Companies Act of Einsenland (British English)
Companies Act of the Republic of Einsenland (Draft)
Consultation draft v1.0 | 2026-11-02 | British English
This is proposed legislation for the fictional Republic of Einsenland. It has not been enacted, promulgated or brought into force. This text corresponds provision by provision to the Chinese and German drafts. Authentication and legal status of promulgated language versions are governed by section 169. Terms denote the forms created by this draft, rather than importing the company forms of any foreign jurisdiction.
Section 1 — Purpose This Act regulates companies, protects lawful enterprise and employee participation, safeguards the rights of companies, shareholders, employees and creditors, and protects public assets, security of transactions and fair competition, pursuant to the Constitution.
Section 2 — Scope This Act applies to limited liability companies and joint-stock companies registered in Einsenland and to the foreign-company matters expressly specified. Partnerships, co-operatives, public-law entities and non-profit legal persons are governed by their respective laws; companies in which they invest are governed by this Act. A company designation must not be used to convert protected school, hospital or co-operative assets into distributable profits.
Section 3 — Legal personality A company acquires legal personality on incorporation by registration and may own property, enter into transactions and litigate in its own name. Shareholders own shares or equity interests, rather than undivided interests in individual company assets.
Section 4 — Limited liability A company answers for its debts with all its assets. A shareholder must contribute up to the subscribed contribution in a limited liability company or the issue price of subscribed shares in a joint-stock company. Limited liability does not discharge unpaid contributions, unlawfully withdrawn capital or other liabilities imposed by law.
Section 5 — Abuse and disregard of separate personality A shareholder or controller who uses commingling, fraudulent transfers or other abuse to evade debts and seriously prejudice creditors is jointly and severally liable for debts thereby left unpaid. Sole ownership, group membership or business failure alone is insufficient. Where commingling is supported by prima facie evidence and the controller holds the records, that controller must produce evidence of separation.
Section 6 — Forms of ownership Common rules on contributions, integrity, competition and remedies apply to state-owned, mixed-ownership, employee-owned, privately owned and foreign-invested companies. Chapter VIII makes special provision for state and mixed ownership. Restrictions on market access or public assets require a legal basis.
Section 7 — Constitutional documents The articles of association bind the company, shareholders and office-holders. They may vary rules expressly made optional by law, but must not exclude minimum contribution liabilities, statutory employee seats, creditor protection, conflict-of-interest requirements or judicial remedies. Shareholders' agreements cannot prejudice third parties acting in good faith.
Section 8 — Name and registered office The name must identify a limited liability company or joint-stock company; corresponding German and English names may be registered. The registered office is the principal place of administration, and the registered address must permit actual service. A name or trade mark must not imply a state guarantee.
Section 9 — Legal representation and good-faith dealings The articles must designate a director conducting company business or a manager as legal representative, whose identity must be disclosed. Internal restrictions do not prejudice counterparties acting in good faith; the company may seek recourse for breach of duty. A replacement must be appointed within 30 days of resignation or vacancy. Withholding a company seal must not prevent replacement.
Section 10 — Branches and subsidiaries A branch has no separate legal personality; the company is liable for its debts. A subsidiary is separately liable, while its parent remains liable under contribution obligations, guarantees, tort law or the controller provisions of this Act. Use of a group name creates no additional legal person.
Section 11 — Corporate purpose and social responsibility A company must pursue sustainable corporate interests through lawful business and comply with employment, safety, environmental, consumer and data-protection duties. The articles may specify social or environmental purposes. Social responsibility must not conceal improper benefits, and profit objectives do not displace legal duties.
Section 12 — Control and public-interest companies Control means holding more than half the voting rights, determining a majority of board appointments, or exercising decisive influence over principal business policies by agreement or in practice. Persons exercising control jointly are assessed together.
A public company is a joint-stock company which lawfully offers shares to the public or whose shares are lawfully listed. Public-interest companies comprise public companies, deposit-taking and insurance companies, state-controlled companies carrying out statutory essential public services, and companies employing at least 1,000 persons under section 88. The description confers no administrative privileges.
Section 13 — Registration authorities and functions The Ministry of Economy and Industry and local governments shall provide company registration authorities within their respective powers, using an interoperable national register and unique company identifiers. Registration, state ownership functions, sectoral licensing and independent financial and competition supervision remain distinct. Registrars do not determine the commercial merits of investments.
Section 14 — Founders Individuals with the requisite legal capacity, legal persons and organisations lawfully entitled to invest may form companies. State and local investment requires lawful authorisation. Founders must agree in writing on contributions, formation expenses, proposed articles and responsibility if incorporation fails.
Section 15 — Required contents of articles The articles must state the name, office, form, purposes, capital, contributions and payment dates, share rights, governance and supervision, representation, meeting and voting rules, employee participation, distributions and dissolution procedures. Transfer restrictions and special rights must be expressly recorded, rather than imposed solely through undisclosed internal documents.
Section 16 — Application An application must include signed articles, founder and beneficial-ownership information, consent of directors and supervisory office-holders, and evidence of the address and contributions. Any legally required prior licence must be included. Unrelated party-political, religious or ethnic information must not be required.
Section 17 — Time limits and review The registrar must decide within 5 working days of receiving complete documents. Verification of authenticity permits one reasoned extension of no more than 10 working days. Required corrections must be listed together. Refusal or delay is subject to administrative remedies and judicial review; delay does not itself incorporate a company.
Section 18 — Pre-incorporation transactions A person transacting for a company in formation is ordinarily liable; founders who jointly authorised the transaction are jointly and severally liable. Following incorporation, the company may assume it in writing, with release of the original obligor requiring creditor consent. Contributions received for an unsuccessful formation must be returned, with necessary reasonable expenses allocated under the founders' agreement.
Section 19 — Changes to registered particulars Changes must be filed within 30 days; a change requiring registration for its validity must not be implemented beforehand. Other registrable but undisclosed changes cannot prejudice an unaware third party acting in good faith. Replacement of a legal representative does not require the former representative's consent or signature.
Section 20 — Public register The public may inspect without charge the company's name, identifier, office, status, representative, directors, governance arrangements, capital and payment status, and reports required to be public. Subscribed and paid-up amounts must be distinguished. Registered capital must not be presented as current net assets or certification of state creditworthiness.
Section 21 — Beneficial ownership A company must identify and report the natural persons ultimately holding, directly or indirectly, more than 25% of capital or voting rights, or otherwise exercising actual control, together with the control chain. If proper enquiries identify no natural controller, the enquiries and responsible senior management must be recorded, without falsely describing them as owners. Changes must be reported within 30 days.
Section 22 — Ownership information and privacy Full beneficial-ownership data are accessible to legally authorised supervisory, judicial and anti-money-laundering bodies. Other applicants asserting a specific transactional or litigation interest require a necessity assessment. Public director lists must exclude identity-document numbers, home addresses, bank details and specimen signatures. Correction, retention and access logs are supervised by the National Data Protection Commission.
