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Owning a limited company in China may not be the exclusive domain of wealthy investors for much longer if an amendment to the corporation law is passed.
The amendment, handed to the Standing Committee of National People's Congress (NPC) on Friday for a first read, sets the minimum registered capital for limited companies at 30,000 yuan (US$3,628), compared to the current 100,000 yuan (US$12,092) minimum.
Another key aspect of the amendment is that individuals will be allowed to create single-person companies under a special registered capital criterion.
The current law requires there be at least two founders of a limited company, whereas one-person businesses are subject to unlimited liability and an exclusion from bankruptcy protection.
"The current threshold for the establishment of companies is too high to satisfy demand," Cao Kangtai, director of the State Council Legislative Affairs Office, said when explaining the draft amendment to the standing committee on Friday. His office wrote the draft.
Other problems with the existing law include lackluster corporate governance rules, insufficient protection for small shareholders and weak public company supervision measures, according to Cao.
The corporation law, effective in 1994, was a cornerstone of China's market reform. But sentiment for its revision has been gathering pace as the country further embraces a market economy.
In last year's NPC full session, some 601 deputies moved for a revision of the law, accounting for about a fifth of all congress deputies.
The draft amendment eases some of the current code's limitations, such as a 20 percent ceiling on the share of intangible property in overall investment, and a 50 percent limit on the ratio of external investment to net assets.
It also brings to the table stricter articles on the operations of boards of directors and boards of supervisors, as well as corporate mergers, separation and liquidation.
"I think the revision highlights a change of mindset, from the tight control of companies to perfecting market rules and fostering business," said Wang Xinxin, a professor of law at the Renmin University of China.
The amendment will not affect foreign investors in China, as there are several special sections on foreign-funded businesses, Wang noted.
It usually takes three rounds of review by the two-monthly NPC Standing Committee before a draft act goes to the vote.
During the current session which began on Monday, members of the committee will also review a draft amendment to the criminal law and a proposed law on renewable energy sources.
This year's full NPC session starts next Saturday. Information about the annual session is available at the NPC website, www.npc.gov.cn, which opened formally on Friday after a year's trial.
(China Daily February 26, 2005)
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