The newly revised Company Law (“New Company Law”) was adopted at the 7th Session of the Standing Committee of the 14th National People’s Congress on December 29, 2023, and has come into effect on July 1, 2024. This article provides a concise analysis of the implications of the New Company Law for corporate governance in insurance companies, offering insights for readers’ reference.

I. Further Emphasizing Corporate Social Responsibility

The concept of corporate governance has long been debated in narrow and broad terms. The narrow interpretation, based on the separation of ownership and management of companies, focuses primarily on shareholders’ checks and oversight over corporate management. In contrast, the broader concept encompasses a wide range of stakeholders—including not only shareholders and management but also creditors, employees, governments, and other internal and external parties—emphasizing the establishment of appropriate governance entities. Companies establish proper corporate governance system to harmonize and balance the interests of all relevant parties.

The New Company Law explicitly addresses this broader concept in its standalone Article 20, stipulating: “Companies engaging in business activities shall fully consider the interests of stakeholders such as employees and consumers, as well as social public interests including ecological and environmental protection, and shall bear social responsibilities. The State encourages companies to participate in public welfare activities and publish social responsibility reports.”

This provision underscores that companies must not only safeguard shareholders’ interests but also fully consider the rights of other stakeholders—such as employees and consumers—as well as broader social obligations, including environmental sustainability, further emphasize the social responsibilities that should be borne by companies.

As financial institutions, insurance companies operate in a liability-driven business model. Beyond protecting shareholders’ interests, they bear inherent responsibilities toward policyholders, financial market stability, and ecological conservation. This aligns with the insurance regulatory authorities’ recent emphasis on insurance consumers protection and green finance initiatives.

Consequently, in the process of establishing corporate governance mechanisms, insurance companies may need to pay attention not only to protecting the interests of shareholders and the company but also to considering and balancing the interests of other stakeholders, consistently integrating the fulfillment of social responsibilities throughout.

II. Refinement of the Legal Representative System

Article 10(1) of the New Company Law stipulates that a company’s legal representative shall be a director or manager who executes company affairs on behalf of the company. In contrast, the previous Company Law (hereinafter referred to as the “2018 Company Law”) under Article 13 provided that the legal representative of a company shall be the chairman of the board, an executive director, or the manager. The New Company Law expands the scope of individuals eligible to serve as a company’s legal representative, from “chairman of the board, executive director, or manager” to “director or manager who executes company affairs”, while emphasizing that the legal representative must be a director actively engaged in company affairs, thereby prohibiting the practice of “nominee legal representatives.”

Articles 46 and 95 of the New Company Law introduce a requirement that the articles of association of both limited liability companies and joint stock limited companies must specify the procedures for the appointment and change of the legal representative.

Article 10(2) of the New Company Law establishes an automatic resignation mechanism for legal representatives: if the legal representative resigns from their position as a director or manager, they shall be deemed to have automatically resigned as legal representative. Pursuant to Article 10(3), the company shall appoint a new legal representative within thirty days of the resignation of the incumbent.

The New Company Law introduces Article 11, which addresses the fault liability of legal representatives. This provision aligns with Article 61 of the Civil Code (“Definition and Legal Consequences of Acts by Legal Representatives”) and Article 62 (“Liability for Acts Performed in a Representative Capacity”).

Currently, insurance regulatory provisions lack detailed rules regarding the scope of individuals eligible to serve as legal representatives of insurance companies, as well as the resignation and liability of legal representatives. Only Opinions on Regulating the Articles of Association of Insurance Companies, Article 1, Paragraph (3), Item 5, explicitly requires that the articles of association of an insurance company specify the specific authority and performance requirements of the legal representative, as well as the manner in which such authority shall be exercised if the legal representative fails or is unable to perform their duties.

Under these new provisions, insurance companies will have a broader range of options when selecting a legal representative. If an insurance company’s articles of association do not limit the legal representative to a specific individual such as the chairman of the board but instead adopt a more flexible approach—for example, stating that “the legal representative shall be a director of the company, to be specifically elected by [e.g., the board of directors]”—then corresponding amendments must be made to the articles of association and governance rules to clarify the procedures for the appointment and removal of the legal representative. Additionally, care must be taken to ensure that the company can designate a new legal representative within the statutory thirty-day period following the resignation or removal of the incumbent.

III. Revisions to Corporate Organizational Structure

The changes to corporate organizational structure requirements under the New Company Law compared to the 2018 Company Law are summarized in the table below:

Company Type	2018 Company Law	New Company Law
Limited Liability Company	Shareholders’ Meeting/Shareholder Note: No shareholders’ meeting is required if there is only one shareholder.	Shareholders’ Meeting/Shareholder Note: No shareholders’ meeting is required if there is only one shareholder.
	Board of Directors /Executive Director Note: A limited liability company with a small number of shareholders or of a small scale may have one executive director instead of board of directors.	Board of Directors/ Director Note: A limited liability company with a small scale or a small number of shareholders may not have board of directors, but may appoint a director to exercise the functions and powers of the board of directors as stipulated in the Company Law
	Board of Supervisors/Supervisor Note: A limited liability company with a small number of shareholders or of a small scale may appoint one or two supervisors instead of establishing a board of supervisors.	Board of Board of Supervisors/Supervisor/ No Board of Supervisors Note: A limited liability company with a relatively small scale or a limited number of shareholders may choose not to establish a board of supervisors, and instead appoint one supervisor to exercise the functions and powers of the board of supervisors as prescribed by the Company Law. Upon unanimous consent of all shareholders, the company may also opt not to appoint any supervisor.A limited liability company may, in accordance with the provisions of its articles of association, establish an audit committee composed of directors within the board of directors to exercise the functions and powers of the board of supervisors as stipulated by the Company Law, thereby dispensing with the establishment of either a board of supervisors or a supervisor.
Joint Stock limited Company	Shareholders’ General Meeting Note: The company shall not have only one shareholder and shall maintain at least two shareholders.	Shareholders’ Meeting/Shareholder Note: Where there is only one shareholder, no shareholders’ meeting shall be established. That is, under the New Company Law, it is no longer mandatory to have two or more shareholders to establish a joint stock limited company, a single shareholder may now incorporate such a company.
	Board of Directors Note: The company shall establish the board of directors.	Board of Directors/Directors Note: A joint stock limited company with a relatively small scale or a limited number of shareholders may choose not to establish the board of directors and instead appoint a single director to exercise the functions and powers of the board of directors as prescribed by the Company Law.
	Board of Supervisors Note: The board of supervisors must be established.	Board of Supervisors/Supervisor/No Board of Supervisors Note: A joint stock limited company with relatively small scale or fewer shareholders may choose not to establish a board of supervisors, and instead appoint one supervisor to exercise the functions and powers of the board of supervisors as stipulated in the Company Law.A joint stock limited company may, in accordance with its articles of association, establish an audit committee composed of directors within its board of directors to exercise the functions and powers of the board of supervisors under the Company Law, thereby dispensing with the establishment of either a board of supervisors or a supervisor.