Section 23 — Electronic procedures and language services Registration, notices, meetings and signatures may be electronic if identity, integrity, retention and subsequent access are secured; a reasonable non-digital alternative must be available. Registrars must provide constitutionally required Chinese, German, English and Cantonese public services. Uniform rules on application languages and necessary translations must be published in advance.
Section 24 — Annual filings and correction Companies must annually report their status, capital and control information. An omission first requires notice to correct and does not automatically end legal personality. Revocation of registration procured by fraud requires a hearing and effective remedies. Existing dealings and debts remain subject to lawful winding up; revocation does not erase creditors' claims.
Section 25 — Capital of limited liability companies A limited liability company has between 1 and 50 shareholders and non-zero subscribed capital denominated in Einsen Yuen. There is no general minimum capital requirement; statutory capital and licensing requirements for financial and other high-risk sectors remain applicable. If membership exceeds 50, the company must convert into a joint-stock company or lawfully reduce membership within 6 months.
Section 26 — Payment period Contributions to a limited liability company must be fully paid within 3 years of incorporation or subscription for an increase; the articles may shorten that period. Payment arrangements and changes must be disclosed. Extensions must not evade overdue contributions or creditors' acceleration rights.
Section 27 — Eligible contributions Contributions may consist of money or property that is lawfully transferable, independently capable of valuation and deliverable to the company. Services, personal credit, unobtained administrative licences and inalienable public assets cannot constitute capital. Intellectual property, use rights and data-related rights require proof of title, duration and lawful transferability.
Section 28 — Non-cash valuation Non-cash contributions require a written valuation method. Public-interest companies and contributions involving public assets require a professionally qualified valuer free of conflicts. The contributor must make good a material shortfall. Founders, directors or valuers knowingly participating in overvaluation are liable for resulting loss according to fault.
Section 29 — Verification and records Directors must verify delivery, transfer of title and disclosed encumbrances, update contribution records and provide evidence to shareholders. A payment circulated out again is not valid merely because it briefly entered a bank account. Ordinary business expenditure is not an unlawful withdrawal.
Section 30 — Calls for overdue contributions Directors must give written notice specifying the overdue amount, basis and a payment period of at least 60 days. The shareholder must pay and compensate resulting loss. Directors who knowingly fail to make a call are liable for resulting damage according to fault.
Section 31 — Forfeiture and replacement After the payment period, disinterested directors may resolve to cancel the interest corresponding to the unpaid contribution, give written notice and update the register. The shareholder may seek judicial review within 30 days of receipt. The interest must be transferred or capital lawfully reduced within 6 months. Others must not bear the shortfall without consideration; accrued damages liability survives.
Section 32 — Acceleration Where a company cannot pay debts as they fall due and has insufficient assets or manifestly lacks payment capacity, the company or a creditor with a due claim may demand payment of outstanding contributions before their agreed dates. Payments become company assets. Once collective insolvency or liquidation is underway, recovery is through the administrator, without preferential diversion to individual creditors.
Section 33 — Withdrawal of capital Shareholders must not withdraw capital through fictitious dealings, unjustified related-party loans or other devices. Lawful distributions, reductions, repurchases and liquidation payments require their respective procedures. Merely relabelling a transaction does not avoid restrictions.
Section 34 — Transfers in limited liability companies Unless the articles lawfully provide otherwise, a transfer to an outsider requires notice to other shareholders of quantity, price, payment and other material terms. They have 30 days to purchase on equivalent terms; silence waives that opportunity. Competing purchasers share in proportion to existing holdings unless they agree otherwise. Restrictions must leave a reasonable exit route.
Section 35 — Transfers of unpaid interests The transferee assumes contributions not yet due; the transferor has secondary liability if payment is not made when due. For overdue or defective contributions, the transferor and a transferee who knew or ought to have known are jointly and severally liable to make good the deficiency. Good faith does not discharge ordinary contribution obligations lawfully assumed.
Section 36 — Succession and ownership records Interests pass by lawful succession on death. Where the articles lawfully restrict the heir's membership, a purchase at a fair price must be arranged; uncompensated forfeiture is prohibited. The company must update its ownership register within 15 days of valid evidence of transfer, succession or judgment and must not obstruct ownership by refusing entry.
Section 37 — Formation of joint-stock companies A joint-stock company may be formed by 1 or more founders. Formation shares subscribed by founders must be fully paid before registration. Issue prices and issued capital must be stated; authorised but unissued or unpaid amounts must not be represented as paid-up capital. Public fundraising additionally requires section 126 compliance.
Section 38 — Classes of shares Ordinary shares carry one vote each and equal rights within a class. The articles may provide preferences, conversion or restricted voting rights with explicit terms and risks. Non-voting shares must not exceed half of all issued shares. Ordinary shares may not carry multiple votes; public special shares require sections 109 and 110.
Section 39 — Class protection Changes materially impairing a class's dividend, voting, conversion, redemption or residual rights require company approval and consent representing at least two-thirds of all eligible votes in that class. Merger, targeted issuance or renaming must not circumvent this protection. If agreed preference dividends remain unpaid for 2 consecutive financial years despite distributable profits, the affected shares regain ordinary voting rights until arrears are paid.
Section 40 — Equity incentives Shareholders must approve incentive plans specifying beneficiaries, pricing, vesting, departure and dilution. Treatment of unvested rights must not retrospectively remove earned remuneration. Directors must not approve their own additional benefits. Employee share purchases are also governed by section 97.
Section 41 — Basic rights Shareholders have statutory rights to information, voting, proposals, appointments, returns, transfers and residual assets. Shareholders in comparable circumstances must be treated equally. Majority decisions must not be directed solely at depriving a minority of lawful interests.
Section 42 — Inspection Any shareholder may inspect and copy the articles, ownership register, minutes, resolutions and financial reports. Any limited liability company shareholder, or joint-stock shareholders holding together at least 1% for 180 consecutive days, may inspect accounting books and vouchers for a proper purpose, assisted by professionals bound by confidentiality. Access must be arranged within 15 days.
Section 43 — Refusal of access A refusal of access to accounting records must identify a concrete risk of abuse in writing within 10 days; a bare assertion of commercial secrecy is insufficient. The court may order access, using redaction, confidentiality undertakings or professional inspection to protect necessary secrecy without defeating remedies. No holding threshold applies to other documents required to be disclosed.
Section 44 — Powers of shareholders Shareholders decide amendments to the articles, capital changes, merger, division, conversion, dissolution, major asset transactions and profit distributions; elect directors and supervisors other than employee representatives; approve their remuneration; and appoint external auditors. Core statutory powers must not be permanently delegated wholesale to a controller or manager.
Section 45 — Annual and extraordinary meetings There must be at least one general meeting per financial year, considering the annual financial report within 6 months of year-end. Shareholders representing at least 10% of voting rights, or the supervisory body, may request an extraordinary meeting with specified business. The board must issue notice within 30 days.
