Promote the deepening of the reform of state-owned enterprises and the new company legal chapter to improve the regulations on state-invested companies

Absorbing reform experience and results to promote deepening the reform of state-owned enterprises

The new company legal chapter improves the regulations on state-invested companies

　　Our reporter Li Lijuan

　　The newly revised "Company Law of the People's Republic of China" (hereinafter referred to as the New Company Law) will come into effect on July 1, 2024.

It is worth noting that the new company law establishes a special chapter (Chapter 7) on "Special Provisions on the Organizational Structure of State-Invested Companies", which improves the relevant regulations on state-invested companies and has received widespread attention.

State-owned enterprise reform achieved fruitful results

　　Article 1 of the New Company Law stipulates that in order to regulate the company's organization and behavior, protect the legitimate rights and interests of the company, shareholders, employees and creditors, improve the modern enterprise system with Chinese characteristics, promote entrepreneurship, maintain social and economic order, and promote the socialist market economy development, in accordance with the Constitution, this law is enacted.

　　Article 168 of the New Company Law stipulates that the term “state-invested company” as mentioned in the New Company Law refers to wholly state-owned companies and state-owned capital holding companies funded by the state, including state-funded limited liability companies and joint-stock companies.

　　"This is in line with the current progress of state-owned enterprise reform and is the need for deepening and improving state-owned enterprise reform and improving the modern enterprise system with Chinese characteristics. The '1+N' policy system for state-owned enterprise reform has matured and finalized, and the special actions for state-owned enterprise reform and the three-year action for state-owned enterprise reform have accumulated The rich reform experience needs to be raised to the legal level and further promote the deepening and improvement of the reform of state-owned enterprises." Zhu Changming, partner of Sunshine Times Law Firm and head of the State-owned Enterprise Mixed Reform Center, said that the modern enterprise system with Chinese characteristics has matured and finalized, and the new company law It is necessary to fully absorb and provide legal protection, make up for the legal shortcomings of the modern enterprise system with Chinese characteristics, and further promote enterprises to truly operate in accordance with market-oriented mechanisms.

　　Wu Gangliang, a researcher at the China Enterprise Reform and Development Research Society, also believes that after years of equity diversification reforms and mixed ownership reforms, some group companies are no longer in the form of wholly state-owned companies.

Specifically, some have adopted the "central-local cooperation" model, such as China Southern Airlines Group and China Eastern Airlines Group; some are newly established state-owned enterprises, such as China Rare Earth Group and China Logistics Group; some are state-owned banks that have undergone overall share reform and listing; and some are state-owned banks that have undergone overall share reform and listing. It is a central enterprise with 10% equity transferred to the Social Security Fund Council.

After a wholly state-owned company is reformed and becomes a company with diversified equity, the original special regulations on wholly state-owned companies no longer apply, and it may become a "fish that slips through the net" under the special regulations.

Therefore, the revision of the new company law created a concept of "state-invested companies" and expanded the scope of special provisions to state-owned capital holding companies. It does not matter whether they are joint-stock companies or limited liability companies.

This new provision of the new company law is in line with the new situation emerging in the reform of state-owned enterprises.

In addition, Wu Gangliang believes that state-funded companies specifically refer to first-class companies.

Mixed-ownership reform and equity diversification of subsidiaries have long become the norm, and they only need to be applied in accordance with the regulations of enterprises invested by state-funded companies.

Highlights of state-funded companies

　　The new Company Law improves the relevant provisions for state-invested companies, which is regarded as a highlight of this revision of the Company Law.

　　"The new company law has a dedicated chapter to regulate state-funded companies, clarifying the framework system of state-funded companies in legal form." Zhu Changming said, first of all, state-funded companies are investors who are represented by the State Council or local people's governments in accordance with the law on behalf of the state. Responsible companies, that is, first-level companies. Company types include wholly state-owned companies and state-owned capital holding companies, including state-funded limited liability companies and joint-stock companies. This provides legal support for future central-local cooperation.

In addition, special provisions are only made for the organizational structure of state-invested companies, and other provisions of the Company Law apply to subsidiaries established by state-invested companies.