Based on the aforementioned changes, the revisions are primarily reflected in the following aspects:

First, there are adjustments in certain expressions. For example, the term “shareholders’ general meeting” (股东大会) is no longer used and has been uniformly replaced with “shareholders’ meeting” (股东会). The term “executive director” (执行董事) has also been removed to distinguish it from “executive directors who concurrently hold other positions such as senior management roles.”

Second, the new law introduces provisions for single-shareholder joint stock limited companies while deleting the standalone section on “special provisions for single-shareholder limited liability companies”.

Third, for limited liability companies, the most significant change is that, under statutory conditions, they are no longer required to establish a board of supervisors and may even be exempt from appointing a supervisor.

Fourth, for joint stock limited companies, the new law permits, under statutory conditions, the omission of a board of directors and allows for the appointment of only directors. Similarly, under statutory conditions, such companies may forgo establishing a board of supervisors and appoint only one supervisor, or even dispense with a supervisor altogether. In contrast, the 2018 Company Law did not provide such exemptions, meaning joint stock limited companies were previously required to have both a board of directors and a board of supervisors.

Fifth, the regulatory requirements for the organizational structure of limited liability companies and joint stock limited companies are increasingly converging under the New Company Law. The key distinction is that, for limited liability companies with a small scale or a limited number of shareholders, the unanimous consent of all shareholders may allow the company to operate without a supervisor. However, no such exemption exists for joint stock limited companies.

• Key Implications of the above changes for Insurance Companies

The Corporate Governance Guidelines for Banking and Insurance Institutions require joint stock insurance companies to establish a governance structure comprising shareholders’ meeting, board of directors, board of supervisors, and senior management, with clear delineation of the powers and responsibilities of these bodies in their articles of association. For limited liability insurance companies, the Guidelines apply mutatis mutandis, unless otherwise stipulated by Company Law, other laws and regulations, or regulatory requirements.

Given the convergence of organizational structure rules for limited liability companies and joint stock limited companies under the New Company Law, insurance regulators may adjust corresponding rules in the future. This could lead to greater flexibility in governance arrangements and lower compliance costs for  joint stock insurance companies with relatively small scale or fewer shareholders. However, due to the unique risks and systemic importance of financial institutions like insurers, regulators may retain strict organizational requirements to ensure robust governance frameworks.

IV. Regarding the Authority of the Shareholders’ Meeting, Board of Directors, Board of Supervisors

1.Changes to the Statutory Authority of the Shareholders’ Meeting

company type	2018 Company Law	New Company Law
Limited Liability Company	Article 37 The shareholders’ meeting shall exercise the following powers and functions: (1)determine the company’s business policies and investment plans; (2)Electing and replacing directors and supervisors who are not representatives of the employees, and deciding on matters concerning their remunerations; (3)Reviewing and approving the reports of the board of directors; (4)Reviewing and approving the reports of the board of supervisors or the supervisors; (5)Reviewing and approving the company’s annual financial budget plan and final accounts plan; (6)Reviewing and approving the company’s profit distribution plan and loss recovery plan; (7)Adopting resolutions on increases or reductions in the company’s registered capital; (8)Adopting resolutions on the issuance of corporate bonds; (9)Adopting resolutions on the merger, division, dissolution, liquidation, or change of corporate form of the company; (10)Amending the company’s articles of association; (11)Other powers and functions stipulated in the company’s articles of association. If all shareholders unanimously consent in writing to any matter listed in the preceding paragraph, a shareholders’ meeting may be dispensed with, and a decision may be made directly, provided that such decision is signed, sealed by all shareholders on the relevant document.	Article 59 The shareholders’ meeting shall exercise the following powers and functions: (1) Electing and replacing directors and supervisors, and deciding on matters concerning their remuneration; (2) Reviewing and approving the report of the board of directors; (3) Reviewing and approving the report of the board of supervisors; (4) Reviewing and approving the company’s profit distribution plan and loss recovery plan; (5) Adopting resolutions on increases or reductions in the company’s registered capital; (6) Adopting resolutions on the issuance of corporate bonds; (7) Adopting resolutions on the merger, division, dissolution, liquidation, or change of corporate form of the company; (8) Amending the company’s articles of association; (9) Other powers and functions stipulated in the company’s articles of association. The shareholders’ meeting may authorize the board of directors to adopt resolutions on the issuance of corporate bonds. If all shareholders unanimously consent in writing to any matter listed in Paragraph 1 of this Article, a shareholders’ meeting may be dispensed with, and a decision may be made directly, provided that such decision is signed or sealed by all shareholders on the relevant document.
Joint Stock limited Company	Article 99 The provisions of Paragraph 1 of Article 37 of this Law regarding the powers and functions of the shareholders’ meeting of a limited liability company shall apply mutatis mutandis to the shareholders’ general meeting of a joint stock limited company.	Article 112 The provisions of Paragraph 1 and Paragraph 2 of Article 59 of this Law regarding the powers and functions of the shareholders’ meeting of a limited liability company shall apply mutatis mutandis to the shareholders’ meeting of a joint stock limited company. The provisions of Article 60 of this Law regarding the exemption from establishing a shareholders’ meeting for a single-shareholder limited liability company shall apply mutatis mutandis to a single-shareholder joint stock limited company.
	None	Article 153 Where the issuance of new shares is authorized to be decided by the board of directors pursuant to the company’s articles of association or a resolution of the shareholders’ meeting, such resolution of the board of directors shall be adopted by an affirmative vote of not less than two-thirds of all directors.
	Article 161, Paragraph 1 A listed company may issue corporate bonds convertible into shares upon resolution by the shareholders’ general meeting, and shall specify the detailed conversion measures in the corporate bond offering plan. The issuance of corporate bonds convertible into shares by a listed company shall be subject to and approved by the securities regulatory authority under the State Council.	Article 202, Paragraph 1 A joint stock limited company may issue corporate bonds convertible into shares upon resolution by the shareholders’ meeting, or upon authorization by the company’s articles of association or the shareholders’ meeting authorizing the board of directors, and shall specify the detailed conversion measures. The issuance of corporate bonds convertible into shares by a listed company shall be subject to registration with the securities regulatory authority under the State Council.

