The Reinsurance Registration System (the “System”) was established by the former PRC insurance authority–China Insurance Regulatory Commission, now known as the National Financial Regulatory Administration (NFRA), as an essential financial infrastructure to strengthen supervision over the PRC reinsurance market and enhance regulatory efficiency. Officially launched on January 1, 2016, the System has been managed and technically upgraded by the Shanghai Insurance Exchange (SHIE) since February 2018. All overseas reinsurance counterparties planning to cede from PRC entities, are required to register and maintain up-to-date information in the System as a prerequisite for conducting reinsurance transactions within PRC.

The core objectives of the System are to provide dynamic supervision through the registration of reinsurance counterparties; to ensure robust risk prevention by verifying the qualifications and compliance of counterparties and mitigating risks; and to promote greater transparency in the reinsurance market, advancing alignment with international standards and regulatory practices.

1. Qualification Criteria

To be eligible for registration in the System, overseas reinsurers must meet several key requirements:

• Financial Strength: A financial strength rating of at least S&P A- (or equivalent from Moody’s, A.M. Best, or Fitch).
• Capital Requirements: Minimum actual capital plus reserves of RMB 200 million (or equivalent in other currencies).
• Solvency Compliance: Compliance with solvency requirements in their home jurisdiction.
• Regulatory Record: No major legal or regulatory violations in the past two years.

2. Material List

Qualified overseas reinsurers must prepare and submit a set of documents and information, including but not limited to:

• Company name, address, and contact details
• Business license or equivalent documentation
• Operating permit from their home insurance regulator
• Audited annual financial reports for the past three years
• Information on major shareholders
• Financial strength ratings (optional but recommended)
• Proof of solvency and regulatory compliance issued by the home regulator
• Data related to reinsurance business ceded from China (if any)
• Settlement bank account information

3. Application Procedure

The registration process involves the following steps:

• Submission of Reference Letter:

A “recommendation institution” (an entity that has, or will have, a reinsurance relationship with the applicant) uploads a Reference Letter to the System. If the applicant has an affiliated enterprise in China, that entity should act as the recommender.

• Temporary Account Creation:

The System will automatically send an email containing a temporary username and password to the reinsurer.

• Submission of Application Materials:

The reinsurer needs to log into the System and submits all required documents within 15 days of receiving the account credentials.

• System Review:

The System will review the materials automatically, and if all requirements are met, the reinsurer will be added to the active list immediately.

4. Ongoing Compliance Obligations

Registered reinsurers have the following ongoing compliance obligations:

• Registrations must be renewed every three months.

Key documents, such as audited annual financial reports and proof of regulatory compliance, must be updated annually.

• Reinsurance business data must be updated quarterly.
• Any significant changes, such as solvency issues, corporate restructuring, or regulatory actions, must be reported within 15 days.

Registering as an overseas reinsurer in China requires not only meeting the initial eligibility criteria but also careful preparation of documentation and ongoing commitment to compliance. While the process is straightforward, regular renewals are essential to maintaining active status within the System. Once the Registration is done, the reinsurer will enter the active list of the System making it eligible to cede from PRC entities.  

In the process of dealing with property insurance claims, the understanding and application of “gross negligence” has always been a critical and delicate issue. When searching online for judicial precedents with the keywords “property insurance dispute” and “gross negligence” in Chinese, there are more than 6,000 relevant cases popping out. Therefore, accurately grasping the connotation and extension of gross negligence is of great significance to the protection of the rights and interests of both insurers and insureds and the rational resolution of insurance claim disputes. This article will briefly analyze the definition of gross negligence in property insurance claims in combination with the relevant provisions of the Chinses Insurance Law, the stipulations of insurance terms, and typical cases in China judicial practice.