Section 46 — Failure to convene If the board fails, the supervisory body must issue notice within 15 days. If it also fails, requesting shareholders may convene the meeting themselves, with the company supplying ownership records and necessary facilities and paying reasonable costs. If no supervisory body exists or self-convening is impracticable, a court-appointed convenor may be requested.
Section 47 — Notice and agenda All shareholders must receive 15 days' notice in a limited liability company and 21 days' notice in a joint-stock company, including arrangements, agenda and material documents. All persons entitled to participate may agree in writing to shorter notice. Substantive unannounced business must not be voted on unless all eligible voters expressly agree.
Section 48 — Shareholder proposals Shareholders representing at least 3% of voting rights may submit specific proposals at least 10 days before the meeting. The convenor must promptly notify all shareholders. Rejection requires reasons based on illegality, lack of shareholder competence or complete duplication of notified business, and remains subject to judicial remedy.
Section 49 — Voting in limited liability companies Votes follow contribution proportions unless all shareholders agree on another lawful arrangement in the articles. Ordinary resolutions require more than half of all eligible votes. Amendments, capital changes, merger, division, conversion, dissolution and major asset transactions under section 44 require at least two-thirds of all eligible votes. The latter threshold may be increased but not reduced.
Section 50 — Voting in joint-stock companies A quorum requires more than half of all eligible votes to be represented. Ordinary resolutions require more than half the represented votes. Special matters listed in section 49 require at least two-thirds of represented votes and affirmative votes exceeding one-third of all eligible votes. The articles may raise thresholds. Abstentions count as represented votes; treasury shares have no vote.
Section 51 — Cumulative voting Cumulative voting is required when public companies elect at least two shareholder-elected directors, or when shareholders holding at least 5% request it in another company. Each share or voting unit carries votes multiplied by the seats contested, which may be concentrated or divided. Independent seats are elected separately; employee seats are excluded. Candidates are elected by votes received; ties are settled by public drawing of lots.
Section 52 — Proxies and remote participation A shareholder may appoint an expressly authorised proxy or use remote participation with identity verification and real-time questions. Management must not complete blank proxies or compel uniform voting. Technical failure capable of affecting the result requires adjournment, supplementary voting or a fresh vote, with records retained.
Section 53 — Minutes and evidence Minutes must record attendance, proxies, conflicts, voting denominators and results, be signed by the chair and recorder, and be retained for at least 10 years. Dissent must not be withheld or altered, and consent must not be fabricated afterwards.
Section 54 — Unanimous written resolutions A non-public company may replace a meeting with a written resolution signed by all eligible shareholders, accompanied by complete information and entered in the records. This does not displace class consent, employee consultation, creditor notice or public disclosure. A public company's annual general meeting cannot be replaced in this way.
Section 55 — Defective resolutions A resolution contrary to mandatory law is void. A purported resolution involving no actual vote, fabricated votes or insufficient statutory support is not adopted. An affected shareholder may challenge procedural or articles-related defects within 60 days of knowledge and no later than 1 year after the resolution. Minor defects affecting neither participation nor outcome do not justify annulment. The annulment deadlines do not apply to declarations of nullity or non-adoption.
Section 56 — External effects The company must correct resolutions and registration following judgment and pursue responsible persons. Invalidity ordinarily does not prejudice transactional rights already acquired by a third party in good faith. Participants in fraud or persons aware of excess of authority are not protected. The court may provide necessary transitional arrangements for safety and essential services.
Section 57 — Simplified governance A limited liability company which is neither public-interest nor state-controlled, has fewer than 100 employees and no more than 20 shareholders may have a sole executive director and, with all shareholders' express consent, no separate supervisor. Records, contribution verification, conflict requirements and litigation liabilities remain. Other companies require a board and supervision under section 65.
Section 58 — Board size A board comprises between 3 and 15 directors. A public-interest company must have 6, 9, 12 or 15 to accommodate independent and employee seats. The articles must specify seats and appointment arrangements. Existing articles must not prevent expansion needed to meet statutory proportions.
Section 59 — Appointment and term Non-employee directors are elected by shareholders for terms of no more than 3 years, renewable. Employee directors are elected under section 94. The original appointing constituency may lawfully remove a director, giving reasons; shareholders cannot remove an employee-elected director in place of the employees. Remuneration or contractual disputes over improper removal do not prevent lawful replacement.
Section 60 — Eligibility and disqualification Directors, supervisors and senior managers must be natural persons with full civil capacity. A current judicial disqualification, or conviction for misappropriation, fraud, corruption, falsified accounts or serious market-order offences with less than 5 years since completion of sentence, bars office. Political views, language or trade-union status do not.
Section 61 — Board functions The board sets business, investment and risk policies, appoints and removes managers, establishes internal controls, prepares financial and distribution proposals and implements lawful shareholder resolutions. Instructions from shareholders, ownership agencies or political parties do not discharge statutory judgement or responsibility.
Section 62 — Chair Directors elect their chair to organise meetings and procedure. The title confers no exclusive management authority. Each director has one vote; the chair has no second or casting vote. A majority of directors may designate another chair if the incumbent is absent or refuses to convene.
Section 63 — Board procedure Boards meet at least quarterly, ordinarily giving all directors 7 days' notice and supporting documents. More than half of all directors eligible to vote must participate, and approval requires more than half of all such directors. The articles may raise thresholds. Urgency must be recorded and a real opportunity to participate secured; it must not exclude employee or independent directors.
Section 64 — Management and delegation Managers conduct daily business under express board or sole-director authority. Major investment, related-party and capital powers must not be delegated without limits. Delegation does not discharge board supervision. Resignation of a manager does not itself suspend operations; interim arrangements must be recorded.
Section 65 — Choice of supervisory arrangements Except under section 57, the articles must choose a supervisory board or a board audit committee. Either must have the independent examination, information-demand and company-action powers required by sections 66 and 67. Changing the model requires a special shareholder resolution and must not interrupt investigations or diminish employee rights.
Section 66 — Supervisory board The supervisory board has 3 to 9 members, restricted to 3, 6 or 9 in public-interest companies. Directors, managers, the officer responsible for finance and their spouses may not serve. With at least 100 employees, at least one-third are employee-elected; shareholders elect the remainder. At least one member must have financial expertise, and a majority in public-interest companies must satisfy section 68 independence requirements. Supervisors may inspect, investigate, engage experts, require correction and pursue directors on behalf of the company, but may not take over daily management.
Section 67 — Audit committee The audit committee has at least 3 directors, none serving as manager or financial executive, including at least one with financial expertise. A majority in public-interest companies must be independent. In companies subject to section 93, at least one member must be an employee director. The committee independently appoints investigators and receives necessary funding; management may not screen documents before disclosure.