From the comparative analysis above, the principal amendments and their legal implications are summarized as follows:

(1) Removal of Certain Statutory Powers and Functions of the Shareholders’ Meeting

The authority to “determine the company’s business policies and investment plans” and to “reviewing and approving the company’s annual financial budget plan and final accounts plan” has been removed from the statutory authority of the shareholders’ meeting. Insurance companies may, based on their actual circumstances and in compliance with the provisions of the New Company Law, independently determine whether to retain the abovementioned authorities as matters to be resolved by the shareholders’ meeting.

(2) Delegation Certain Powers and Functions of Shareholders’ Meeting Authority to the Board of Directors

Under the 2018 Company Law, the issuance of corporate bonds and new shares fell within the exclusive statutory authority of the shareholders’ (or shareholders’ general) meeting. Pursuant to Article 22 of the Guidelines for the Articles of Association of Insurance Companies, shareholders’ general meetings were expressly prohibited from delegating such statutory powers to the board of directors or any other entity or individual.

The New Company Law now permits shareholders’ meetings to authorize the board of directors to adopt resolutions regarding the issuance of corporate bonds. As for the issuance of convertible bonds and new shares, a company may either: expressly vest such decision-making authority in the board of directors through its articles of association; or retain such authority with the shareholders’ meeting, which may then delegate it to the board by resolution.

Although Article 22 of the Guidelines for the Articles of Association of Insurance Companies stipulates that the shareholders’ general meeting shall not delegate its statutory powers to the board of directors, other institutions or individuals, the term “statutory authority” herein should be construed to refer only to those powers that laws mandatorily require to be exercised by the shareholders’ (or shareholders’ general) meeting. Under the New Company Law, which expressly permits the shareholders’ meeting to authorize the board of directors to exercise certain powers, insurance companies should accordingly be permitted to allow such delegation of the aforementioned authorities by the shareholders’ meeting in accordance with law.

2. Special Circumstances Exempting Shareholders’ Meeting Resolutions

Article 152 of the New Company Law: The articles of association or the shareholders’ meeting may authorize the board of directors to decide, within three years, the issuance of new shares not exceeding 50% of the already issued shares. However, if non-monetary assets are contributed as capital, a shareholders’ meeting resolution shall still be required.

Where the board of directors’ decision on share issuance pursuant to the preceding paragraph results in changes to the company’s registered capital or the number of issued shares, the corresponding amendment to the articles of association shall not require further approval by the shareholders’ meeting.

Article 219: A merger between a company and another company in which it holds more than 90% of the equity does not require a resolution by the shareholders’ meeting of the merged company, provided that other shareholders are duly notified and retain the right to demand the company to repurchase their equity or shares at a fair price.

A merger involving payment not exceeding 10% of the company’s net assets does not require a shareholders’ meeting resolution, unless otherwise stipulated in the articles of association.

For mergers exempt from shareholders’ meeting resolutions under the preceding two paragraphs, a board resolution shall still be required.
Given these provisions, certain special circumstances, such as registered capital adjustments and mergers of a joint stock limited company, may proceed without a shareholders’ meeting resolution. Therefore, insurance companies should accordingly revise their articles of association to reflect these exceptions in defining the scope of shareholders’ meeting authority.

3. New Requirements for Related-Party Transactions and Competing Businesses (Non-Competition) Involving directors, supervisors, senior management personnel and their close relatives. Accordingly, the matters requiring deliberation by the shareholders’ meeting and the board of directors, and the reports to be heard, need to be correspondingly adjusted.

The New Company Law establishes detailed rules governing related-party transactions and competing business activities conducted by directors, supervisors, senior management and their close relatives. These requirements are primarily stipulated under the following provisions:

Article 182 of the New Company Law: Directors, supervisors, and senior management personnel who directly or indirectly enter into contracts or engage in transactions with the company shall report to the board of directors or the shareholders’ meeting on matters related to the execution of such contracts or transactions, and shall obtain approval through resolutions of the board of directors or the shareholders’ meeting in accordance with the provisions of the company’s articles of association.
The preceding paragraph shall apply to contracts or transactions entered into by the company with close relatives of directors, supervisors, or senior management personnel; enterprises directly or indirectly controlled by such directors, supervisors, senior management personnel, or their close relatives; or other connected parties having an associative relationship with such directors, supervisors, or senior management personnel.

Article 183: Directors, supervisors, and senior management personnel shall not exploit their positions to appropriate commercial opportunities belonging to the company for their own benefit or the benefit of others. Exceptions apply under the following circumstances:
(1) The matter is reported to the board of directors or the shareholders’ meeting and approved through resolutions of the board of directors or the shareholders’ meeting in accordance with the provisions of the company’s articles of association;
(2) The company is unable to utilize the commercial opportunity under applicable laws, administrative regulations, or the company’s articles of association.

