft, it granted very broad powers to the board of directors by saying that the board of directors can exercise the powers except for those have been reserved to the shareholders’ meeting. However, the Second Review Draft abandoned such an open-end style approach by resuming the non-exhausting list of powers like the current Company Law.
In addition to the foregoing, the Second Review Draft also hardened the requirements for setting up an audit committee in company limited by shares. In the First Review Draft, company limited by shares is allowed to set up an audit committee to monitor the accounting matters of the company and more than half of the members of such audit committee shall be non-executive directors. The Second Review Draft requires that more than half of the members of the audit committee shall be “independent director” and at least one independent director shall be accounting professional. With respect to the condition of “independent director”, the Second Review Draft requires that in order to be eligible to be an independent director, such a director shall not take other position in the company other than the director and shall not hold any relationship with the company that may “possible affect the directors’ independent and fair judgement”.
In China, amendment to important laws like Company Law requires three-time review before its enactment (the final amendment will be adopted after the third time review). Therefore, the Second Review Draft is generally believed to be very close to the final amendment.