Section 68 — Independent directors At least one-third of a public-interest company's directors must be independent and separately elected by shareholders. Neither they nor close relatives may, during the previous 3 years, have been managers, material suppliers or professional advisers to the company or its controller, or have another material relationship impairing judgement. Ordinary director remuneration is permitted. Employee directors cannot also count as independent; independence must be disclosed annually.
Section 69 — External audit and internal supervision Annual accounts of public-interest and state-controlled companies require an independent qualified auditor. Other companies may resolve to obtain an audit; shareholders representing at least 10% with specific material concerns may seek a court-ordered special audit. External audit does not replace board or supervisory responsibilities.
Section 70 — Vacancies and interim appointments If membership falls below statutory requirements, the proper replacement process must begin within 30 days; interested persons may seek court-appointed interim office-holders where necessary. Continuing incumbents may maintain safety, wages, due debts and ordinary necessary operations only. They must not use continuation to approve major restructuring or distributions, or permanently occupy employee seats.
Section 71 — Remuneration Shareholders determine director and supervisor remuneration; disinterested directors determine manager remuneration. Office-holders must not vote on their own additional pay. Public-interest companies disclose remuneration policy, ranges for senior posts and the basis of comparisons with employee pay, without identifying ordinary employees' individual salaries.
Section 72 — Disclosure and abstention Board and supervisory members must disclose material interests of themselves, close relatives and controlled organisations in proposed decisions. Interested members do not vote and their votes are excluded from that item's denominator. If fewer than 3 disinterested directors remain, disinterested shareholders decide. Ordinary employee status alone is not a personal conflict requiring abstention.
Section 73 — Guarantees Guarantees require clear authority and aggregate limits under the articles, with recorded benefits, risks and consideration. Guarantees for shareholders, controllers or their associates require disinterested shareholder approval and section 81 compliance. An internal breach does not automatically prejudice a good-faith creditor who made reasonable checks, and does not bar recourse against those responsible.
Section 74 — Decision records Directors and supervisory bodies must retain supporting information, risk assessments, dissent, expert advice and decisions. Any member may require their reservation to be recorded. Oral instructions, private messages or retrospective signatures must not replace legally required deliberation.
Section 75 — Loyalty Directors, supervisors and senior managers must act loyally for the company's lawful purposes, without appropriating assets, taking secret benefits or favouring their nominator. Corporate interests include long-term business, statutory employee interests and lawful public-service mandates.
Section 76 — Care Office-holders must exercise the care of a reasonable professional in a comparable role, understand finances, material risks and compliance, and use any particular skills they possess. Nominal appointment, unread documents or reliance on others does not alone excuse breach.
Section 77 — Business judgement A commercial decision made without personal conflict, on proportionate information and in good faith for lawful corporate interests is not negligent merely because it fails. Protection does not extend to illegality, concealment, abandonment of necessary risk review or obedience to instructions known to be adverse.
Section 78 — Opportunities and competition Corporate opportunities obtained through office must not be diverted to personal or third-party benefit without full disclosure and disinterested shareholder approval. The same applies to directly competing business during office. Post-office restraints require necessary scope, duration and any legally required compensation, and must not prohibit employment indefinitely.
Section 79 — Bribery and improper political finance Companies must not bribe, maintain off-book funds or evade political-finance rules through related parties. Where corporate election donations are prohibited, employees, foundations or controlled organisations must not be used as conduits. Ordinary expression on public issues remains governed by electoral and free-expression rules.
Section 80 — Persons acting as directors A controller who actually directs principal business and compels directors to follow instructions bears corresponding loyalty and care duties for the matters controlled. Ordinary shareholder voting and lawful public policymaking do not alone constitute operational management. Unlawful directions and assistance remain subject to liability.
Section 81 — Material related-party transactions Related-party transactions must disclose the relationship, consideration, alternatives and corporate impact. Transactions with the same related party accumulating to at least 5% of the latest audited net assets within 12 months require disinterested shareholder approval. If net assets are zero or negative, all related-party dealings outside ordinary arm's-length terms require approval. Ordinary wages and routine small services on uniform public terms are excluded.
Section 82 — Substantive fairness Material related-party dealings of public-interest companies require prior reasoned review by independent directors or independent supervisors. Disclosure or approval does not automatically protect manifest unfairness, fraud or prejudice to creditors. Where there are no disinterested shareholders, an independent professional opinion and complete records are required, and the controller bears the burden of proving fairness; universal conflicts must not create an accountability vacuum.
Section 83 — Financial assistance for acquisitions Loans, guarantees or other assistance for acquiring the company's or its parent's equity require disclosed commercial reasons, a special shareholder resolution and section 116 compliance. Public companies must not provide such assistance except under a lawfully approved, fair and voluntary employee ownership scheme. Assistance must not strip capital or shift acquisition costs onto creditors.
Section 84 — Reliance, insurance and limits on exemption Reasonable reliance is permitted on professional advice from a carefully selected adviser where no evident warning signs exist; warnings require enquiry. Companies may purchase office-holders' liability insurance. Articles, shareholder decisions or insurance must not exempt fraud, deliberate illegality, appropriation, improper benefits or statutory liability to third parties.
Section 85 — Compensation Breach of duty causing loss requires compensation. Persons whose joint intention or joint negligence causes the same loss are jointly and severally liable, with contribution according to fault and causal responsibility. Directors are not personally liable merely for ordinary transactional loss to outsiders; direct torts, fraud and specific statutory liabilities remain. The company and shareholders must not recover twice for the same loss.
Section 86 — Financial distress On discovering possible inability to pay debts when due, directors must promptly assess the position, preserve assets and stop unreasonable distributions or risk shifting. If section 32 conditions exist without a credible short-term rescue, an application for the lawful insolvency or judicial winding-up procedure must be made within 30 days of actual or constructive knowledge. Waiting for administrative rescue cannot justify indefinite delay. Preferential payments to associates and destruction of records are prohibited.
Section 87 — Basic safeguards Companies must protect trade-union organisation, collective bargaining, safety and equal treatment. Works councils, employee directors and ownership schemes replace neither trade unions nor individual employment rights and do not make employees liable for company debts.
Section 88 — Workforce and group calculation Workforce size is the average of domestic month-end headcounts over the preceding 12 months, including part-time workers and agency workers used continuously for at least 6 months, without double counting. Newly formed companies use their actual months. Parent-company thresholds aggregate domestic controlled undertakings; subsidiaries retain their own duties. Splitting, sham outsourcing or temporary transfers must not evade requirements.
Section 89 — Works council A company with at least 100 employees must have a works council elected by secret ballot of all employees. An existing employee representative assembly meeting statutory election, information and independence safeguards may perform this function without duplication. Below 100, all employees or their freely chosen representatives retain basic information and consultation rights.
Section 90 — Information and consultation The works council must receive information at least quarterly on business, employment, safety and training. Working-time arrangements, safety measures, welfare and workplace personal-data rules require consultation with lawful employee representatives. Consent requirements under legislation or collective agreements remain and must not be reduced to mere consultation by this Act.