Article 184: Directors, supervisors, and senior management shall not, without reporting to the board of directors or the shareholders’ meeting and obtaining approval through resolutions of the board of directors or the shareholders’ meeting in accordance with the provisions of the company’s articles of association, engage in or assist others in conducting business activities that compete with the company’s operations.

Article 185: When the board of directors deliberates on matters falling under Articles 182 to 184 of this Law, relevant directors shall abstain from voting, and their voting rights shall not be counted. If the number of disinterested directors present at the board meeting falls below three, the matter shall be submitted to the shareholders’ meeting for deliberation.

Under the above provisions, the New  Company Law  requires directors, supervisors, senior management and their close relatives to report to the board of directors or shareholders’ meeting and obtain approval through corresponding resolutions as stipulated in the articles of association when engaging in related-party transactions and competing businesses (non-competition).

Regarding the interpretation of “in accordance with the provisions of the company’s articles of association”, divergent views exist. One interpretation holds that the articles of association must explicitly designate whether such matters require board of directors or shareholders’ meeting approval, that is, such matters must not only be reported, but also submitted to the board of directors or the shareholders’ meeting for deliberation. Conversely, others argue that board or shareholder approval is required only if  the articles of association expressly impose such a requirement; if not, only the reporting obligation needs to be fulfilled. The author favors the first interpretation, concluding that both reporting and approval are obligatory. If this interpretation prevails, insurance companies must specify in their articles of association the reporting obligations of relevant parties regarding the above-mentioned matters, and whether the board of directors or shareholders’ meeting holds decision-making authority over such matters.

4. The appointment or dismissal of an accounting firm engaged for the company’s audit services may be determined by the board of supervisors.
Under  Article 169 of the 2018 Company Law, the appointment or dismissal of an accounting firm responsible for auditing services was required to be determined by the shareholders’(general) meeting or the board of directors in accordance with the company’s articles of association. The new Company Law now revises the rule to allow the decision to be made by the shareholders’ meeting, the board of directors, or the board of supervisors. That is, for companies with board of supervisors, they may opt to delegate such decisions to the board of supervisors.

Insurance companies may, based on their actual circumstances, independently choose whether the appointment or dismissal of the accounting firms engaged for the company’s audit services is to be decided by the shareholders’ meeting, board of directors, or board of supervisors.

V. Refinement of Deliberation Rules for Shareholders’ Meetings and Board Meetings

1. Requirements for Shareholders’ Meeting Resolution Thresholds
★ For limited liability companies:
Article 66 of the New Company Law introduces a requirement that “resolutions of the shareholders’ meeting shall be adopted by shareholders representing more than half of the voting rights.” The 2018 Company Law imposed no such requirement, instead deferring to the articles of association for general matters except as otherwise stipulated in the Company Law (For example, special matters such as amendments to the articles of association, which required approval by shareholders representing two-thirds or more of the voting rights).

★ For joint stock limited companies:
Article 116(2) of the New Company Law retains the 2018 Company Law provision that “resolutions of the shareholders’ meeting shall be adopted by more than half of the voting rights held by shareholders present at the meeting.”

2. Provisions on the Removal of Directors

Article 71 of the New Company Law stipulates: “A shareholders’ meeting may resolve to remove a director, and the removal shall take effect on the date the resolution is adopted. Where a director is removed without proper cause prior to the expiration of their term, such director may claim compensation from the company.” Article 120 stipulates that the provisions of Article 71 shall also apply to joint stock limited companies.

The New Company Law clarifies the effective date of director removal and establishes the right of directors to claim compensation for removal without proper cause during their term. These principles align with the spirit of Article 3 of the Supreme People’s Court’s Interpretation on Several Issues Concerning the Application of the Company Lawof the People’s Republic of China (No. 5) (2020 Amendment).

• Introduction of Class Shareholders’ Meetings

The New Company Law introduces fundamental rules for class shares, including: Article 146 establishes class shareholders’ meetings; Article 144 provides that voting rights for the election or removal of supervisors or audit committee membersshall be the same for class shares and ordinary shares; Article 145 mandates that companies issuing class shares explicitly specify relevant matters in their articles of association.

4. Requirements for Board Meeting Attendance and Resolution Thresholds

★ For limited liability companies :
Article 73 of the New Company Law introduces a requirement that “A board meeting shall be held only if more than half of the directors are present, and resolutions shall be adopted by more than half of all directors.” This establishes minimum attendance and resolution thresholds for board meeting. The 2018 Company Law did not include this requirement; it only provided that, except as otherwise stipulated by the Company Law, other matters shall be governed by the company’s articles of association.

★ For joint stock limited companies :
Article 124(1) of the New Company Law retains the 2018  Company Law  provision that  “A board meeting shall be held only if more than half of the directors are present, and resolutions shall be adopted by more than half of all directors.”

• Key Implications of the above changes for Insurance Companies

From the above changes in the New Company Law, the main focus is on limited liability companies.

Article 22 of the Guidelines on Corporate Governance of Banking and Insurance Institutions provides: “Resolutions passed by the shareholders’ meeting must be approved by more than half of the voting rights held by the shareholders attending the meeting. However, the following matters must be approved by more than two-thirds of the voting rights held by the shareholders attending the meeting: …” Paragraph 1 of Article 115 stipulates: “Banking and insurance institutions organized as limited liability companies shall apply this Guideline by reference. If there are other provisions in laws such as Company Law, regulations, or regulatory rules, such provisions shall prevail.”

Insurance companies need to correspondingly adjust the deliberation rules for the shareholders’ meeting and the board of directors in their articles of association in accordance with the provisions of the New Company Law. Specifically:

Regarding the voting thresholds for shareholders’ resolutions, the New Company Law introduces a requirement for limited liability companies that “resolutions of the shareholders’ meeting shall be approved by shareholders representing more than half of the voting rights.” Therefore, limited liability insurance companies need to make corresponding adjustments. It should be noted that the New Company Law distinguishes between limited liability companies and joint stock limited companies on this issue. For limited liability companies, “the approval requires shareholders representing more than half of all voting rights”, that is, more than half of all shareholders’ voting rights; whereas for joint stock limited companies, “the approval requires more than half of the voting rights held by shareholders attending the meeting”, limited to more than half of the voting rights held by shareholders present at the shareholders’ meeting.