I. The Provisions and Interpretations of Gross Negligence in the Chinese Insurance Law

Articles 16, 21, and 61 of the Chinese Insurance Law all involve the concept of gross negligence. For example, Article 16 explicitly states that if the applicant intentionally or due to gross negligence fails to fulfill the obligation to inform truthfully, which is sufficient to affect the insurer’s decision on whether to agree to underwrite or increase the insurance premium, the insurer has the right to rescind the contract. Article 21 stipulates that if the applicant, the insured, or the beneficiary fails to notify the insurer of the occurrence of an insurance accident in a timely manner intentionally or due to gross negligence, resulting in the nature, cause, extent of loss, etc. of the insurance accident being difficult to determine, the insurer shall not bear the responsibility for compensation or payment of the undetermined part.

Although the above-mentioned articles of the Chinese Insurance Law involve gross negligence, they do not provide a clear definition or analysis of what constitutes gross negligence.

The Supreme People’s Court’s “Understanding and Application of the Fourth Judicial Interpretation of the PRC Insurance Law” has expounded on the classification of fault, dividing it into the intentional and the negligent. The Supreme Court believes that gross negligence refers to a subjective mentality where a person, lacking the degree of care that an ordinary person should have, not only fails to meet the higher requirements set by law for a certain behavior but also falls short of the general standards that normal people should and can pay attention to, and thus causes an accident or loss by recklessly believing that it will not happen. This interpretation provides an important legal basis and theoretical foundation for understanding and defining gross negligence.

However, how to apply the above interpretation of the Supreme Court to property insurance claims and how the people’s courts analyze and apply gross negligence in individual cases still need further analysis.

II. The Definition of Gross Negligence in Insurance Terms

The definition of gross negligence in insurance terms also has important reference value. However, according to current research, there are still few insurance terms that define “gross negligence.”

For example, in the all-risk insurance terms of an insurance company, gross negligent behavior is defined as behavior where the actor not only fails to meet the higher requirements set by law but also fails to reach the general standards that normal people should and can pay attention to. This definition is somewhat similar to the determination of the Supreme Court.

In the additional terms for intentional acts and gross negligence in property insurance policy wording , it is further clarified that “gross negligence” refers to behavior that intentionally and extremely violates the usual and reasonable code of conduct, and does not include any unintentional errors, omissions, and oversights.

These provisions of insurance terms have to some extent refined the connotation of gross negligence and provided specific basis for the determination of gross negligence in the process of insurance claims. However, there may still be different understandings in the actual claims cases, and the people’s courts may have the full discretion to interpret.

III. Scenarios Constituting Gross Negligence in Judicial Practice

In order to demonstrate the concrete “gross negligence” applications in the practice of property insurance claims, this article attempts to conduct case searches and tries to summarize the application logic of the People’s Court, as follows:

• In the cases where relevant responsible persons of the insured commit criminal offenses, it is generally determined that the insured has committed gross negligence.

In judicial practice, if relevant responsible persons of the insured are found guilty of a criminal offense, the court will usually determine that the insured has committed gross negligence based on a fortiori reasoning.

For example, in case (2016) Su Min Zai No. 32, Kong Shuangbao, the person in charge of the insured company, violated the special hoisting plan, resulting in the death of a third party. Kong Shuangbao was found guilty of Crime of Major Liability Accident. Therefore, the court determined that the insured also had major faults in the occurrence of the case-related accident, and the insurance company was not responsible for compensating for the losses caused by the accident. This case shows that when the responsible persons of the insured violate relevant laws and regulations and commit criminal offenses, their behavior often has a serious nature of fault and meets the standard of gross negligence.

• In the cases where the insured is subject to administrative penalties and the violating behavior has a direct impact on the occurrence of the accident, it is generally determined that the insured has committed gross negligence.

When the insured is subject to administrative penalties, the court will analyze the reasons for the administrative penalties and determine whether the behavior has a direct impact on the occurrence of the accident and other related factors, and then determine whether it constitutes the exclusionary liability scenario due to gross negligence.

For example, in case (2019) Hu 74 Min Zhong No. 1098 of the Shanghai Financial Court, the insured, Qi Xinke Company, was administratively penalized for chaotic construction process management, illegal contracting, and inadequate supervision. The court found that these violations had a direct impact on the occurrence of the accident. Therefore, it was determined that this accident was caused by the gross negligence of the insured and was an exclusionary liability scenario stipulated in the insurance contract.

