Corporate & Commercial

Under the PRC Company Law effective 1 July 2024, shareholders of a limited liability company must pay their subscribed capital in full within five years of incorporation. Companies formed before 30 June 2024 whose remaining contribution period exceeds five years must shorten it to five years or less by 30 June 2027. Shareholders should review the articles of association early and assess capital reduction or equity transfer options at the same time.

Shareholders of a limited liability company may inspect and copy the articles of association, shareholder register, shareholder meeting minutes, board and supervisory board resolutions, and financial reports. They may also request in writing to inspect accounting books and vouchers. The company may refuse with written reasons where it has reasonable grounds to suspect an improper purpose. Shareholders may engage accounting or law firms to assist.

VAM clauses agreed between an investor and the target company's shareholders or controller are generally enforced as written. Where the investor contracts with the target company itself, courts usually uphold the agreement while checking capital maintenance rules: a share buy-back requires a completed capital reduction, and cash compensation requires distributable profits. The performance route should be built into the clause at the drafting stage.

Typical steps include structuring, legal due diligence, drafting and negotiating transaction documents, assessing merger control filings and other approvals, closing mechanics, and post-closing integration. Due diligence usually covers equity history, material contracts, asset title, employment, litigation and arbitration, tax and compliance risk.