Additionally, joint stock insurance companies issuing class shares need to correspondingly adjust the mandatory provisions in their articles of association as well as the deliberation rules governing shareholders’ meetings and other related matters.

Regarding the requirements for board meeting attendance and resolution thresholds, the New Company Law applies the same standards to both limited liability companies and joint stock limited companies. Previously, no such requirements were imposed on limited liability companies. The New Company Law adds provisions stating that “a board meeting shall be held only if more than half of the directors are present, and resolutions shall be adopted by more than half of all directors”, limited liability insurance companies also need to make corresponding adjustments accordingly.

VI. Expansion of the Scope of Convertible Bond Issuers

Article 202 of the New Company Law provides: A joint stock limited company may issue corporate bonds convertible into shares upon resolution by the shareholders’ meeting or, if authorized by its articles of association or the shareholders’ meeting, by resolution of the board of directors. Specific conversion procedures shall be prescribed. Listed companies issuing convertible corporate bonds shall obtain registration with the securities regulatory authority under the State Council.

Convertible corporate bonds shall be labeled as such on the bond certificates, and the total amount of convertible bonds shall be recorded in the register of corporate bondholders.

Compared to the 2018 Company Law, the New Company Law expands the scope of issuers of convertible bonds beyond listed companies to all joint stock companies. However, public issuance of convertible bonds remains restricted to listed companies.

While the New Company Law broadens convertible bond issuance eligibility to all joint stock companies, insurance companies, as part of a stringently regulated industry, remain subject to additional constraints. For non-listed joint stock limited company structured insurance companies to issue convertible bonds, insurance regulators has formulated corresponding regulatory rules. It is the author’s view that only non-listed joint stock limited company insurers meeting specific qualifications or conditions would be permitted to issue such convertible bonds.

VII. Enhanced Legal Liability for Directors, Supervisors, and Senior Management, and Statutory Recognition of D&O Insurance

Under the 2018 Company Law, the duty of loyalty and duty of diligence for directors, supervisors, and senior management personnel lacked detailed definition and clarity. The New Company Law addresses this gap in Article 180, which explicitly delineates the scope of these duties for directors, supervisors, and senior management personnel and extends the duties of loyalty and duty of diligenceto controlling shareholders and actual controllers when they engage in the company’s affairs. Furthermore, the New Company Law refines and expands the liability for compensation of directors, supervisors, and senior management personnel through provisions such as: Article 51, 53, 163, 211, 226, and 232.

Significantly, Article 193 of the New Company Law formally incorporates D&O Insurance into the statutory framework. (For a detailed analysis, see our prior publication: “Analysis regarding the Development of D&O Liability Insurance System in China under 2023 PRC Company Law”.)

Given the expanded legal liability imposed on directors, supervisors, and senior management under the New Company Law, directors, supervisors, and senior management of insurance companies must exercise heightened diligence in fulfilling their duties of loyalty and duty of diligence during the performance of their roles.

VIII. Regarding Equity/Share Transfer

1.Major Impacts on Equity Transfer in Limited Liability Companies

(1) Abolishment of the Requirement for Consent from Other Shareholders for Transfers to Third Parties

Under Article 71 of the 2018 Company Law, shareholders of a limited liability company transferring equity to third parties were required to obtain the consent of more than half of the other shareholders. However, Article 84 of the New Company Law abolishes this requirement, transfers to third parties no longer require consent from other shareholders; instead, the transferring shareholder need only notify other shareholders, who retain a right of first refusal. If other shareholders fail to respond within 30 days of receiving notice, they are deemed to have waived this right.

(2) New Procedural Requirements for Equity Transfer and Clarification of that Transferees May Exercise Shareholder Rights Upon Being Recorded in the Register of Shareholders

Article 86 of the New Company Law introduces the following provisions: “A shareholder transferring equity shall notify the company in writing to request amendment of the shareholder register. If registration changes are required, the shareholder shall also request the company to file such changes with the company registration authority. If the company refuses or fails to respond within a reasonable period, the transferor or transferee may initiate legal proceedings in court. For equity transfers, the transferee may assert shareholder rights against the company from the date of registration in the shareholder register.”

(3) Expanded Circumstances for Shareholder Repurchase Requests
Article 89 of the New Company Law expands upon Article 74 of the 2018 Company Law by adding a provision stating that if “the company’s controlling shareholder abuses shareholder rights, and thereby materially harms the interests of the company or other shareholders, the other shareholders may request the company to repurchase their equity at a fair price.”

2.Major Impacts on Share Transfer in Joint Stock Limited Companies

(1) Abolishment of the One-Year Lock-Up Period for Founders and New Restrictions on Pledgee’s Exercise of Pledge Rights over Restricted Shares During the Lock-Up Period

The New Company Law removes the one-year transfer restriction for founders under Article 141 of the 2018 Company Law. Simultaneously, Paragraph 3 of Article 160 stipulates that “if shares are pledged during the restricted transfer period prescribed by laws or administrative regulations, the pledgee may not exercise the pledge rights during the restricted transfer period.” Thus, pledgees of restricted shares cannot enforce their pledge rights during the lock-up period.

(2) New Circumstances Enabling Shareholders to Request Share Repurchases

Article 161 of the New Company Law introduces three circumstances where dissenting shareholders (who vote against the relevant shareholders resolution) may request the company to repurchase their shares at a fair price, enhancing protection for minority shareholders. This provision excludes companies with publicly issued shares.

The three circumstances under Article 161 are:①The company has failed to distribute profits for five consecutive years, despite being profitable and meeting statutory profit distribution conditions;② The company transfers its core assets;③The company’s operational term under its articles of association expires, or other dissolution triggers under the articles arise, but the shareholders’ meeting resolves to amend the articles to continue operations.

