Section 4 Supervisory Board

　　Article 124 A joint² stock limited company shall have a supervisory board composed of no less than three members. The supervisory board shall elect a convener from among its members.

　　The supervisory board shall be composed of shareholders⁴'representatives and an appropriate proportion of representatives of the staff and workers of the company, and the specific proportion of such representatives shall be provided for by the articles of association of the company. The representatives of the staff and workers serving on the supervisory board shall be democratically elected by the staff and workers of the company.

　　Directors, managers and responsible persons in charge of the financial affairs of the company may not serve concurrently⁶ as supervisors⁷.

　　Article 125 The term of office of the supervisors shall be three years. A supervisor¹ may serve consecutive⁸ terms if re-elected upon expiration⁹ of his term of office.

　　Article 126 A supervisory board shall exercise the following functions and powers:

　　(1) to examine the financial affairs of the company;

　　(2) to supervise the acts of the directors and the manager violating the laws, the administrative¹⁰ rules and regulations or the articles of association of the company during the performance of their functions;

　　(3) to demand directors or the manager to make corrections if any of their acts is found to have damaged the interests of the company;

　　(4) to propose the convening¹¹ of interim¹² shareholders' general meetings; and

　　(5) other functions and powers provided for in the articles of association of the company.

　　Supervisors shall attend meetings of the board of directors as non-voting participants.

　　Article 127 The articles of association of the company shall stipulate¹⁴ the method of deliberation and voting procedures of the supervisory board.

　　Article 128 A supervisor shall faithfully perform his duties of supervision¹⁶ in accordance with the law, the administrative rules and regulations and the articles of association of the company.

　　Provisions of Articles 57 to 59 and Articles 62 to 63 of this Law regarding persons disqualified to serve as supervisors and the obligations and responsibilities of supervisors shall apply to the supervisors of joint stock limited companies.

　　Chapter IV Issue and Transfer of Shares of Joint Stock Limited Companies

　　Section 1 Issue of Shares

　　Article 129 The capital of a joint stock limited company shall be divided into shares of equal value.

　　The shares of the company shall take the form of share certificates, which are vouchers¹⁷ issued by the company to certify¹⁸ the shares held by their shareholders.

　　Article 130 The issue of shares shall be in compliance¹⁹ with the principles of publicity²⁰, fairness and justice. The same shares must carry the same rights and the same benefits.

　　Shares of the same issue shall be issued on the same conditions and at the same price. A unit or an individual subscribing²¹ to shares shall pay the same price for each share.

　　Article 131 Shares may be issued at or above par¹³ but not below par.

　　Shares to be issued above par shall be subjected to the approval of the department of security administration under the State Council.

　　The premiums²³ generated from issuing shares above par shall be entered under the capital common reserve fund of the company.

　　Specific measures for the administration of issue of shares above par shall be separately stipulated²⁴ by the State Council.

　　Article 132 Share certificates may be in paper form or in such other forms as stipulated by the department of security administration under the State Council.

　　The following main particulars shall be clearly stated on a share certificate:

　　(1) the name of the company;

　　(2) the date of registration²⁵ of the company's incorporation²⁶;

　　(3) the class of the shares, the par value and the number of shares represented by the certificate; and

　　(4) the serial²⁷ number of the share certificate.

　　A share certificate shall be signed by the chairman of the board of directors and sealed with the seal of the company.

　　In the case of share certificates owned by sponsors, the words"sponsor's share certificate" shall be clearly stated on the share certificates.

　　Article 133 Shares issued by a company to sponsors, a State-authorized²⁸ investment institution or legal persons shall be registered shares which shall state the names of the sponsors,State-authorized investment institution or legal persons. Such shares may not be registered in other names, or names of their representatives.

　　Shares issued to the general public may be either registered shares or bearer shares.

　　Article 134 Where registered shares are issued, the company shall prepare a roster²⁹ of the shareholders, in which the following items shall be recorded:

　　(1) the names or titles, and domiciles of the shareholders;

　　(2) the number of shares held by each shareholder³;

　　(3) the serial numbers of the share certificates held by each shareholder; and

　　(4) the date on which each shareholder obtained his shares.

　　Where bearer shares are issued, the company shall keep a record of the number, the serial numbers and the issue date of the share certificates.

　　Article 135 The State Council may formulate³⁰ separate regulations on the issue of other classes of shares which are not provided for in this Law.

　　Article 136 A joint stock limited company shall formally deliver share certificates to its shareholders immediately after the registration of its incorporation. No company may deliver share certificates to its shareholders prior to the registration of its incorporation.

　　Article 137 To issue new shares, a company must satisfy the following conditions:

　　(1) shares of the previous issue must have fully¹⁵ been subscribed³² for and at least one year has elapsed since the previous issue of shares;

　　(2) the company has been continuously profitable for the last three years and is able to pay dividends³³ to its shareholders;

　　(3) the company is not found to have false records in the financial accounting³⁴ documents in the last three years; and

　　(4) the forecast profit rate of the company can reach the interest rate of bank deposit for the same period of time.

　　A company's distribution of new shares from the current year's profits shall not be restricted by item (2) of the preceding paragraph.

　　Article 138 Where a company issues new shares, resolutions on the following matters shall be adopted by a shareholders' general meeting:

　　(1) the class and number of the new shares;

　　(2) the issue price of the new shares;

　　(3) the opening and closing dates of the new share issue; and

　　(4) the class and number of new shares issued to existing shareholders.