However, in case (2016) Su Min Zai No. 32 of the Jiangsu Provincial Higher People’s Court, although the contractor was administratively penalized for illegal subcontracting, the court found that this behavior did not have a direct impact on the occurrence of the case-related accident. The direct cause of the accident was the actual construction personnel’s violation of safety management regulations. Therefore, it was not determined that the insured had committed gross negligence. This shows that when the insured is subject to administrative penalties, whether it constitutes gross negligence needs to be comprehensively considered in combination with the causality between the violation and the occurrence of the accident, as well as the nature and severity of the violation.

• In the cases where the insured should have the corresponding professional knowledge and experience, industry standards, or the contract has agreed on the obligations that should be performed, but the insured not only failed to meet the professional requirements but also failed to reach the general duty of care, the court essentially treats gross negligence as equivalent to intentional wrongdoing under this circumstance.

In case (2024) Ning 01 Min Zhong No. 2567, an environmental protection technology company, as a key fire protection entity specializing in the operation of hazardous waste, had many serious problems in the operation process, such as failing to provide pre-job safety education and training for on-site workers, welders not having special operation certificates for welding and thermal cutting operations, and not isolating during electric welding operations above the flammable material storage pool. Eventually, a fire accident occurred. The court held that as a key fire protection entity specializing in the operation of hazardous waste, the company should have professional knowledge on how to manage hazardous waste and prevent fire accidents. Its outsourcing of projects could not exempt or reduce its responsibilities for fire safety in the factory area and the supervision and management of the operation site and personnel. However, the company failed to fulfill the necessary safety obligations and did not even reach the standards that ordinary people should pay attention to. The company’s behavior fell within the “gross negligence” exemption clause of the insurance terms.

In addition, in case (2019) Su 02 Min Zhong No. 431, the insured knew that the special cleaning oil for the digital printer should be used. The staff of the insured had received professional training on how to clean the printer, but the insured did not strictly follow the operating rules. In order to improve cleaning efficiency, they used car wash water to clean the rubber cloth of the machine, resulting in car wash water mixing into the cleaning oil and eventually causing the digital printer to catch fire due to high temperature during operation. The court determined that this behavior was gross negligence. These cases show that when the insured should have the corresponding professional knowledge and experience, industry standards, or the insurance contract has agreed on the obligations that should be performed, but the insured not only failed to meet the professional requirements but also failed to reach the general degree of care, its behavior can be determined as gross negligence.

IV. Conclusion

The understanding and application of gross negligence in property insurance claims is a complex issue that requires the consideration of multiple factors. The Chinese Insurance Law and relevant judicial interpretations provide a basic legal framework for the determination of gross negligence. In judicial practice, the court will, based on the facts and evidence of a specific case, take into account factors such as the nature of the insured’s actions, the causality between the violation and the occurrence of the accident, and whether the insured has fulfilled the corresponding obligations to determine whether gross negligence exists. For insurers and the insured, an accurate understanding and grasp of the criteria for defining gross negligence helps to better protect their legitimate rights and interests in the signing, performance, and claims process of insurance contracts, and reduces the occurrence of claims disputes.

Focusing on Accidental Injury Insurance

I. Introduction of the Issue to Be Discussed

Article 25 of the Judicial Interpretation III of the Insurance Law stipulates that “Where it is difficult to determine whether the insured’s losses are caused by a covered event, a non-covered event or a disclaimer, if the parties concerned request that the insurer makes insurance payout, the People’s Court may support in accordance with the corresponding ratio.” Through searching by the author, this judicial interpretation is frequently applied, and People’s Courts often rely on this article to order the insurer to bear certain insurance liabilities. However, the contexts in which this article is applied vary significantly. This article aims to explore and analyze the correct conditions for the application of Article 25 to clarify the accurate application conditions of the above judicial interpretation.