(3) Refinement of Rules on Share Inheritance for Deceased Natural Shareholders

Article 167 of the New Company Law revises Article 75 of the 2018 Company Law as follows: Upon the death of a natural person shareholder, their legal heirs may inherit the shareholder status, unless the articles of association of a joint stock limited company with transfer-restricted shares provide otherwise.

• Key Implications of the above changes for Insurance Companies

If an insurance company’s articles of association, shareholder agreements, or other legal documents contain specific provisions on equity/share transfers, such provisions must be reviewed for compliance with the New Company Law. Provisions conflicting with the New Company Law must be amended or adjusted. In practice, insurance companies must also ensure adherence to the New Company Law’s requirements during equity/share transfers.

IX. New Restrictions on Financial Assistance

Article 163 of the New Company Law introduces restrictive provisions on companies providing financial assistance to others for acquiring shares of the company or its parent. Except for employee stock ownership plans, a company shall not provide gifts, loans, guarantees, or other financial assistance to others for obtaining shares of the company or its parent company. However, if such financial assistance is in the company’s interests and approved by a shareholders’ meeting resolution, or by a board resolution under authorization by the articles of association or the shareholders’ meeting, the total cumulative amount of financial assistance shall not exceed 10% of the total issued share capital. Furthermore, if the board of directors approves such assistance, the resolution must be passed by at least two-thirds of all directors, constituting a special resolution.

For the above financial assistance restrictions, it is advisable for insurance companies to incorporate such provisions into their articles of association, explicitly specifying whether these matters are to be reviewed by the shareholders’ meeting or the board of directors.

X. Corporate Profit Distribution and Loss Recovery

1. New Liability for illegal Profit Distributions, stipulating that in addition to returning improperly distributed profits, compensation liability shall also be assumed.
   Under Article 166(5) of the 2018 Company Law, “if a shareholders’ meeting, shareholders’ general meeting or board of directors distributes profits to shareholders in violation of the preceding paragraph before offsetting losses and allocating statutory surplus reserves, shareholders must return the improperly distributed profits to the company. The New Company Law expands liability under Article 211, in addition to returning such profits, shareholders and responsible directors, supervisors, and senior management shall bear compensation liability.
2. New Obligation for Timely Profit Distribution by the Board
   Article 212 of the New Company Law introduces a requirement that “the board of directors shall distribute profits within six months after the shareholders’ meeting adopts a profit distribution resolution”, this clarifies the timeframe for executing profit distributions post-approval.
3. Permitting Capital Reserves to Offset Losses
   Article 168 of the 2018 Company Law explicitly stipulates that “capital reserve shall not be used to cover the company’s losses”, the New Company Law removes this restriction. Article 214(2) of the New Company Law states: “When using reserves to offset losses, the company shall first utilize discretionary reserves and statutory reserves; if losses remain uncovered, capital reserves may be used in accordance with regulations.”
4. Key Implications of the above changes for Insurance Companies

Insurance companies must review their articles of association to ensure provisions on profit distribution and use of capital reserves align with the New Company Law. Any conflicting clauses must be amended accordingly.

Note: This article summarizes the New Company Law’s impact on general insurance companies’ governance. Listed companies and state-invested companies should additionally consider the New Company Law’s specific provisions applicable to them. This article does not cover all changes under the New Company Law (e.g., shifts in shareholder rights and liabilities) but highlights key areas likely to significantly affect insurance company governance.

Core Tip:

The “misleading sales” determined by financial regulatory authorities is not equivalent to “fraud” under civil law. People’s courts should review whether it constitutes “fraud” in accordance with the law, based on the specific circumstances of each case, the elements of fraud, and the standard of proof, rather than merely relying on the conclusion of “misleading sales” determined by regulatory investigations to revoke an already established and effective insurance contract.

Case Background:

In disputes over “policy cancellation” between the policyholder and the insurer, policyholders often allege “improper conduct” during the sales process and file complaints with financial regulatory authorities, in an attempt to pressure the insurer into achieving a full refund. Given that some insurance institutions do indeed have flaws in their sales processes, after investigation by financial regulatory authorities, a conclusion that “misleading sales” has occurred may be reached.

After obtaining the regulatory determination conclusion, policyholders usually claim that the insurer has committed fraud and request the People’s Court to revoke the insurance contract and refund the full premium in accordance with Article 148 of the Civil Code[1]. In the current context of the prevalence of “black market for policy cancellation,” some insurers, in order to avoid regulatory investigations, are forced to process full refunds, thereby suffering losses.

There is much controversy in judicial practice regarding whether the regulatory determination conclusion of “misleading sales” cited by policyholders can be accepted by the People’s Courts and used to determine fraud and revoke the insurance contract. Based on the authors’ experience in handling similar cases, this article will discuss from the perspective of insurance companies to provide references for their defense in lawsuits.

Discussion and Analysis:

1. The Nature of the Regulatory Determination of Misleading Sales

The National Administration of Financial Regulation (NAFR), directly under the State Council, is formed on the basis of the China Banking and Insurance Regulatory Commission (CBIRC). The local regulatory bureaus function as dispatched administrative entities under the Administration. According to the Reform Plan of the Party and the State Institutions issued by the Central Committee of the Communist Party of China and the State Council in March 2023, the National Financial Regulatory Administration of China will be in charge of regulating the financial industry except the securities sector, strengthening institutional supervision, conduct supervision, functional supervision, penetrative supervision, and continuous supervision to maintain the legality and stability of the financial industry. Therefore, the National Financial Regulatory Administration of China and its local bureaus serve as administrative authorities.

Upon receipt of policyholder allegations regarding misleading sales practices during insurance contract formation, financial regulatory authorities usually issue an Investigation Opinion Letter Concerning Banking and Insurance Regulatory Violations (hereinafter referred to as the “Investigation Opinion Letter”). Such Investigation Opinion Letter routinely contains the following determination:

“Regarding the matter of misleading sales by a certain company as reflected in the letter, … after investigation, it is found that a certain company has engaged in misleading sales, in violation of Article 131(1) of the Insurance Law.”