　　Article 139 After the shareholders' general meeting adopts a resolution to issue new shares, the board of directors must apply to the department authorized by the State Council or to the local provincial³⁵ people's government for approval. If the new shares are to be issued to the general public, the approval of the department of security administration under the State Council must be obtained.

　　Article 140 When a company obtains the approval to issue new shares to the general public, it must publicly announce its prospectus³⁶ on new share offer and its financial accounting statements with annexed³⁷ detailed³⁸ schedules, and shall prepare subscription³⁹ application forms.

　　When a company issues new shares openly to the public, the new shares shall be distributed by a securities agency established in accordance with the law, with which a distribution agreement shall be concluded.

　　Article 141 Where a company issues new shares, it may determine the pricing proposal for new shares based upon the circumstances of its consecutive profit gains and property value appreciations⁴⁰.

　　Article 142 Where the new share issue of a company is fully subscribed for, the company shall apply to the Company Registration Authority for registration of the modification⁴¹ in its capital and make a public announcement thereafter.

　　Section 2 Transfer of Shares

　　Article 143 Shares held by shareholders may be transferred in accordance with the law.

　　Article 144 Transfer of shares by shareholders shall be conducted through stock exchanges established in accordance with the law.

　　Article 145 Registered shares shall be transferred by means of endorsement⁴² by the shareholders or by such other means as provided for by the law and administrative rules and regulations.

　　When registered shares are transferred, the company shall register the transferee's name or title and domicile in its roster of shareholders.

　　No registration of modification to the roster of shareholders as stipulated in the preceding paragraph shall be made within thirty days prior to the convening of a shareholders' general meeting or within five days prior to the date decided⁴³ by the company for the distribution of dividends.

　　Article 146 Transfer of bearer shares shall become effective immediately after the shareholder delivers the share certificates to the transferee at a stock exchange established in accordance with the law.

　　Article 147 Shares held by the sponsors of a company shall not be transferred within three years after the date of incorporation of the company.

　　Directors, supervisors and the manager shall declare their numbers of shares held by them to the company, and shall not transfer such shares during their term of office.

　　Article 148 The State-authorized investment institution may transfer its shares held by it in accordance with the law and may purchase shares held by other shareholders. The authority to examine and approve, and measures for administration of such transfers or purchases shall be separately provided for by the law and administrative rules and regulations.

　　Article 149 A company may not purchase its own shares except where, for the purpose of reducing its capital, shares need to be cancelled, or where the company merges⁴⁵ with another company which holds its shares.

　　A company must cancel the shares purchased by the company itself in accordance with the preceding paragraph within ten days,and register the change of its capital in accordance with laws and administrative rules and regulations and make a public announcement thereafter.

　　A company may not accept its own shares as the subject matter of a mortgage.

　　Article 150 Where registered share certificates are stolen,lost or destroyed, the shareholder may, in accordance with the procedure for publicizing public notice for assertion of claims provided for in the Civil Procedure Law, request a people's court to declare such share certificates as void.

　　After the voidness has been declared by a people's court in accordance with the aforesaid procedure, the shareholder may apply to the company for a replacement⁴⁶ of the share certificates.

　　Section 3 Listed Companies

　　Article 151 A listed company mentioned in this Law refers to a joint stock limited company which has its issued shares listed and traded at stock exchanges with the approval of the State Council or the department of security administration authorized by the State Council.

　　Article 152 Where a joint stock limited company applies to have its shares listed and traded, the following conditions shall be satisfied:

　　(1) the shares have already been issued to the general public with approval of the securities administrative department under the State Council;

　　(2) the total amount of the company's share capital reaches not less than RMB 50,000,000 yuan;

　　(3) the company must have been in operation for three years or more and have made profits for the past three consecutive years; the business operation of a company which is converted from a State-owned enterprise according to law or which is newly incorporated after the implementation⁴⁷ of this Law with medium and large-size State-owned enterprises as the main sponsors may be traced back without interruption to the original enterprise or the main sponsors;

　　(4) the number of shareholders holding shares at the face value of RMB 1,000 yuan or more is not less than one thousand and the shares issued to the general public amount to twenty five percent or more of the total share issue; where the company has a registered capital of more than RMB 400,000,000 yuan, the ratio of shares issued to the general public must amount to fifteen percent or more of the total share issue;

　　(5) the company must have no records of involvement in serious illegal activities in the recent three years, and its financial accounting statements must contain no false information in the same period; and

　　(6) other conditions as stipulated by the State Council.

　　Article 153 Where a joint stock limited company applies to have its shares listed and traded in a stock exchange, it shall apply to the State Council or the department of security administration authorized by the State Council for approval and submit the relevant documents as required by the law and administrative rules and regulations.

　　The State Council or the department of security administration authorized by the State Council shall approve applications for approval of the listing and trading of shares that comply with the conditions specified⁴⁸ in this Law and shall not approve those that fail to comply with the provisions of this Law.

　　Where an application for the listing and trading of shares has been approved, the approved listed company must publicly announce its report on the listing of its shares and put its application documents at a designated place for public review.

　　Article 154 Shares of an approved listed company shall be listed and traded in accordance with the relevant laws and administrative rules and regulations.

　　Article 155 Upon approval of the department of security administration under the State Council, shares of a joint stock limited company may be listed and traded in stock exchanges outside the territory of the People's Republic of China and the measures therefore shall be specially⁴⁹ formulated⁵⁰ by the State Council.