Section 91 — Prior consultation on major changes Proposals likely to cause substantial redundancies, relocation, closure, merger or automation replacing jobs ordinarily require reasons, impacts, alternatives and adjustment plans at least 30 days before a final decision, with meaningful consultation of the works council and trade union. Employees may propose alternatives and obtain necessary professional assistance. Announcing a settled decision is not prior consultation.
Section 92 — Response and emergencies Before deciding, the company must respond in writing to principal employee proposals, explaining acceptance or rejection and mitigating measures. Imminent safety risks or unavoidable immediate financial crisis permit minimum necessary action first, with immediate notice and consultation within 7 days, supported by evidence explaining the urgency. Ordinary market pressure is not automatically an emergency.
Section 93 — Employee directors In companies with at least 300 employees, and state-controlled companies with at least 100, at least one-third of all directors must be employee-elected. Articles or collective agreements may increase but not reduce representation. Employee directors have equal information, proposal, voting and responsibility rights and duties. A parent subject to the group threshold must involve domestic group employees in electing its employee seats.
Section 94 — Elections All relevant employees vote by secret ballot, with one ballot each and votes for no more candidates than available seats. Candidates are elected in order of votes received; ties are resolved by public drawing of lots. A trade union or 10 employees jointly may nominate. Terms do not exceed 3 years. Removal requires support from more than half of the original electorate; shareholders or management cannot appoint substitutes. The same rules apply, with necessary adaptations, to works council elections.
Section 95 — Protection in office Companies must provide reasonable time, training, professional advice and necessary expenses. Candidacy, dissent, lawful disclosure or performance of representative duties must not lead to dismissal, demotion or reduced pay. In a dispute, the company must establish an independent legitimate reason for adverse action. A dismissal dispute arising from lawful representative duties does not immediately vacate the seat; the court may make interim arrangements.
Section 96 — Representative duties Employee directors and supervisors owe the same loyalty, care and necessary confidentiality duties and may report to employees without disclosing protected content. Blanket secrecy over all business information is prohibited. General pay or restructuring discussions do not themselves require employee representatives to abstain; individual remuneration or personal litigation with the company does.
Section 97 — Voluntary ownership Employees must not be compelled to buy shares, contribute wages legally due or guarantee company borrowing with personal credit. Ownership vehicles must disclose charges, risks, exit, voting and asset-separation arrangements. Pooled nominees must not eliminate beneficiaries' oversight. Statutory employee seats do not depend on share ownership.
Section 98 — Employee remedies A trade union, works council or affected employee may complain to the competent labour authority and seek court orders for information, elections, cessation of retaliation or proper consultation. Where major procedures are evaded and irreparable harm is imminent, the court may suspend the relevant decision while considering safety and essential services. This does not confer a general business veto on representatives.
Section 99 — Categories A wholly state-owned company under this Act has all its equity held by a single lawfully authorised state or local public ownership body. State control is determined under section 12. A state minority holding does not itself establish control. A mixed-ownership company combines public and non-public capital.
Section 100 — Ownership representation The State Capital Management Commission lawfully exercises central ownership functions; lawfully designated local bodies exercise local public ownership functions. The Ministry of Finance manages state capital returns and fiscal accounts; the National Development Commission co-ordinates planning. Neither may exercise company voting powers without authorisation. Internal documents must not create additional local fiscal obligations.
Section 101 — Separation of ownership and regulation Ownership bodies exercise shareholder powers and must not simultaneously act as independent competition or sectoral regulators of their investees. Licensing, procurement and competition enforcement require neutral rules. Statutory distinctions for public mandates must be explicit, necessary and reviewable.
Section 102 — Sole public ownership In a wholly state-owned company, the lawful ownership body exercises shareholder powers through traceable written decisions. The absence of a multi-person meeting does not remove shareholder functions. Amendments, capital, merger, division, conversion, dissolution and disposal of core assets must not be delegated wholesale to management. Employee-elected seats remain protected.
Section 103 — Professional governance A majority of directors of a state-controlled company must not hold executive management posts in that company. Appointment requires qualifications, conflict checks and transparent procedures. Public-interest companies must also satisfy independent-director quotas; employee directors do not count as external independents. A change of government does not automatically end directors', managers' or project teams' terms, without preventing lawful removal and accountability.
Section 104 — Public-service mandates Universal transport, energy or other essential services assigned to a company must rest on legislation, lawful delegation or an enforceable public-service contract defining scope, quality, duration, affordability, responsible authority and compensation. General policy slogans do not authorise unlimited costs. Corresponding protections also apply to non-state providers lawfully contracting to perform such services.
Section 105 — Costing and funding Public mandates and competitive business require separate accounts. Compensation must reflect verifiable net costs of efficient delivery and reasonably necessary capital costs, deducting attributable revenue and exclusive benefits, to avoid undercompensation and excessive subsidy. Funding, adjustments, arrears and audit must be disclosed and supported by a lawful budget or contract. This creates no unauthorised unlimited state guarantee.
Section 106 — Continuity Changed mandates, unpaid compensation or financial distress require time-limited co-ordination and lawful remedies involving the authority, owner and company, with arrangements for continuation, transfer or emergency provision. Essential services must not cease without statutory procedures. Directors must not be required to conceal insolvency or borrow unlawfully to maintain them.
Section 107 — Public-asset disposals Sales of public shares, core facilities or control require lawful authority, independent valuation, conflicts procedures and appropriate open competition. Assets legally reserved to public control cannot be privatised by corporate resolution alone. Local powers, funding and interprovincial backbone infrastructure additionally require constitutional and planning-law procedures. Ordinary commercial disposals do not all require parliamentary votes.
Section 108 — Minority interests in mixed ownership State controllers must disclose public mandates, special rights, compensation and related-party dealings and treat other investors fairly. Public mandates must not transfer minority interests without compensation; lawful new burdens require legally determined compensation or exit arrangements. Private controllers must likewise not misappropriate public assets through mixed ownership.
Section 109 — Public special shares Only critical networks, strategic-resource or defence enterprises expressly specified by legislation may have authorised public special shares, commonly called golden shares. The holder, matters, conditions and a term of no more than 5 years must be specified. Renewal requires reassessment under the original authorisation procedure. New restrictions on existing private holdings must respect property rights, due process and any legally required compensation.
Section 110 — Limits on special rights Special rights are confined to authorised matters involving core-asset transfers, control or service integrity. They confer no general veto over routine procurement, ordinary appointments, wage bargaining or lawful distributions. Exercise requires written reasons, necessity and a time limit and is judicially reviewable. Dividend preference alone creates neither state control nor veto rights.
Section 111 — State credit and competition State companies ordinarily meet their own debts; state and local authorities answer only for obligations lawfully and expressly assumed. Borrowing and guarantees must be disclosed and must not constitute off-budget government financing. Public ownership exempts no company from insolvency, competition, labour, safety or environmental rules. Special service-continuity arrangements require legislation.