In practice, the Opinion Letter shall include the following administrative remedy notice at the end: “If you are not satisfied with this reply, you may either apply for an administrative reconsideration to the National Financial Regulatory Administration of China within 60 days of receiving this reply letter, or file a lawsuit before the People’s Court with jurisdiction over the financial regulatory bureau’s location within six months from the date of receipt of this reply letter.”

Based on the above, in accordance with Article 18 of the Interpretation II of the Supreme People’s Court[2] on Several Issues Concerning the Application of the Insurance Law of the People’s Republic of China, the Investigation Opinion Letter issued by local financial regulatory bureaus is a public document made by administrative authorities in accordance with the law, and the People’s Courts generally accept it, unless the insurance institution provides contrary evidence to overturn the relevant determination.

II. Whether the Regulatory Determination of Misleading Sales Can Prove Fraud and Have the Evidentiary Power to Revoke the Insurance Contract

1. The Essential Difference Between Regulatory “Misleading Sales” and Civil “Fraud”

The authors hold that while the Investigation Opinion Letter determines that the insurer engaged in misleading sales practices at the time of underwriting, such regulatory investigation opinion is formulated from the perspective of industry management, in accordance with insurance industry regulatory provisions, and with the fundamental purpose of regulating the professional behavior of insurance practitioners and maintaining the order of the insurance industry. It emphasizes the improper sales language used by insurance practitioners in the process of recommending insurance products to policyholders. It should be based on the Guidelines for the Determination of Misleading Sales of Personal Insurance and Article 165 of the Insurance Law to hold insurance institutions and agency sales institutions administratively responsible, and does not involve the evaluation of the effectiveness of the insurance contract concluded by insurance practitioners.

Therefore, the authors further believe that the “misleading sales” determined in the Investigation Opinion Letter and the “fraud” determined in civil litigation differs in legislative purpose, legal basis, effectiveness level, elements of composition, and standard of proof, as well as legal consequences:

Differences	Administrative Determination of “Misleading Sales”	Civil Litigation Determination of “Civil Fraud”
Legislative Purpose	To regulate the business conduct of insurance agents and brokers, protect the legitimate rights and interests of policyholders, insured persons, and beneficiaries, and maintain the order of the insurance industry.	To implement the principle of freedom of contract, allowing the right of revocation to be exercised by the party whose expression of intent is not genuine or accurate, thereby realizing the will and interests of the revoking party and eliminating the harm caused by defective expressions of intent.
Legal Basis	Guidelines for the Identification of Misleading Sales Behavior in Life Insurance: “If a life insurance company, insurance agency, or personnel engaged in insurance sales have any of the behaviors stipulated in Articles 5 and 6 of the Guidelines, it can be determined as the behavior of ‘deceiving policyholders, insured persons, or beneficiaries’ as stipulated in Article 116 or Article 131 of the Insurance Law.”	Civil Code: ” Where a party by fraudulent means induces the other party to perform a civil juristic act against the latter’s true intention, the defrauded party has the right to request the people’s court or an arbitration institution to revoke the act.”
Effectiveness Level	Departmental regulatory document	Law
Elements of Composition	It is sufficient to have implemented the illegal behaviors stipulated in Articles 5 and 6 of the Guidelines for the Identification of Misleading Sales Behavior in Life Insurance.	The following four elements must be present simultaneously: 1. The fraudulent party has the intention to defraud; 2. The fraudulent party has committed a fraudulent act; 3. The defrauded party falls into an internal error due to the fraud; 4. The defrauded party makes an erroneous expression of intent due to the internal error.
Standard of Proof	/	To reach the standard of proof that excludes reasonable doubt
Legal Consequences	In accordance with Article 165 of the Insurance Law, administrative responsibility is imposed on the offender.	The effectiveness of the contract concluded is negated, and the defrauded party is granted the right to revoke.

Therefore, the determination of “misleading sales” as an administrative violation by insurance practitioners in the Investigation Opinion Letter does not equate to a determination that the insurance institution and its practitioners engaged in deceptive conducts at the time of concluding the insurance contract, nor does it establish fraud by the insurance institution.

The People’s Courts should still exercise their judicial power independently to review whether the evidence provided by the policyholder can prove that “the insurance institution and its practitioners engaged in deceptive conducts, had fraudulent intent, and the policyholder entered into the insurance contract under a material misunderstanding,” and should also review whether the evidence provided by the policyholder regarding the fraudulent facts meets the “beyond reasonable doubt” standard of proof.

2. Significant Disputes in Judicial Practice on the Relationship Between “Misleading Sales” and “Civil Fraud”

There are significant disputes in judicial practice regarding the relationship between the regulatory determination of “misleading sales” and the establishment of civil fraud:

Viewpoint 1: If the financial regulatory authorities determine that “misleading sales” has occurred, it indicates that the insurance company engaged in deceptive behavior at the time of underwriting, constituting fraud. Relevant judicial cases include:

• In case (2024) YU 87 Min Zhong 1914, the Chengdu-Chongqing Financial Court held that:

 According to the facts determined in the Investigation Opinion Letter Concerning Banking and Insurance Regulatory Violations, Luo Mou indeed engaged in behaviors such as signing on behalf of others, concealing sales, failing to inform important terms, giving gifts, and fabricating the annual income of the policyholder… The National Financial Regulatory Administration of China’s Liangjiang Regulatory Bureau, which issued this evidence, is the regulatory authority of the insurance industry and has professional and authoritative judgment capabilities. Its determination based on relevant evidence is a manifestation of performing regulatory functions. In the absence of contrary evidence sufficient to overturn it, the first-instance court accepted it in accordance with the law. Accordingly, it was determined that Luo Mou, a third party, did indeed engage in concealing sales and failing to inform important terms when selling insurance products… and the Personal Insurance Contract signed between Deng Mou and a certain company was legally revoked.