　　Article 156 A listed company must, in compliance with the provisions of the laws and administrative rules and regulations,regularly disclose its financial and business situations. A financial accounting report shall be publicized every half year of each fiscal⁵¹ year.

　　Article 157 The department of security administration under the State Council may decide to suspend the listing of the shares of a listed company if any of the following circumstances occurs:

　　(1) the total share capital and the distribution of share ownership have been altered to make the company no longer satisfy the requirements necessary for listing;

　　(2) the company has failed to make public its financial situation in compliance with the legal provisions or has falsified its financial accounting statements;

　　(3) the company is involved in major illegal acts; or

　　(4) the company has incurred⁵² losses for the past three consecutive years.

　　Article 158 Where any of the circumstances stipulated in item(2) or (3) of the preceding Article applies to a listed company and the consequences are verified to be serious, or where any of the circumstances stipulated in item (1) or (4) of the preceding Article is unable to be eliminated within the time limit and the company has become disqualified as a listed company, the department of security administration under the Satate Council shall decide to terminate the listing of the shares of the company.

　　Where a company decides to dissolve itself, is ordered by a competent administrative department in accordance with the law to close down or is declared bankrupt, the department of security administration under the State Council shall decide to terminate the listing of the company's shares.

　　Chapter V Company Bonds

　　Article 159 A joint stock limited company, a wholly State-owned company, and a limited liability company incorporated by two or more State-owned enterprises or by two or more other State-owned investment entities⁵³ may, for the purpose of raising funds for its production and operation, issue company bonds in accordance with this Law.

　　Article 160 Company bonds mentioned in this Law mean negotiable instrument issued by a company in accordnace with the legal procedures with repayment⁵⁴ of the principal and payment of the interest within a definite time limit.

　　Article 161 To issue company bonds, the following conditions must be met:

　　(1) for a joint stock limited company, the value of its net asset may not be lower than RMB 30,000,000 yuan; for a limited liability company, the value of its net asset may not be lower than RMB 60,000,000 yuan;

　　(2) the accumulated value of the bonds issued may not exceed forty percent of the value of the net assets of the company;

　　(3) the average distributable profits for the past three years shall be sufficient to pay the interest on the company bonds for one year;

　　(4) the funds to be raised must be invested in accordance with the industrial policies of the State;

　　(5) the interest rate for the bonds shall not exceed the ceiling fixed⁵⁵ by the State Council; and

　　(6) other conditions as stipulated by the State Council.

　　Funds raised through the issue of company bonds must be used for the purpose approved by the examination and approval authorities and shall not be used to make up the losses of the company or for non-production expenditure⁵⁶.

　　Article 162 In any of the following circumstances, a company may not make another issue of bonds:

　　(1) if the company bonds of the previous issue have not been fully subscribed for; or

　　(2) if it is a fact that the company has defaulted on, or deferred⁵⁷ repayment of the principal and the payment of interest of its previously⁵⁸ issued company bonds or its debts, and such default or deferment⁵⁹ still persists.

　　Article 163 For a joint stock limited company and a limited liability company to issue company bonds, its board of directors shall formulate a plan therefor, and a pertinent⁶⁰ resolution shall be adopted by the shareholders' meeting.

　　For a wholly State-owned company to issue company bonds, a decision on the approval shall be made by the State-authorized investment institution or the department authorized by the State.

　　Where a resolution or decision is made in accordance with the preceding two paragraphs of this Article, the company shall submit the matter to the department of security administration under the State Council for approval.

　　Article 164 The scale of the company bond issues shall be determined⁶¹ by the State Council. Issues of company bonds examined and approved by the department of security administration under the State Council shall not exceed the scale determined by the State Council.

　　The department of security administration under the State Council shall approve the application for issuing company bonds if it conforms with the provisions of this Law and shall disapprove⁶² the application if it does not conform with the provisions of this Law.

　　If an approval that has been granted is found not to be in compliance with the stipulations of this Law, such an approval shall be withdrawn⁶³. In the event that company bonds have not yet been issued, the company shall stop issuing the bonds; if the company bond issue has already commenced, the issuing company shall refund⁶⁴ the subscribers the money already paid for their subscriptions⁶⁵ plus bank deposit interest calculated for the same period of time.

　　Article 165 Where a company applies to the department of security administration under the State Council for issuing company bonds, the following documents shall be submitted:

　　(1) the registration certificate of the company;

　　(2) the articles of association of the company;

　　(3) the method of offer of the company bonds; and

　　(4) an asset valuation report and an asset verification report.

　　Article 166 After an application for the issue of company bonds is approved, the company shall make a public announcement of the method of offer of the company bonds.

　　The method of offer of company bonds shall specify⁶⁶ the following main particulars:

　　(1) the name of the company;

　　(2) the total amount of the bonds and their par value;

　　(3) the interest rate of the bonds;

　　(4) the time limit for and the method of the repayment of the principal and the payment of interest;

　　(5) the beginning and ending dates of the bond issue;

　　(6) the amount of the net assets of the company;

　　(7) the total amount of the undue⁶⁷ bonds issued by the company;and

　　(8) the selling agency of the company bonds.

　　Article 167 Company bonds issued by a company must cleary carry thereon items such as the name of the company, the par value,the interest rate and the time limit for repayment, and the bonds shall be signed by the chairman of the board of directors and sealed by the company.

　　Article 168 Company bonds may be divided into registered bonds and bearer bonds.