Section 112 — Planning and corporate powers National development tasks must distinguish statutory duties, shareholder decisions and public-service contracts, identifying funding and whole-life costs. Restructuring, asset sales or withdrawal of investment must not evade adjustment procedures under the National Development Planning Act. Planning does not displace statutory responsibilities to creditors and employees.
Section 113 — Accounts and controls Companies must maintain true and complete books and annual accounts under uniform accounting standards, separate company, shareholder and related-party funds, and record guarantees and contingent liabilities. Secret accounts, concealed debts and unverifiable digital substitutes for required records are prohibited.
Section 114 — Reporting and publication Annual accounts must be submitted to shareholders within 6 months of year-end, with audit opinions where required. Public-interest companies publish annual financial, governance, material-risk and public-mandate reports. Other companies provide full accounts to shareholders and submit statutory registration summaries. Public funding and material control risks must not be concealed wholesale as commercial secrets.
Section 115 — Distributable profits Distributions are limited to cumulative realised profits recognised under accounting standards after cumulative losses, tax and mandatory reserves. Unrealised valuation gains must not be directly distributed. Payment must be made within 6 months of shareholder approval unless a reasonable different arrangement is specified, and must still satisfy section 116 when made.
Section 116 — Solvency test Following dividends, repurchases, capital returns or section 83 assistance, net assets must not fall below legally protected capital and reserves, and there must be reasonable grounds to expect debts to be paid when due over the next 12 months. Capital-return payments are tested against protected capital after the lawful reduction. Directors must provide a reasoned written statement accounting for known contingencies, wages, safety maintenance and public-service duties; unsecured hopes of rescue are insufficient.
Section 117 — Unlawful distributions A shareholder who knew or ought to have known that a distribution was unlawful must repay it. The company may seek recourse against decision-makers at fault. An ordinary recipient acting in good faith without reasonable means of knowing remains subject to civil-law unjust-enrichment and other mandatory safeguards; this qualification does not excuse disguised capital extraction arranged by a controller.
Section 118 — Statutory reserve Each year, 5% of after-tax profits remaining after losses must be transferred to a statutory reserve until it reaches 25% of paid-up capital. It may cover losses or be lawfully capitalised, but must not be distributed directly. Low-capital companies must still maintain reserves appropriate to actual risks; specialist financial and safety reserves follow their particular laws.
Section 119 — Capital increases and pre-emption Increases require a special resolution explaining purpose, price, payment period and dilution. Subject to existing class arrangements, existing shareholders have at least 20 days to subscribe proportionately on equivalent terms. Limitation or exclusion requires a special resolution, specific corporate-interest reasons and a fair price. Controller-targeted issues also require related-party procedures.
Section 120 — Capital reduction and creditors A reduction requires a special resolution and a balance sheet. Known creditors must be individually notified within 10 days and public notice given within 30 days. Creditors have 30 days from receipt, or 45 days from public notice if not notified, to seek proportionate security or payment for claims not yet due that are materially endangered by the reduction. No shareholder payment or release of contributions is permitted until objections are resolved, secured or judicially determined.
Section 121 — Reduction to absorb losses A reduction solely to absorb accounting losses must not transfer assets to shareholders, release unpaid contributions or create fictitious distributable profits. Section 120 decision, notice and registration requirements still apply. Later distributions remain subject to the solvency test.
Section 122 — Acquisition of own interests Except for lawful reduction, dissenting-shareholder purchases or merger, own-interest acquisitions require a special resolution, distributable assets and section 116 compliance. Treasury holdings must not exceed 10% of issued equity and must be transferred or cancelled within 1 year. They carry no voting or dividend rights. Any reduction of registered capital requires the capital-reduction procedure.
Section 123 — Bonds and debt instruments Terms must specify principal, interest or return formula, maturity, ranking, security, default and use of funds. Risk-bearing returns must not be advertised as guaranteed. Issuance replaces neither financial licensing, public-offer procedures nor statutory debt and guarantee restrictions.
Section 124 — Bondholder protection Public bond issues require a conflict-free representative and meeting rules protecting information, default remedies and collective enforcement. Changes to principal, interest, maturity or security require consent under issue terms and law and must not be imposed arbitrarily afterwards by ordinary majority. Rights not validly delegated remain individually enforceable.
Section 125 — Convertible instruments Convertible debt, options and subscription rights require prior special approval specifying maximum share numbers, conversion price, period and adjustment formula, with disclosure of maximum dilution. Conversion must not circumvent class rights, public special shares or employee participation.
Section 126 — Public offers and listing Public offers of shares or bonds and listing require the statutory procedures of the independent financial regulator under securities legislation and true, complete offering information. Incorporation is not fundraising authorisation. Where no legislative basis for the requisite procedure exists, this Act alone does not permit public fundraising.
Section 127 — Offering and market integrity Issuers, office-holders and professional intermediaries must not misstate or omit material facts, engage in insider dealing or market manipulation, or misuse undisclosed employee information. Liability for resulting loss follows fault, statutory evidential rules and securities legislation.
Section 128 — Proceeds and material changes Proceeds must follow disclosed purposes; material changes require approval by the originally competent body and investor notice. Public-mandate funding also requires restricted-use and audit compliance. Office-holders aware of material changes affecting investment decisions must disclose promptly under applicable duties and must not inform controllers selectively.
Section 129 — Group transparency and separation Parents must disclose controlled undertakings, control chains and material dealings. Each company must maintain separate accounts, property and decisions. Shared branding, service centres or management systems do not remove individual responsibility.
Section 130 — Subsidiary interests A parent must not require a subsidiary, without reasonable consideration, to absorb group losses, surrender opportunities or pay other members' debts. Concrete disadvantages from lawful group co-ordination require enforceable, full and timely compensation, rather than speculative future group success. Subsidiary directors retain independent duties.
Section 131 — Cash pooling Group cash pools require written limits, interest, terms, withdrawal rights and daily liquidity records. Each participant must retain access to funds needed for its obligations. Wages, safety, public-service and restricted funds must not be diverted without safeguards. Upstream transfers must stop when solvency is endangered, followed by lawful action.
Section 132 — Consolidation and guarantees Controlled groups must prepare consolidated accounts under accounting standards and disclose material cross-guarantees and risk concentrations. Consolidation does not itself make a parent liable for every subsidiary debt. Express guarantees, torts and abuse remain actionable. Group guarantees must comply with section 73.
Section 133 — Merger A merger plan must identify the surviving or new company, exchange or consideration, valuation, debts, employees and public-service arrangements. Each company requires a special resolution. Creditors receive notices within section 120 periods and proportionate protection against material prejudice. On registration the successor takes rights and obligations, including unnotified debts.