• In case (2016) Shan 01 Min Zhong 8496, the Intermediate People’s Court of Xi’an, Shaanxi Province held that:

 As a consumer, Yang Mou was entitled to make an informed decision on whether to purchase insurance products and which insurance products to purchase. The Shaanxi Regulatory Bureau of the China Banking and Insurance Regulatory Commission found that the staff of a certain company “exaggerated the future uncertain returns on the insurance product purchased by Yang Mou beyond the contractual guarantee,” this behavior violated Article 6(1) of Guidelines for the Determination of Misleading Sales of Personal Insurance, which stipulates that “life insurance companies, insurance agencies, and personnel engaged in insurance sales activities shall not engage in the following deceptive behaviors: (1) Exaggerating insurance liability or insurance product returns.” The staff member of a certain company engaged in deceptive conduct when selling the involved insurance product to Yang Mou.

Viewpoint 2: The regulatory determination of “misleading sales” does not equate to civil fraud, and the People’s Courts should independently review based on the elements of fraud. Relevant judicial cases include:

• In case (2023) Jing 74 Min Zhong 1338, the Beijing Financial Court held that:

Although the Investigation Opinion Letter determined that “a certain company engaged in behaviors such as exaggerating insurance liability and returns, promoting stop sales, promising to seek improper benefits for others, irregular publicity, irregular explanation, giving benefits outside the contract, poor management of service materials, and failure to provide dividend notices,” these behaviors fall within the scope of regulation by the insurance regulatory authorities. The existence of illegal behaviors does not necessarily mean that the relevant behaviors constitute fraud against Li Mou.

• In case (2023) Jing 0119 Min Chu 1013, the Yanqing District People’s Court of Beijing held that:

The Investigation Opinion Letter determined that the businessperson Sun Mou engaged in irregular or improper sales behaviors during the sale of insurance, which falls within the scope of regulation by the insurance regulatory authorities. Therefore, Li Mou’s claim that the two defendants engaged in fraudulent behavior lacks rational basis and is not accepted by this court.

• In case (2023) Lu 1002 Min Chu 5093, the Huancui District People’s Court of Weihai held that:

Despite the Investigation Opinion Letter determined that a certain company engaged in misleading sales behavior, this opinion letter is just an industry management regulation. The “misleading sales” mentioned in it is a determination made by the CBIRC as the industry’s main department from the perspective of industry management, and it does not necessarily equate to “fraud” under civil law. Fraud requires that the defrauded party, due to the fraud, falls into a mistaken belief and, as a result, makes an erroneous expression of intent. However, in this case, the court’s investigation revealed that Qu Mou entered into a personal insurance contract in June 2017 and has continuously paid premiums for 6 years. During this period, he also added insurance premiums multiple times and received dividends, which sufficiently demonstrated that his decision to enter into the contract was made voluntarily and was not induced by fraudulent conduct.

III. Key Points for Insurance Companies to Respond When Policyholders Demand Full Refunds Based on Regulatory Investigation Conclusions

Given that the Investigation Opinion Letter issued by the financial regulatory authorities carries a certain degree of probative force in proving fraud, insurance companies should actively defend themselves in lawsuits: Although there may be improper sales practices, it does not lead to the policyholder falling into an erroneous understanding and enter into the insurance contract, and the conclusion of the relevant insurance contract is the true expression of the policyholder’s intent.

Moreover, it is suggested that insurance companies refine their defense opinions and organize evidence from the following eight aspects:

1. Whether the insurer or its sales have provided detailed explanations to the policyholder regarding matters closely related to the policyholder and the insured, such as the name of the insurance product, the name of the insurance company, insurance liability, exclusions, insurance amount, insurance period, payment period, loss on surrender, cooling-off period, etc.
2. Whether the policyholder has signed the Insurance Contract Receipt and confirmed that the insurer has clearly explained and interpreted the contents of the insurance contract to the policyholder.
3. Did the insurer conduct a follow-up call with the policyholder? During the call, did the policyholder confirm that they understood the product brochure, application tips, and contract terms, especially the insurance liability and exclusions, and confirm the insurance period, payment period, and monthly premium amount?
4. In the case of multiple insurance contracts, are the types of insurance and agency sales personnel the same?
5. Whether the policyholder had previous multiple insurance experiences, and whether the types of insurance purchased are the same as the involved insurance.
6. Whether the irregular sales conduct was sufficiently misleading to induce the policyholder to make an erroneous decision.
7. Whether the policyholder has continuously paid premiums for many years, and whether they have added insurance premiums multiple times and received dividends during this period.
8. After initially concluding the insurance contract, whether the policyholder has subsequently purchased other insurance products in the same manner.

Conclusion:

In recent years, malicious complaints and the “black market for policy cancellation” have seriously disrupted the normal functioning of the insurance market and the reputation of the insurance industry. The former China Banking and Insurance Regulatory Commission, the National Financial Regulatory Administration of China, and the Insurance Association of China have repeatedly carried out special actions against “black market for policy cancellation” and issued consumer risk warnings, but it is still difficult to effectively eradicate such illegal activities.

If insurance institutions can actively and effectively defend themselves in lawsuits, it would positively influence the regulatory authorities’ efforts to combat the “black market for policy cancellation,” as well as contribute to the development of the local insurance industry and the overall order of the national insurance market.

(Declaration: This article represents the views of the authors only and should not be regarded as a formal legal opinion or suggestion issued by Beijing AnJie Broad Law Firm. If you need to reprint or quote any content of this article, please indicate the source.)

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[1] Article 148 of the Civil Code: Where a party by fraudulent means induces the other party to perform a civil juristic act against the latter’s true intention, the defrauded party has the right to request the people’s court or an arbitration institution to revoke the act.

[2] Article 18 of the Interpretation II of the Supreme People’s Court on Several Issues Concerning the Application of the Insurance Law of the People’s Republic of China: The people’s court shall examine a written conclusion on a traffic accident or a written conclusion on a fire, among others, made by an administrative agency in accordance with law and confirm its corresponding weight of evidence, unless it can be overturned by any evidence to the contrary.