　　Article 169 A company issuing company bonds shall prepare the counterfoils⁶⁸ of bonds issued.

　　When registered company bonds are issued, the counterfoils of bonds shall specify the following:

　　(1) the name or title and domicile of the bondholder;

　　(2) the date on which the holder⁵ acquired the bonds and their serial numbers;

　　(3) the total amount of the bonds, the par value, the interest rate of the bonds and the method of and time limit for repayment of the principal and payment of interest; and

　　(4) the issuing date of the bonds.

　　Where bearer company bonds are issued, the counterfoils of the company bonds shall specify the total amount of the bonds, the interest rate, the time limit for and method of repayment of the principal and payment of interest, the issuing date of the bonds and the serial numbers.

　　Article 170 Company bonds may be transferred. The transfer shall be carried out at the securities exchanges established in accordance with the law.

　　The price for the transfer of the company bonds shall be agreed upon by the transferor and transferee.

　　Article 171 Registered bonds shall be transferred by means of endorsement by the bondholder or by other means provided for by the law or administrative rules and regulations.

　　Where registered bonds are transferred, the name and domicile of the transferee shall be recorded in the counterfoils of the company bonds.

　　Where bearer bonds are transferred, the transfer becomes effective immediately after the bondholder delivers his bonds to the transferee at a securities exchange established in accordance with the law.

　　Article 172 Upon adoption⁶⁹ of a resolution by the shareholders'general meeting, a listed company may issue company bonds which can be converted into shares. The specific measures for the conversion⁷⁰ shall be stipulated in the method of offer of the company bonds.

　　The issue of company bonds convertible⁷¹ into shares shall be subjected to the approval of the department security administration under the State Council. Company bonds convertible into shares shall, in addition to satisfying the conditions for the issue of company bonds, satisfy the conditions for the issue of shares.

　　In issuing company bonds convertible into shares, the words"convertible company bonds" shall be clearly indicated on the bonds and the amount of convertible company bonds shall be recorded in the counterfoils of company bonds.

　　Article 173 A company that issues company bonds convertible into shares shall let the bondholders convert their bonds into shares in accordance with the convertion measures. However,bondholders shall have an option whether or not to convert their bonds into shares.

　　Chapter VI Financial Affairs and Accounting of Companies

　　Article 174 A company shall establish its financial and accounting system in accordance with the law, administrative rules and regulations, and the stipulations of the department in charge of financial affairs under the State Council.

　　Article 175 At the end of each fiscal year, a company shall prepare its financial and accounting report, which shall be examined and verified in accordance with the law.

　　The financial and accounting report shall include the following financial and accounting statements and annexed detailed schedules:

　　(1) a balance sheet;

　　(2) a profit and loss statement;

　　(3) a statement on changes in the financial position of the company;

　　(4) a statement explaining the financial situation of the company; and

　　(5) a statement regarding the distribution of profits.

　　Article 176 A limited liability company shall send the fiancial and accounting report to each of its shareholders within the time limit stipulated in its articles of association.

　　A joint stock limited company shall make the financial and accounting report available at the company for examination by its shareholders twenty days prior to the convening of the shareholders' annual general meeting.

　　A joint stock limited company incorporated by means of share offer must announce its financial and accounting report.

　　Article 177 When a company distributes the annual after-tax profits, it shall allocate⁷² ten percent of its profits to its statutory common reserve fund and another five to ten percent to its statutory common welfare fund. Where the accumulated amount of the statutory common reserve fund has exceeded fifty percent of the registered capital of the company, no further allocation may be made.

　　Where the statutory common reserve fund is insufficient⁷³ to make up the company's losses of the previous fiscal year, the company shall apply its annual after-tax profits to making up its losses before allocating⁷⁴ such profits, in accordance with provisions of the preceding paragraph, to the statutory common reserve fund and statutory common welfare fund.

　　After making its allocation to the statutory common reserve fund from the company's after-tax profits, the company may, upon resolution made by the shareholders' meeting, make allocations to the discretionary common reserve fund.

　　After a company makes up its losses and makes allocations to the statutory common reserve fund and the statutory common welfare fund, a limited liability company shall distribute the remaining profits to its shareholders according to the proportion of capital subscribed for by each shareholder, and a joint stock limited company shall distribute the remaining profits to its shareholders according to the proportion of the shareholdings held by each shareholder.

　　Where the shareholders' meeting or the board of directors violates the provisions of the preceding paragraphs by distributing profits to the shareholders before making up the company's losses and making allocations to the statutory common reserve fund and the statutory common welfare fund, the profits distributed in violation⁷⁵ of the legal provisions must be returned to the company.

　　Article 178 The premium²² income derived⁷⁶ from issuing shares above par by a joint stock limited company in accordance with the provisions of this Law, and other income which according to the rules set by the departments in charge of financial affairs under the State Council should be entered into the capital common reserve fund, shall be entered into the capital common reserve fund of the company.

　　Article 179 A company's common reserve fund shall be used to make up the company's losses, to expand the production and operation of the company or to increase the capital of the company by means of conversion.

　　If a joint stock limited company converts its common reserve fund into capital upon a resolution made by the shareholders'general meeting, it shall issue new shares in proportion to the original shares held by the shareholders or increase the original par value of each share. However, when the statutory common reserve fund is converted into its capital, the remaining amount of the statutory common reserve fund shall not be less than twenty five percent of the registered capital.