　　"Providing legal support for the centralized supervision of state-owned assets in the future." Zhu Changming further said that the centralized supervision of operating state-owned assets is the direction of state-owned assets reform. At present, in addition to the State-owned Assets Supervision and Administration Commission at all levels, the financial department and many ministries and commissions have supervision of state-owned enterprises and new companies. The law clarifies that the State Council or local people's governments can authorize state-owned assets supervision and administration agencies or other departments and agencies to perform investor duties on state-invested companies on behalf of the people's government at the same level, which provides legal support for the centralized supervision of operating state-owned assets in the future.

　　Hu Chi, a researcher at the Research Center of the State-owned Assets Supervision and Administration Commission of the State Council, believes that the new company law proposes the concept of "state-invested companies", which is a highlight of this revision of the company law.

The concept of "state-owned companies" was proposed mainly to adapt to the results of the reform of state-owned enterprises in recent years. A large number of companies that are not solely state-owned have appeared in mixed-ownership reform enterprises, and it is no longer possible to cover all state-owned enterprises.

In addition, the new company law has special provisions on investors and party building of state-owned companies, which is more complete than the previous company law.

　　Zhu Changming believes that the new company law further improves the corporate governance structure of state-funded companies.

In particular, clearly establish the audit committee of the board of directors.

At present, all state-owned companies have abolished the board of supervisors. The new company law also legally clarifies that limited liability companies and joint-stock companies can set up audit committees of the board of directors to exercise the powers of the board of supervisors. Separate provisions are also made for wholly state-owned companies, that is, setting up a director on the board of directors. When the audit committee is formed to exercise the powers of the board of supervisors, there will be no board of supervisors or supervisors.

The new company law confers supervisory functions to the audit committee of the board of directors, which is stipulated from the perspective of both decision-making and supervision, and will greatly strengthen the supervision force.

Provide legal support for risk prevention and control

　　It is worth noting that Article 177 of the New Company Law stipulates that state-funded companies shall establish and improve internal supervision, management and risk control systems in accordance with the law, and strengthen internal compliance management.

　　Wu Gangliang believes that this provision actually refers to the "trinity" supervision system of internal control, risk management, and compliance management of state-owned enterprises.

Operating in accordance with the law and managing compliance are requirements for preventing risks and building a world-class enterprise.

In 2022, the State-owned Assets Supervision and Administration Commission of the State Council issued the "Measures for the Compliance Management of Central Enterprises". Strengthening compliance management is one of the important tasks in the current reform of state-owned enterprises.

In actual work, there is a certain overlap in the three systems of internal control, risk management, and compliance management, and it is necessary to coordinate and integrate related functions and unify the management platform.

At present, state-owned enterprises are taking advantage of the opportunity to strengthen compliance management and explore a "strong internal control, risk prevention, and compliance promotion" model that suits their own circumstances.

From a legal perspective, Chapter 7 of the New Company Law, "Special Provisions on the Organizational Structure of State-Invested Companies," only applies to first-level companies (group companies) of state-owned enterprises, and other provisions of the New Company Law only apply to their subsidiaries.

However, due to the sinking of assets of state-owned enterprises in recent years, as well as the sinking of business and personnel, state-owned capital has the characteristics of "penetrating" management. Therefore, subsidiaries at all levels also refer to the governance model of first-level companies, such as party organization pre-procedures. , set up employee directors, a majority of outside directors, the chairman and general manager shall be separated in principle, etc.

　　In Hu Chi's view, this is the result of the reform of state-owned enterprises in recent years. State-owned enterprises have strengthened corporate governance, strengthened internal supervision, and risk control. It is reflected in the new company law and improves and supplements the content of the new company law.

　　Zhu Changming also believes that the new company law clarifies that state-funded companies should establish and improve internal supervision and management and risk control systems in accordance with the law, and strengthen internal compliance management. This is to elevate risk prevention to a legal requirement and provide state-owned enterprises with "strengthened internal control, risk prevention, and "Promote Compliance" to provide legal support.

　　Liu Junhai, a professor at the Law School of Renmin University of China and a member of the Company Law Revision Advisory Group of the Legal Affairs Committee of the Standing Committee of the National People's Congress, told reporters: "The purpose of emphasizing that state-funded companies must improve their internal supervision and management and risk control systems and strengthen internal compliance management is to deepen the reform of state-owned enterprises. , Improving corporate governance is also to promote the company's longevity and ensure that state-owned enterprises become 'century-old stores'." (Rule of Law Daily)