Section 134 — Division Division must specify allocation of assets, liabilities and employees and satisfy special-resolution, consultation and creditor-notice requirements. Successors are jointly and severally liable for pre-division debts unless the creditor expressly agrees otherwise. Internal allocation cannot unilaterally prejudice creditors.
Section 135 — Major asset transactions A special shareholder resolution is required for linked transactions over 12 months involving at least 25% of the latest audited total assets, changing the principal business or disposing of a core network. Transactions must not be split to avoid approval. Related-party, public-asset, competition-review and consultation requirements apply separately.
Section 136 — Conversion Conversion between limited liability and joint-stock forms requires the new form's shareholder, contribution and governance conditions, a special resolution and registration. Legal identity, existing debts, employment contracts and acquired rights continue. Conversion cannot restart contribution periods or cancel employee seats.
Section 137 — Cross-border restructuring Cross-border merger, conversion or migration must preserve effective remedies for existing domestic creditors, tax, employees and public-service rights. Recognition and succession require legislation or an applicable treaty. Otherwise lawful transfer, formation and winding-up procedures are necessary; foreign registration alone cannot extinguish the domestic entity or its debts.
Section 138 — Dissenting shareholders A shareholder voting against merger, division, conversion, disposal of the principal business or material alteration of the articles' business purpose may request a fair-price purchase within 30 days of the resolution. A shareholder unable to vote for lack of lawful notice may likewise object in writing and request purchase, with time running from knowledge subject to a 1-year longstop. If no agreement is reached within 60 days, court valuation may be sought within the following 30 days. The transaction itself must not depress valuation and arbitrary minority discounts are prohibited. Company payment must protect creditors; where necessary the controller must purchase instead.
Section 139 — Grounds for dissolution Dissolution arises on an articles-based expiry or event, lawful shareholder resolution, merger or division requiring it, lawful withdrawal of operating status or court order. Whether loss of a licence dissolves the whole company depends on its statutory scope; a single activity licence is not equivalent to all legal personality.
Section 140 — Deadlock Shareholders holding at least 10% of voting rights may seek dissolution where principal bodies persistently cannot decide, continued existence causes serious shareholder prejudice and other means are insufficient. The court first considers reasonable purchase, procedural repair or less harmful section 156 measures, protecting employees and creditors. One failed vote alone is insufficient.
Section 141 — Duty to commence winding up Except where merger or division produces direct succession, directors must establish and disclose a liquidation committee within 15 days of the dissolution ground. Articles or shareholders may lawfully designate other suitable persons without removing directors' duty to initiate promptly. Activities during winding up are limited to realisation, preservation and necessary business conducive to repayment.
Section 142 — Judicial liquidators Failure to wind up, serious unfairness or loss of control over records permits shareholders, creditors, employee representatives or authorised authorities to request an independent court-appointed liquidator. The court sets scope, reporting dates and reasonable remuneration. The liquidator owes loyalty and care under judicial supervision.
Section 143 — Proof of claims Within 10 days of establishment, liquidators must notify known creditors, and publish notice within 30 days. Known creditors have 30 days after receipt; others have 45 days after publication to submit claims. Reliable employee claims must be entered proactively, without treating failure to submit as waiver. Late claims do not automatically expire, but cannot generate unlimited recovery from good-faith shareholders after lawful final distribution.
Section 144 — Liquidation functions Liquidators must inventory assets and debts, recover contributions and unlawful distributions, deal with contracts, preserve evidence and litigate for the company. Valuable assets must not be preferentially distributed to controllers or sold cheaply to associates. Necessary continued operations require recorded risks and costs.
Section 145 — Collective insolvency If assets cannot meet all debts, shareholder distributions must stop immediately and the court must be asked to open the applicable insolvency or judicial winding-up procedure, with assets and information transferred. Simplified removal, sham settlements or administrative directions cannot replace collective repayment.
Section 146 — Ranking Reasonable liquidation expenses are paid first, preserving secured creditors' statutory rights over specific property. Remaining assets pay employee wages, statutory compensation and social-insurance arrears, then tax, ordinary debts and legally subordinated claims, with proportionate payment within each rank. Insolvency or other special statutory priorities prevail. Shareholders receive only the residue after payment or full provision for all debts.
Section 147 — Disputed and future claims Reasonably supported disputed, unmatured or conditional claims require proportionate assets to be retained, lawfully deposited or secured, rather than ignored before shareholder distributions. An unjustified refusal to recognise them permits judicial determination and protective relief.
Section 148 — Completion and removal The final report must explain realisation, repayment, employees and service arrangements and be confirmed by the competent body before removal from the register. Records must be kept for at least 10 years. Removal does not discharge personal liability for false reports, unlawful distributions or torts.
Section 149 — Simplified removal A company with no outstanding debts, disputes, employee arrears, public mandate or unpaid tax may seek simplified removal after a signed undertaking by all shareholders and at least 45 days' public notice. Specific creditor objections must first be resolved. False undertakings make signatories jointly and severally liable for omitted debts, without shortening statutory protection of the original claims.
Section 150 — Later assets and service transfer Discovery of omitted assets or necessary litigation permits an interested person to seek judicial restoration of the registration and administration needed for realisation. Essential-service dissolution or insolvency additionally requires lawful transfer and emergency provision by the competent authority. It does not authorise asset extraction by former owners or uncompensated transfer of debts to the public.
Section 151 — Courts and procedure Civil disputes under this Act belong to ordinary courts with lawful jurisdiction, which may establish commercial divisions without adding a mandatory appeal tier. Administrative, employment and securities disputes follow their statutory procedures. Ordinary cases and appeals on points of law follow the Judiciary Act, rather than all being brought directly before the Supreme Court.
Section 152 — Personal actions Shareholders, employees and creditors whose own rights are infringed may directly seek restraint, performance, declarations or damages without first requiring company proceedings. Mere reflective share-price loss from damage to the company is ordinarily pursued by the company or through derivative proceedings, avoiding duplicate recovery.
Section 153 — Derivative standing Any limited liability company shareholder, or joint-stock shareholders holding individually or together at least 1% for 180 consecutive days, may bring proceedings for the company. Courts may preserve standing following unlawful expulsion or dilution intended to prevent relief. Section 154 urgency removes the holding-period requirement, but the claimant must have held at the time of the wrong or lawfully succeeded to that holding.
Section 154 — Derivative procedure A written request must first be made to disinterested supervisors or directors. Proceedings may be brought if appropriate action is not taken within 30 days, action is expressly refused, all bodies are controlled, or delay risks irreparable harm. The company is joined as beneficiary and receives recoveries. An insolvency administrator already pursuing the same claim takes precedence under the collective procedure.
Section 155 — Costs, settlement and abuse Reasonable company-benefiting derivative proceedings entitle claimants to necessary costs from the company. Withdrawal, settlement or abandonment of a material company claim requires notice to other eligible shareholders and judicial fairness review. Private payments for discontinuance are prohibited. Security for costs requires a concrete abuse risk, rather than minority status alone.