　　Article 180 The statutory common welfare fund retained by a company shall be used for the collective welfare of the company's staff and workers.

　　Article 181 A company shall not have any other account books in addition to its statutory account books.

　　No account may be opened in the name of any individual for deposit of a company's assets.

　　Chapter VII Merger⁷⁷ and Division of Companies

　　Article 182 The merger or division of a company shall require the adoption of a resolution by its shareholders' meeting of the company.

　　Article 183 The merger or division of a joint stock limited company must be approved by the department authorized by the State Council or by the people's government at the provincial level.

　　Article 184 The merger of a company may take the form of merger by absorption or merger by new establishment.

　　When a company absorbs another, it is an absorption merger,and the company being absorbed shall be dissolved. When two or more companies merge⁴⁴ to establish a new company, it is merger for new establishment, and all parties being merged⁷⁸ shall be dissolved.

　　When companies merge, the parties to a merger shall sign a merger agreement and formulate a balance sheet and a detailed inventory⁷⁹ of assets. The company shall inform its creditors⁸¹ of the intended merger within ten days following the date on which the merger resolution is adopted, and make at least three announcements in newspaper within thirty days. The creditors shall have the right to claim full repayment of their debts or provision of a orresponding guarantee from the company within thirty days from the date of receipt of the notice or, within ninety days from the date of the first public announcement for those who have not received the notice. The company that fails to repay its debts in full or to provide a corresponding guarantee shall not be merged.

　　The claims and debts of the parties to a merger shall be succeeded to by the absorbing company or the newly established company when companies are merged.

　　Article 185 Where a company proceeds into a division, its assets shall be divided correspondingly.

　　Where a company decides to divide itself, it shall formulate a balance sheet and a detailed inventory of assets and shall inform its creditors of the intended division within ten days following the date on which the division resolution is adopted, and make at least three announcements in newspaper within thirty days. The creditors shall have the right to claim full repayment of their debts or provision of a corresponding guarantee from the company within thirty days from the date of receipt of the notice or,within ninety days from the date of the first public announcement for those who have not received the notice. The company that fails to pay its debts in full or to provide a corresponding guarantee shall not be divided.

　　The debts prior to the division of a company shall be assumed by the companies following the division in accordance with the agreement reached between them.

　　Article 186 Where a company intends to reduce its registered capital, it must formulate a balance sheet and a detailed inventory of assets.

　　The company shall inform its creditors of the planned reduction of its registered capital within ten days following the date on which the resolution to reduce its capital is adopted, and make at least three announcements in newspaper within thirty days following the aforesaid date. The creditors shall have the right to claim full repayment of their debts or provision of a corresponding guarantee from the company within thirty days from the date of the receipt of the notice or, within ninety days from the date of the first public announcement for those who have not received the notice.

　　After the reduction of capital, the amount of a company's registered capital shall not be lower than the statutory minimum.

　　Article 187 Where a limited liability company increases its registered capital, the capital contributions to the newly increased shares subscribed for by the shareholders shall be governed by the relevant provisions of this Law regarding the subscription for capital contributions in connection with the incorporation of a limited liability company.

　　Where a joint stock limited company issues new shares to increase its registered capital, shareholders shall subscribe³¹ for the new shares in accordance with the relevant provisions of this Law regarding the payment of subscription money in connection with the incorporation of a joint stock limited company.

　　Article 188 Where the merger or division of a company involves changes in registered items, such changes shall be registered according to law with the Company Registration Authority. Where a company is dissolved, it shall apply for cancellation⁸² of its registration in accordance with the law. Where a new company is incorporated, the registration of the incorporation of the company shall be carried out according to law.

　　Where a company increases or reduces its registered capital,it shall apply to the Company Registration Authority for registration of the changes in accordance with the law.

　　Chapter VIII Bankruptcy⁸³, Dissolution and Liquidation⁸⁴ of Companies

　　Article 189 Where a company is declared bankrupt according to law because it is unable to pay off its due debts, a people's court shall, in accordance with relevant laws, organize the shareholders,the relevant departments and relevant professionals to form a liquidation committee which shall conduct bankruptcy liquidation of the company.

　　Article 190 Where one of the following circumstances occurs,a compay may be dissolved:

　　(1) the term of operation as stipulated by the articles of association of the company expires or other reasons for dissolution as stipulated by the articles of association occur;

　　(2) the shareholdrs' meeting resolves to dissolve the company;or

　　(3) dissolution is necessary as a result of the merger or division of the company.

　　Article 191 Where a company is dissolved in accordance with the provisions of item (1) or (2) of the preceding Article, a liquidation committee shall be formed within fifteen days thereafter. A liquidation committee of a limited liability company shall be composed of its shareholders. Membership of a liquidation committee of a joint stock limited company shall be decided upon by its shareholders' general meeting. Where a company fails to form a liquidation committee to conduct liquidation within the time limit,its creditors may request a people's court to designate relevant personnel to form a liquidation committee and conduct liquidation.The people's court shall accept such request and without delay designate the members of the liquidation committee to conduct liquidation.

　　Article 192 Where a company is ordered to be closed down in accordance with the law due to its violation of the law or administrative rules and regulations, it shall be dissolved. In such a case, the department in charge shall organize the shareholders, relevant departments and relevant professionals to form a liquidation committee to conduct liquidation.