Case 1: The Death of Han from Choking[1]

On October 1, 2018, Geng insured his mother Han with an accidental injury insurance policy from M Life Insurance Company. On November 22, 2019, Geng reported that his mother Han died from choking while dining during a trip and applied for accidental injury insurance claims. After investigation by M Life Insurance Company, the pre-hospital examination report issued by the hospital at the scene of death indicated: “No foreign objects in the mouth, suspected Sudden Cardiac Death.” Subsequently, M Life Insurance Company refused to pay the claim on the grounds that Sudden Cardiac Death was caused by illness and did not constitute an accidental injury.

During the litigation, Geng did not provide evidence to prove his claim that “Han died from choking while dining” and only made an oral statement. M Life Insurance Company argued that “There is no evidence to prove that Han was dining, choking, or that it led to her death. Moreover, the pre-hospital examination report indicates Sudden Cardiac Death, and the liability for accidental injury insurance does not arise.” The Beijing Dongcheng Court investigated the hospital that attended the scene, which stated: “When we arrived at the scene, Han was already dead. Based on the husband’s statement, we conducted a surface examination and found no foreign objects in the mouth, so we suspected that the death was caused by a heart disease. Since we did not conduct a thorough examination, we could not be certain of the cause of death, hence the question mark after sudden death from heart disease.” After the trial, the Beijing Dongcheng Court ordered M Life Insurance Company to bear 50% of the insurance liability for the accidental injury insurance amount in accordance with Article 25 of the Judicial Interpretation III of the Insurance Law.

Case 2: The Death of Xu While in Bed[2]

On March 1, 2019, Xu insured himself with an accidental injury insurance policy from P Life Insurance Company. On August 15, 2020, Xu’s wife, Sun, reported that her husband Xu died from an accident and applied for accidental injury insurance claims. After investigation by P Life Insurance Company, Xu was found dead in a rental apartment in Zhuozhou City on August 2, 2020. His body was highly decomposed and could not be subjected to an autopsy. The public security authorities, after investigation, determined that “Xu’s death was neither suicide nor homicide.” Subsequently, P Life Insurance Company refused to pay the claim on the grounds that Xu’s death did not constitute an accidental injury insurance liability.

During the litigation, Sun argued that “Xu’s death was completely unexpected and was an accident.” P Life Insurance Company argued that “There is no evidence to prove that an accidental injury as stipulated in the insurance contract occurred and that this accident caused Xu’s death. Therefore, the liability for accidental injury insurance does not arise.” During the trial, the presiding judge asked P Life Insurance Company, “Since Xu’s death was neither suicide nor homicide, isn’t it an accident?” P Life Insurance Company replied, “According to the insurance contract, an accidental event should have four elements: sudden, external, non-intentional, and non-disease. This event acts on the insured’s body, causing bodily harm and death. The result of death is not equivalent to the nature of the accident, and whether it is an accident is not determined by the family’s subjective perception or whether it is beyond the family’s anticipation.” During the litigation, P Life Insurance Company provided evidence that Xu had been hospitalized for illness several times before his death. After the trial, the Beijing Fangshan Court ordered P Life Insurance Company to bear 50% of the insurance liability for the accidental injury insurance amount in accordance with Article 25 of the Judicial Interpretation III of the Insurance Law.

The above two cases are just one of the application scenarios of Article 25 in judicial practice, and the frequency of occurrence in practice is very high. So, is it correct for the court of first instance to apply the principle of proportional compensation in accordance with Article 25 based on the case circumstances?

After further searching, the author found that in many People’s Courts, when it is impossible to determine whether the accident falls within the scope of insurance liability, they habitually apply Article 25 to order the insurer to bear a certain proportion of insurance liability, mostly concluding the case by ordering the insurer to bear 50% of the insurance liability.

Returning to the core issue of this article, how should the principle of proportional compensation stipulated in Article 25 be applied, how to apply it correctly, and how to prevent the wrong application of the law to avoid the insurer improperly bearing insurance liability?