Section 156 — Unfair prejudice Any affected shareholder may seek relief where a controller unfairly prejudices shareholder interests through persistent appropriation, malicious dilution, denial of lawful participation or another serious departure from shared arrangements. The court may restrain conduct, require information, remove responsible office-holders or order a fair-price purchase. The purchaser, payment security and valuation basis must be specified; oppression-induced loss and mere minority status must not discount the price.
Section 157 — Interim protection and evidence Courts may prevent imminent unlawful transfers, retaliation, destruction of evidence or material procedural evasion where necessary and proportionate, considering transactional security, creditors, employees and essential services. Company bodies and regulators must produce relevant evidence they hold. Confidentiality requires controlled access, not wholesale denial of challenge to evidence.
Section 158 — Registration offences Negligent omissions or delayed correction first attract a direction to remedy. Unjustified continued or repeated default permits a company fine of 1,000 to 50,000 Einsen Yuen. Deliberate concealment of controllers, false registration information or obstruction of lawful inspection permits 10,000 to 500,000 Einsen Yuen, with responsible individuals fined 1,000 to 50,000 Einsen Yuen. Payment does not replace correction.
Section 159 — Capital fraud False contributions, unlawful withdrawals and deliberate material overvaluation require restoration or repayment and may attract a fine on the responsible actor of 5% to 15% of the amount involved, or 10,000 to 500,000 Einsen Yuen if that amount cannot be determined. The company is separately liable administratively only where its organs culpably participated, rather than being fined merely as the victim of withdrawal.
Section 160 — False accounts and obstruction For intentional material falsification of accounts, destruction of books or obstruction of statutory audit, the competent registrar or financial regulator may require correction and fine the company 20,000 to 2,000,000 Einsen Yuen and responsible individuals 5,000 to 200,000 Einsen Yuen. Assessment must consider size, intention, harm and co-operation. Ordinary estimation differences are not falsification.
Section 161 — Obstruction of participation The labour authority may require performance or restoration where a company refuses statutory elections, information or consultation, or retaliates against representatives. Company fines range from 10,000 to 500,000 Einsen Yuen; responsible managers may be fined 1,000 to 50,000 Einsen Yuen. Compensation, reinstatement and necessary judicial protection remain available.
Section 162 — Common liability safeguards Sanctions require notice of facts and reasons, representations, hearing rights and judicial review. The same conduct must not receive duplicate administrative fines of the same kind. After hearing, a court may disqualify serious or repeated offenders against loyalty, financial or winding-up duties from director, supervisor or senior management office for 1 to 5 years. Suspected crimes require criminal law and due process; business loss is not automatic proof of crime. Civil recovery is protected according to law where assets are insufficient, and penalties do not replace compensation.
Section 163 — Recognition A foreign company validly formed under its place-of-incorporation law is ordinarily recognised as a legal person with its internal organisation. Refusal requires legislation and specific public-policy grounds, rather than foreign or private ownership alone. Domestic mandatory duties follow section 168.
Section 164 — Domestic branches A foreign company establishing a permanent domestic business branch must register its name, place of formation, articles, evidence of continued existence, domestic address, representative and statutory beneficial information, and obtain necessary sectoral licences. Whether cross-border dealings create a permanent branch depends on their statutory substance; website accessibility alone is insufficient.
Section 165 — Branch liability A domestic foreign-company branch has no separate legal personality. The foreign company answers for its debts without a cap equal to registered branch funds. A domestic subsidiary instead follows this Act's separate contribution, governance and liability rules.
Section 166 — Representative and information The domestic representative handles service and statutory document retention. The foreign company must provide intelligible domestic business accounts and audited parent information lawfully required. Overseas data disclosure must protect personal information and secrecy as required by law. Foreign instructions cannot justify blanket refusal of lawful domestic court orders.
Section 167 — Withdrawal Before closing a branch, the company must notify creditors, settle employment and tax matters, reserve for disputed claims and complete statutory removal. Withdrawal, relocation or deregistration does not discharge existing foreign-company liabilities and does not, without legislation, make the representative personally liable for all parent debts.
Section 168 — Applicable law Internal affairs ordinarily follow the law of incorporation; transactions and torts follow applicable conflict rules. Choice of law cannot exclude mandatory domestic employment, safety, environmental, data, competition, financial or lawful foreign-investment review requirements. This Act creates no automatic cross-border insolvency recognition or enforcement beyond applicable treaties.
Section 169 — Language and promulgation Formal promulgation must lawfully specify authentication, legal status and rules for divergent Chinese, German and English texts, while ensuring constitutionally required language services. Unauthenticated parallel drafts and translations have no independent legal force. Administrative bodies must not alter statutory rights or duties through internal translations.
Section 170 — Other laws and delegated powers Civil law governs unprovided-for matters of legal persons, agency, contract, property and limitation. Court organisation and appeals follow the Judiciary Act. State ownership authorisation follows the State Organisation Act and this Act. Implementing rules may specify forms and operations, but not create criminal penalties, reduce statutory seats, expand golden shares or exclude judicial remedies.
Section 171 — Amounts and time All amounts are in Einsen Yuen. 'At least', 'not less than' and threshold attainment include the stated number; 'more than' and an absolute majority exclude equality. Minimum seat fractions are rounded upwards. Recused votes are removed from the relevant item's denominator. Unless expressly working days, days are calendar days; civil-law rules govern commencement and holiday extensions for all meeting and filing procedures.
Section 172 — Existing contributions Existing companies continue without reincorporation. Original contribution dates earlier than 3 years after commencement remain; later dates must be amended within 6 months and payment completed within 3 years after commencement. Overdue, defective or withdrawn contributions and creditors' acceleration claims are not excused.
Section 173 — Governance transition Existing companies have 1 year after commencement to adjust articles, supervision and employee and independent seats. New companies meeting thresholds comply on incorporation. Companies first reaching a threshold thereafter have 6 months to adjust. Reduction following a falling workforce requires 2 complete consecutive financial years below the threshold and must not prematurely end representatives' terms or breach more favourable agreements.
Section 174 — Existing mandates and rights Lawful existing contracts, public mandates, projects and employment rights continue without requiring reinvestment or stoppage. Government and ownership bodies must compile mandate, compensation and special-share registers within 1 year and make lawful corrections. Inclusion does not validate unauthorised burdens or revive expired rights.
Section 175 — Evaluation Government must provide an initial assessment after 3 years and thereafter report to both chambers at least every 5 years on enterprise formation, finance, participation, public services and remedies, disclosing costs and data limitations. Changes to statutory thresholds, liabilities or rights require legislation, rather than administrative assessments, indices or internal documents.
Section 176 — Commencement This Act comes into force 6 months after lawful promulgation. Preparatory registration forms, elections and information systems may be developed after promulgation. Penalties must not be applied retrospectively to conduct before commencement.
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