　　Article 193 During liquidation, a liquidation committee shall exercise the following functions and powers:

　　(1) to check up on the company's assets, and separately formulate a balance sheet and a detailed inventory of assets;

　　(2) to notify creditors by notice or announcement;

　　(3) to dispose of and liquidate⁸⁵ the company's unfinished business;

　　(4) to pay off taxes owed by the company;

　　(5) to clear up claims and debts;

　　(6) to dispose of, after paying off the debts of the company,its remaining property; and

　　(7) to participate in civil lawsuits⁸⁷ on behalf of the company.

　　Article 194 A liquidation committee shall inform the creditors of the company of its establishment within ten days following the date of its establishment, and make at least three announcements in newspaper within sixty days following the aforesaid date. The creditors shall declare their claims to the liquidation committee within thirty days from the date of receipt of the notice or,within ninety days from the date of the first public announcement for those who have not received the notice.

　　When declaring his claims, a creditor⁸⁰ shall specify the relevant items of the claim and provide supporting material. The liquidation committee shall register the claims.

　　Article 195 After the liquidation committee has checked up on the company's assets, formulated the balance sheet and a detailed inventory of assets, it shall formulate a liquidation plan and shall submit such plan to the shareholders' meeting or the department in charge for confirmation⁸⁸.

　　Where the assets of the company are sufficient to pay off the company's debts, such assets shall be applied⁸⁹ to payment of the liquidation fee, the wages and labour insurance premiums of the staff and workers of the company, due taxes and the company's debts.

　　The remaining assets of a company after paying off all the debts and expenses as prescribed by the preceding paragraph shall be distributed, in the case of a limited liability company, in proportion to the shareholders' capital contributions and, in the case of a joint stock limited company, in proportion to the shareholders' shareholdings.

　　During liquidation, a company may not engage in new business activities. No assets of the company shall be distributed to the shareholders prior to full payments prescribed by the second paragraph of this Article.

　　Article 196 If a company is liquidated⁹⁰ due to tis dissolution and the liquidation committee, having checked up on the company's assets and formulated the balance sheet and a detailed inventory of assets, discovers that there are insufficient assets in the company to pay off its debts, the committee shall apply to the people's court for a declaration of bankruptcy of the company.

　　After the people's court has ruled to declare the company bankrupt, the liquidation committee shall turn the liquidation matters over to the court.

　　Article 197 After the completion of liquidation, the liquidation committee shall formulate a liquidation report and submit the report to the shareholders' meeting or to the department in charge for confirmation and submit it to the Company Registration Authority in order to cancel the registration of the company and publicly announce the company's termination. If no application is made for cancellation of the company's registration,the Company Registration Authority shall revoke⁹¹ the business licence of the company and publicly announce the revocation⁹².

　　Article 198 Members of a liquidation committee shall be devoted⁹³ to their duties and perform their liquidation obligations in accordance with the law.

　　Members of a liquidation committee shall not accept bribes⁹⁴ or other illegal income, or misappropriate the property of the company by taking advantage of their position and power.

　　Members of a liquidation committee who cause losses to the company or to its creditors, either willfully or through gross negligence⁹⁵, shall be liable for compensation.

　　Chapter IX Branches of Foreign Companies

　　Article 199 A foreign company may, in accordance with this Law, establish a branch within the territory of the People's Republic of China to engage in production and business activities.

　　A foreign company mentioned in this Law means a company registered and incorporated outside the territory of the People's Republic of China in accordance with foreign laws.

　　Article 200 A foreign company that intends to establish a branch within the territory of the People's Republic of China must submit an application to the authorities in charge in China together with relevant documents such as its articles of association and the company registration certificate issued by its country. Upon approval, it shall apply to the Company Registration Authority for registration and for a business licence for the branch according to law.

　　Measures for examining and approving the establishment of branches of foreign companies shall be formulated separately by the State Council.

　　Article 201 A foreign company that establishes a branch within the territory of the People's Republic of China must appoint its representative or agent within the territory of the People's Republic of China to take charge of the branch and shall allocate to the branch funds commensurate with the business which it is to engage in.

　　Where a minimum amount of operational funds is required for a branch of a foreign company, the State Council shall separately prescribe to that effect.

　　Article 202 A branch of a foreign company shall clearly indicate in its name the nationality and the form of liability of such foreign company.

　　The branch shall keep at its domicile a copy of the articles of association of such foreign company.

　　Article 203 A foreign company is a foreign legal person, so its branch established within the territory of the People's Republic of China shall not have the status of a Chinese legal person in China.

　　A foreign company shall bear civil liability for the operational activities engaged by its branch within the territory of the People's Republic of China.

　　Article 204 The business activities engaged in within the territory of the People's Republic of China by branches of foreign companies established upon due approval must comply with the laws of China and shall not harm the social and public interest of China. The lawful⁹⁶ rights and interests of such branches shall be protected by the laws of China.

　　Article 205 Where a foreign company dissolves its branch established within the territory of the People's Republic of China,it must pay off the branch's debts according to law and carry out liquidation in accordance with the relevant procedures concerning company liquidation provided for in this Law. The assets of the branch shall not be transferred out of the territory of the People's Republic of China prior to the full payment of its debts.

