The RevisedCompany Law of the P.R.C has been newly amended to further encourage investment, corporate development and greater market openness.The new revisions will take effect January 1, 2006.Following are summaries of some of the important amendments:

1. Capital

Under the existing Company Law, many corporations have found the registered capital requirements to be too high, leaving them in the position of having undeployed capital.The revised Company Law has adjusted the provisions regarding the establishment and capital systems of companies, as follows:

a. Reduction of required capital.The revised Company Law deletes the provisions which establish minimum registered capital requirements based on business type.Under the new revisions, the minimum registered capital for a limited liability company shall be RMB 30,000 yuan and RMB 5 million yuan for a joint stock limited company, and the minimum number of sponsors for a joint stock limited company is reduced from five to two.

b. Amended Methods of Contribution. Currently, shareholders are to contribute the full capital contributions at formation.Under the revised law, payments may be made in installments over two years (five years for an investment company).This allows companies improved cash flow, and the ability to better manage and grow into their capital requirements as they grow.

c. Broader Scope for Assets.Shareholders may now contribute a wider variety of assets to the company.Contributed assets will now be judged as to their worth and transferability, rather than being required to be only certain types of assets, such as cash or intellectual property.

d.Directional Share Offering.New provisions have been added that allow a joint stock limited company to be incorporated by means of directional share offering.

e.Abolishment of the 50% Proportion Limit for Reinvestment.The newly revised Company Law will entitle the company comprehensive investment rights and capacity in order to meet the needs for independent operation and investment of the company.

f.New Terms and Conditions for Share Repurchase. Where the company carries out a plan of share option, it may purchase back it own shares. Where the company decides to merge or divide, the shareholder who objects to such resolution may ask the company to purchase his shares. This amendment fits the needs for carrying out the share option plans of most companies, as well as the needs for protective measures for small shareholders.

2. Sole Proprietorships

The Revised Company Law will now also allow a single natural person or legal person to incorporate a one person limited company.Minimum registered capital is RMB 100,000 which shall be paid in full. To avoid potential abuses of the corporate system by individuals, the revised Company Law holds that the shareholder of a one person company shall bear joint and several liability for the company’s debts, if he is unable to prove that the assets of the company are independent from his own.

3. Corporate Governance Structure

The Revised Company Law also further refines corporate governance provisions.For example, methods for convening proceedings and by-laws of shareholders’ meetings, and meetings of the board of directors are set forth. These emphasize the collective decision-making power of the board of directors.As part of that emphasis, enhanced restrictions on the chairman of the board of directors are included, as well as additional powers and functions of the supervisory board so as to enhance its role, and specific duties of good faith and diligence of the directors and other senior management personnel.The revised Company Law also provides corresponding obligations for breaching such duty.

In order to strengthen the regulatory requirements of listed companies, the revised Company Law now also includes a special section for listed companies.This includes new provisions regarding independent directors, the duties and role of the board secretary, affiliated transactions and voting rights associated with affiliated directors.

4. Protection of Shareholder’s Rights

New and revised provisions related to shareholder’s rights are also included.Some of these are:

a. Shareholders shall have the right to access the accounting books of the company. If the company refuses such access, shareholders may resort to the court to request that the company provide access.

b.Where the company encounters serious difficulties in its business and management, and it will incur significant damage and loss to shareholders by continuing, then shareholders representing 10% or more of the voting rights shall have the right to apply to the court to dissolve the company.

c. Where a limited liability company fails to pay dividends to shareholders for a long term in accordance with the terms and conditions of paying dividend, shareholders have the right to ask the company to purchase their shares so as to exit from the company.

5. Shareholders’ Representative Action

One of the more important revisions contained within the Revised Company Law are provisions introducing Shareholders’ Representative Actions (Article 152).Where the directors, managers and other senior management personnel may have violated the company’s rights and interests, and the company fails to investigate these liabilities, shareholders shall have the right to bring an action in their own name with the purpose of protecting the company’s rights and interests as well as their own.

6. Piercing the Corporate Veil

Another important provision contained within the Revised Company Law is ‘disaffirmation of corporation personality’ or ‘piercing the corporate veil’ (Article 20).

The revised company law endows considerable liberty to the company with respect to its establishment and operation. In order to prevent the risk of abusing rights, the Revised Company Law introduces the system of ‘disaffirmation of corporation personality’. If the company abuses its independent legal position and limited liability of shareholders in attempting to get away with its debts, harming the rights and interests of the creditor, then the shareholders shall be deprived of the right oflimited liability to the extent of their respective capital contributions.Rather, they shall bear joint and several liability for all debts of the company.

7. Compensation Liability of Agency Institution

Under the Revised Company Law, if an agency institution in charge of asset valuation, capital verification or certificate verification provides false certification documents and thus causes a loss to a creditor, that agency shall compensate the creditor at a level equal to or within the false amount of capital that they valuated or certified.

8. Other Important Amendments

a. The Revised Company Law permits shares of un-listed joint stock limited companies to be transferred at the assets and equity transfer exchange other than the stock exchange.

b. The Revised Company Law also sets forth more specific provisions regarding share transfers, including an entire specific chapter regulating the share transfer of shareholders of a limited liability company.

c. The Revised Company Law also releases some restrictions on share transfers of the sponsors and senior management personnel of a joint stock limited company, and also deletes certain articles regarding the issuance of securities, which are provided for under the Securities Law of the P.R.C.

Upon taking effect this upcoming January 1, 2006, PRC corporate entities will function much more like their counterparts in other countries around the world.By bringing this level of familiarity and responsibility to corporate structures and corporate governance, more market openness and inbound investment can take place.

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