II. Understanding and Application of Article 25 of the Judicial Interpretation III of the Insurance Law

The principle of Proximate Cause is one of the four basic principles of insurance law. In insurance claims practice, the principle of proximate cause should also be followed, that is, only when the “Proximate Cause” is an insurable risk, the insurance liability may arise. As defined in insurance law, the principle of Proximate Cause[3] means that only when a cause has a decisive significance for the occurrence of the damage result, and this cause is the risk covered by the insurance contract, will the insurer bear the insurance liability. Although the principle of Proximate Cause has not been explicitly stipulated in China’s Insurance Law, it has consistently been observed in judicial practice and is universally recognized as a basic principle of insurance law globally. Its fundamental purpose in insurance law is to exclude other non-insurable risks or exempted risks, ensuring that the insurer makes the most correct and accurate compensation. Otherwise, improper compensation will seriously damage the interests of other insured persons in the risk pool.

In claims practice, it is relatively easy to determine the relationship between a single cause and the damage result. If the cause is an insurable risk, the insurance liability arises. Conversely, it does not arise. If a damage result is caused by multiple causes (insurable risks, non-insurable risks, exempted reasons) (that is, there is a so-called net or belt state of causality), and each cause may lead to the damage result, how should the insurance liability be determined in this case? In this situation, the traditional Proximate Cause theories (e.g., the condition theory, adequate causation theory, proportional causation theory, and nearest causation theory) may prove insufficient or one-sided in such cases, or simply adopting any one of these methods to determine insurance liability may not be comprehensive and cannot effectively protect the interests of the insured to the greatest extent. Therefore, it is necessary to provide a method for determining insurance liability for the People’s Courts to apply in hearing cases, to solve the problem of “difficulty in judicial practice,” and to balance the interests of the insurer and the insured to the greatest extent, instead of simply ordering “full compensation” or “no compensation”..

Therefore, Article 25 solves the issue of how the People’s Courts should determine the insurance liability when there are multiple causes and one result. From the content of Article 25, when it is difficult to determine whether the damage result is caused by a covered accident or a non-covered accident or an exempted reason, the People’s Courts shall determine the insurance liability that the insurer should bear in whole, in part, or not at all, based on the size of the causative force of each of the three circumstances.

III. Correct Conditions for the Application of Article 25 of the Judicial Interpretation III of the Insurance Law

Pursuant to Article 22 of the Insurance Law[4], when the claimant requests the insurer to compensate or pay the insurance monies in accordance with the insurance contract, he shall provide the insurer with all the evidence and materials that he can provide to confirm the nature, cause, and extent of the insurance accident. That is, the burden of proof for the nature and cause of the accident lies with the claimant, which is consistent with the spirit of Article 67, Paragraph 1 of the Civil Procedure Law[5]. If the insurer claims to refuse compensation based on an exempted reason, it shall bear the burden of proof for the existence of the exempted reason (including causality). In summary, according to Article 90[6] of the Explanations of the Application of the Civil Procedure Law, “he who asserts must prove.”

Since Article 25 is a rule for determining the liability of the insurer in cases of multiple causes and one result, it does not exempt the insurance contract parties from the burden of proving the covered accident or non-covered accident or exempted reason[7]. On this basis, the application of Article 25 should be based on the premise that the insurance contract parties have completed the burden of proof for the covered accident or non-covered accident or exempted reason in the litigation. After completing the burden of proof, if both the covered accident and the non-covered accident or exempted reason form a possible causal relationship, causing the people’s court to have difficulty in determining the true causative force of the accident, the People’s Court shall determine the insurance liability based on the ascertained case circumstances, in accordance with the size of the causative force of the covered accident or non-covered accident or exempted reason for the occurrence of the damage result.

If only the claimant proves that a covered accident has occurred, but the insurer fails to provide evidence that the exempted reason is established, the People’s Court only needs to determine the insurance liability based on the claimant’s completion of the burden of proof, and there is no need to apply Article 25 to make a judgment. Conversely, if only the insurer proves that a non-covered accident or exempted reason is established, but the claimant fails to prove that a covered accident has occurred, the people’s court only needs to determine that the insurance liability does not arise based on the insurer’s completion of the burden of proof for the defense. In this case, there is also no need to apply Article 25 to make a judgment.