　　Chpater X Legal Liability

　　Article 206 Where a company obtains its registration by making a false report on its registered capital, submitting falsified certificates, or resorting to other fraudulent means to conceal⁹⁷ important facts in violation of this Law when carrying out company registration, it shall be ordered to make a rectification⁹⁸; where a company makes a false report on its registered capital, it shall be fined an amount of not less than five percent but not more than ten percent of the registered capital falsely reported; where a company submits falsified certificates or resorts to other fraudulent means to conceal important facts, it shall be punished with a fine of not less than RMB 10,000 yuan but not more than RMB 100,000 yuan. If circumstances are serious, the registration of the company shall be revoked⁹⁹. If a crime is constituted, criminal liabilities shall be investigated in accordance with the law.

　　Article 207 Where a company issues shares or company bonds by making false prospectus on share offer, false subscription forms or false methods of offer of company bonds, it shall be ordered to stop the issuance and to refund the funds it has raised and the interest therefrom to the subscribers, and shall be punished with a fine of not less than one percent but not more than five percent of the funds illegally raised. If a crime is constituted, criminal liabilities shall be investigated in accordance with the law.

　　Article 208 Where a sponsor or a shareholder makes a false capital contribution by failing to pay the promised cash or tangible¹⁰⁰ assets, or to transfer property rights, thereby¹⁰¹ deceiving the creditors and the general public, he shall be ordered to make a rectification and imposed a fine of not less than five percent but not more than ten percent of the false capital contributions.If a crime is constituted, criminal liabilities shall be investigated in accordance with the law.

　　Article 209 Where a sponsor or a shareholder of a company surreptitiously withdraws his capital contribution after the incorporation of the company, rectification shall be ordered and a fine of not less than five percent but not more than ten percent of the amount of capital contribution withdrawn surreptitiously shall be imposed. If a crime is constituted, criminal liabilities shall be investigated in accordance with the law.

　　Article 210 Where a company issues shares or company bonds without the approval of the relevant department in charge as stipulated by this Law, it shall be ordered to stop the issuance and to refund the funds it has raised with interest, and a fine of not less than one percent but not more than five percent of the funds illegally raised shall be imposed. If a crime is constituted,criminal liabilities shall be investigated in accordance with the law.

　　Article 211 Where a company violates the provisions of this Law by setting up account books in addition to its statutory account books, it shall be ordered to make a rectification and imposeda fine of not less than RMB 10,000 yuan but not more than RMB 100,000 yuan. If a crime is constituted, criminal liabilities shall be investigated in accordance with the law.

　　Whoever deposits the assets of a company in a personal account shall be confiscated¹⁰² of the illegal gains and imposed upon a fine from one to five times the amount of the illegal gains. If a crime is constituted, criminal liabilities shall be investigated in accordance with the law.

　　Article 212 Where a company submits to the shareholders and the general public false financial and accounting reports or reports concealing¹⁰³ important facts, the persons in charge who are directly responsible and other persons directly held responsible shall be imposed upon a fine of not less than RMB 10,000 yuan but not more than RMB 100,000 yuan. If a crime is constituted, criminal liabilities shall be investigated in accordance with the law.

　　Article 213 Where this Law is violated by converting the State-owned assets into shares at a depressed¹⁰⁴ value, or selling them at low prices, or distributing them gratuitously¹⁰⁵ to individuals, the persons in charge who are directly responsible and other persons directly held responsible shall be given administrative sanctions in accordance with the law. If a crime is constituted, criminal liabilities shall be investigated in accordance with the law.

　　Article 214 Where a director, a supervisor or the manager of a company takes advantage of his position and powers to accept bribes, to take other illegal gains or to misappropriate company property, he shall be confiscated of the illegal gains, ordered to return such property to the company, and imposed upon a sanction.If a crime is constituted, criminal liabilities shall be investigated in accordance with the law.

　　Where a director or the manager misappropriates company funds or lends company funds to another person, he shall be ordered to return such funds to the company; the gains derived therefrom shall belong to the company; the company shall impose a sanction upon him. If a crime is constituted, criminal liabilities shall be investigated in accordance with the law.

　　Where a director or the manager violates the provisions of this Law by providing company assets as a guarantee for personal debts of a shareholder of its company or of another person, he shall be ordered to cancel the guarantee and shall be liable for compensation in accordance with the law; the gains derived from the illegal provision of guarantee shall belong to the company. If the circumstances are serious, the company shall impose a sanction upon him.

　　Article 215 Where a director or the manager violates the provisions of this Law by engaging for his own account or for another person in the same kind of business as his company is engaged in, the income derived therefrom shall belong to the company. In addition, the company may impose a sanction upon him.

　　Article 216 Where a company fails to make allocations to its statutory common reserve fund or statutory common welfare fund in accordance with this Law, the company shall be ordered to make up the amount that it is required to allocate and shall be imposed upon a fine of not less than RMB 10,000 yuan but not more than RMB 100,000 yuan.

　　Article 217 Where a company fails to issue a notice or make an announcement to its creditors according to this Law in case of merger, division, reduction of its registered capital or liquidation, it shall be ordered to make a rectification and be imposed upon a fine of not less than RMB 10,000 yuan but not more than RMB 100,000 yuan.

　　Where a company, in the process of its liquidation, conceals¹⁰⁶ property, records false information in its balance sheet or inventory of assets or, distributes the company assets prior to the full payment of its debts, it shall be ordered to make a rectification and be imposed upon a fine of not less than one percent but not more than five percent of the amount concealed¹⁰⁷ or of the amount distributed prior to the full payment of the debts of the company. The persons in charge who are directly responsible and others directly held responsible shall be imposed upon a fine of not less than RMB 10,000 yuan but not mroe than RMB 100,000 yuan.If a crime is constituted, criminal liabilities shall be investigated in accordance with the law.

