Company and Enterprise Law (公司法、合伙企业法、个人独资企业法、企业破产法)
This domain covers limited liability companies, joint stock companies, partnerships, sole proprietorships and enterprise bankruptcy. The exam tests formation, capital contribution, governance, shareholder liability, exit and insolvency.
LLC capital and governance
- Under the 2023 Company Law, effective 1 July 2024, LLC shareholders must pay subscribed capital within 5 years of establishment; existing companies must transition.
- If a shareholder fails to contribute, the company may demand payment. Other founding shareholders bear joint liability for defective contributions made at establishment.
- On equity transfer, the transferee assumes the unpaid contribution obligation; the transferor bears supplementary liability if the transferee fails to pay. For overdue or defective contribution, transferor and transferee are jointly liable, unless the transferee was unaware and should not have been aware.
Partnerships and bankruptcy
- A general partnership has general partners with unlimited joint liability. In a limited partnership, general partners manage and bear unlimited liability; limited partners are liable only to the extent of their contribution and must not manage partnership affairs.
- A sole proprietorship’s investor bears unlimited liability.
- In bankruptcy, the administrator takes over the estate and may avoid preferential transfers and undervalue transactions. Priority order is bankruptcy expenses and common-benefit claims, employee claims, taxes and social insurance, then ordinary claims.
Worked example
A subscribes RMB 1 million for 30% of an LLC, pays RMB 200,000, then transfers the equity to B before the contribution deadline. The company later demands the unpaid RMB 800,000. Under the 2023 Company Law, B as transferee bears the contribution obligation; A bears supplementary liability if B fails to pay. If A had already missed the deadline, A and B would be jointly liable, unless B was unaware and should not have been aware.
Traps
- Applying the old unlimited subscription rule instead of the 5-year period.
- Treating a limited partner as able to manage partnership affairs routinely.
- Reversing bankruptcy priority between taxes and employee claims.
- Assuming equity transfer always frees the transferor from contribution liability.