It should be noted that if the claimant has not proved that a covered accident has occurred, even if the insurer proves that a non-covered accident or exempted reason does not exist, it cannot be ordered that the insurer loses the case or that Article 25 is applied to make a judgment. After all, when the claimant has not completed the burden of proof, the burden of proof does not shift to the insurer, and the insurer does not therefore bear the burden of proof, nor does it need to bear the adverse consequences of “failure to prove.”

Returning to the two aforementioned cases, regarding “death from choking,” Geng, as the claimant, did not complete the burden of proof, and even the “choking” was not proved. On the contrary, the pre-hospital examination showed that there were no foreign objects in Han’s mouth. Regarding the case of death in bed, although the investigation concluded that Xu’s death was neither suicide nor homicide, it does not mean that Xu’s death was caused by an accidental injury. As for what kind of sudden, external, non-intentional, and non-disease event caused Xu’s death, Sun did not complete the burden of proof. Therefore, the two cases mentioned earlier do not meet the conditions for the application of Article 25. The court of first instance applied Article 25 to make a judgment in the case where the claimant had not completed the basic burden of proof. That is, the court of first instance applied Article 25 on the grounds that the cause of death could not be determined, without paying attention to the fact that both the covered accident and the non-covered accident or exempted reason should have evidence to prove in a case.

IV. Practical Suggestions for the Insurer’s Defense in Litigation

Regarding the correct application of the law, the insurer should first develop a clear and accurate understanding of the relevant legal provisions and correctly and actively inform the court of first instance and the presiding judge to guide them, so that the involved case can be correctly applied to the law and avoid improperly bearing insurance liability. When the insurer defends in the litigation, if the claimant claims to apply Article 25 for proportional compensation, the insurer should first examine whether the claimant has completed the basic burden of proof for the occurrence of the insurance accident (whether the agreed insurable risk has occurred and whether this risk has caused the insured to suffer injury or death). If not, it should clearly inform the court of first instance that the case does not meet the conditions for the application of the proportional compensation principle stipulated in Article 25 and that the claimant’s entire litigation request should be dismissed.

If during the defense process, it is found that the court hearing the case has a tendency to apply Article 25 actively, it should also actively and clearly inform the court of first instance, based on the claimant’s failure to complete the basic burden of proof for the occurrence of the insurance accident (whether the agreed insurable risk has occurred and whether this risk has caused the insured to suffer injury or death), that the case does not meet the conditions for the application of Article 25 and that the claimant’s entire litigation request should be dismissed.

---

[1] (2020) Jing 02 Min Zhong No. 6145

[2] (2022) Jing 0106 Min Chu No. 13657

[3] The proximate cause is the decisive, effective, and direct reason for the loss covered by the insurance. See Wang Weiguo (ed.), Insurance Law, China Financial and Economic Publishing House, 2003, p. 46.

[4] Article 22, Paragraph 1: Upon occurrence of an insured event, the policyholder, the insured party or the beneficiary shall, at the time of making a claim for compensation or payment of insurance monies pursuant to the insurance contract, endeavour to provide the relevant proof and materials for ascertaining the nature, reason, extent of damages, etc, of the insured event to the insurer.

[5] Article 67, Paragraph 1:Litigants have the burden of proof for the claims they make.

[6] Article 90: Each party concerned shall provide evidence to prove the facts based on which such party concerned makes a claim or contradicts the claim of the other party, unless otherwise provided by the law.

   Where any party concerned fails to provide evidence or provides insufficient evidence to prove the facts before a judgment is made, the party with the burden of proof shall bear adverse consequences.

[7] Understanding and Application of the Judicial Interpretation III of the Insurance Law, edited by the Civil Division No. 2 of the Supreme People’s Court, edited by Du Wanhua, People’s Court Press, p. 589.

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.