　　Article 218 Where a liquidation committee fails to submit a liquidation report to the Company Registration Authority in accordance with the provisions of this Law, or where a report submitted conceals major facts or contains major omissions¹⁰⁸, it shall be ordered to make a rectification.

　　Where a member of the liquidation committee takes advantage of his position and power to practise favouritism for personal gains,seek illegal income or misappropriate the property of the company,he shall be ordered to return the property to the company,confiscated of his illegal gains and imposed upon a fine from one to five times the amount of his illegal gains. If a crime is constituted, criminal liabilities shall be investigated in accordance with the law.

　　Article 219 Where an institution in charge of asset valuation,capital verification or certificate verification provides false documents of certification, the illegal income derived therefrom shall be confiscated and a fine from one to five times the amount of the illegal income shall be imposed; the relevant department in charge may order the institution to suspend its business and revoke the qualification certificates of those directly held responsible according to law. If a crime is constituted, criminal liabilities shall be investigated in accordance with the law.

　　Where an institution in charge of asset valuation, capital verification or certificate verification provides by negligence reports with major omissions, it shall be ordered to make a rectification; where the circumstances are serious, a fine from one to three times the amount of the income derived therefrom shall be imposed, and the relevant department in charge may order the institution to suspend its business and revoke the qualification certificates of those directly held responsible according to law.

　　Article 220 Where a relevant department in charge authorized by the State Council approves an application for the incorporation of a company or an application for the issue of shares that does not satisfy the conditions as stipulated in this Law, if the circumstances are serious, the persons in charge who are directly responsible and others directly held responsible shall be given administrative sanctions according to law. If a crime is constituted, criminal liabilities shall be investigated in accordance with the law.

　　Article 221 Where the department security administration under the State Council approves an application for the offer of shares,the listing of shares or the issue of bonds that does not satisfy the conditions as stipulated in this Law, if circumstances are serious, the persons in charge who are directly responsible and others directly held responsible shall be given administrative sanctions according to law. If a crime is constituted, criminal liabilities shall be investigated in accordance with the law.

　　Article 222 Where the Company Registration Authority approves an application for registration which does not meet the requirements as stipulated in this Law, if the circumstances are serious, the persons in charge directly held responsible and others directly held responsible shall be given administrative sanctions according to law. If a crime is constituted, criminal liabilities shall be investigated in accordance with the law.

　　Article 223 Where departments at a level higher than the Company Registration Authority force the Company Registration Authority to approve an application for registration which does not meet the requirements as stipulated in this Law or, covers up an illegal registration, the persons in charge who are directly responsible and others directly held responsible shall be given administrative sanctions according to law. If a crime is constituted, criminal liabilities shall be investigated in accordance with the law.

　　Article 224 Where a company that has not registered according to law as a limited liability company or a joint stock limited company assumes the name of "limited liability company" or "joint stock limited company", it shall be ordered to make a rectification or be banned, and a fine of not less than RMB 10,000 yuan but not more than RMB 100,000 yuan may be imposed. If a crime is constituted, criminal liabilities shall be investigated in accordance with the law.

　　Article 225 Where a company fails to commence its business without justification¹⁰⁹ within the period of more than six months of its incorporation or, after commencing its business, suspends business at its own will for a period of six consecutive months or more, the Company Registration Authority shall revoke the company's business licence.

　　Where a company fails to apply for modification registration in accordance with the provisions of this Law whenever modification occurs in items of company registration, it shall be ordered to conduct modification registration within a specified time limit;and if the company still fails to register within the specified time limit, a fine of not less than RMB 10,000 yuan but not more than RMB 100,000 yuan shall be imposed.

　　Article 226 Where a foreign company, in violation of the provisions of this Law, establishes a branch within the territory of the People's Republic of China without authorization¹¹⁰, it shall be ordered to make a rectification or to be closed down, and a fine of not less than RMB 10,000 yuan but not more than RMB 100,000 yuan may be imposed.

　　Article 227 Where a relevant department in charge performing examination and approval duties according to this Law refuses to approve an application which meets the statutory requirements or the Company Registration Authority refuses an application for registration which meets the statutory requirements, the party concerned may apply for reconsideration or institute an administrative lawsuit⁸⁶ in accordance with the law.

　　Article 228 Where a company violating the provisions of this Law should assume civil liability for compensation and pay finesand penalties, and the company's property is insufficient to pay such compensation, fines and peralties, the company shall assume the civil liability for compensation first.

　　Chapter XI Supplementary¹¹¹ Provisions

　　Article 229 Companies registered and incorporated in accordance with the law, administrative rules and regulations,local regulations or the Opinions on Standardization¹¹² of Limited Liability Companies and the Opinions on Standardization of Joint Stock Limited Companies formulated by the relevant competent departments under the State Council prior to the implementation of this Law shall continue to be retained; companies which do not fully meet the requirements as stipulated in this Law shall meet all such requirements within a prescribed time limit. Specific measures for the implementation thereof shall be formulated separately by the State Council. To a joint stock limited company of new technological¹¹³ achievements,its proportion of registered capital covered by the fund of the appraised¹¹⁴ value of the investment of a sponsor in the form of industrial property and non-patented technology, and the conditions of issuing new shares by the company and applying to have its shares listed and traded shall be provided by the State Council otherwise.

　　Article 230 This Law shall enter into force as of July 1,1994.

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