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The separation of ownership and control creates agency problems that underpin the need for robust corporate governance in listed companies. As research evolves, governance frameworks increasingly address balancing interests between majority and minority shareholders, as well as between shareholders and external creditors. Unlike private small and medi um-sized enterprises, which often rely on principle-based regulations and shareholder agreements, publicly traded firms face stricter, more detailed governance requirements – a necessity driven by their public nature and inherent information asymmetries.
China’s corporate governance framework for listed companies operates across four tiers. Statutory laws such as the Company Law and Securities Law form the foundation, followed by regulatory rules issued by bodies like the China Securities Regulatory Commission (CSRC). Stock exchange guidelines and listing rules comprise the third layer, while company-specific governance policies tailored to individual firms’ needs complete the four-tier structure.
To ensure effective implementation of the new Company Law passed in 2023, the CSRC issued Order No. 227 and Announcements 5, 6 and 7 at the end of March 2025, amending or repealing a total of 88 regulations and normative documents. By the end of April 2025, the Shanghai, Shenzhen and Beijing stock exchanges had also released revisions to their listing rules.
Following the introduction of these new corporate governance regulations, the key areas requiring revision in listed companies’ governance systems are outlined below.
Abolishing supervisory board and transferring its statutory powers to the audit committee of the board of directors. The newly issued Guidelines for the Articles of Association of Listed Companies (new guidelines) introduce a dedicated section on board committees, requiring listed companies to establish an audit committee in their articles to exercise the former supervisory board’s statutory functions. All provisions relating to supervisors and/or the supervisory board have been removed.
Since its introduction in the 1993 Company Law, the supervisory board has been a fixture of Chinese corporate governance for more than three decades. Its removal under the new regulations marks a significant shift. In addition to the statutory powers transferred under article 78 of the new Company Law, the audit committee will also be responsible for issuing opinions or explanations in cases such as non-standard audit opinions, announcements of impairment provisions, and retrospective accounting adjustments. For non-listed public companies, the abolition of the supervisory board is not mandatory and it may still be retained as an internal supervisory body.
Revising rules governing shareholders and shareholders’ meetings. The new guidelines amend the powers of the shareholders’ meeting, removing the mandatory requirement for shareholders’ approval of business policies, investment plans, annual budgets and final account. This change is set to enhance decision-making efficiency, flexibility and convenience for listed companies.
The new guidelines also lower the shareholding threshold for proposing ad hoc motions from 3% to 1% and explicitly prohibit companies from raising this threshold. These measures further strengthen the protection of minority investors, encourage their participation in shareholders’ meetings, and broaden their influence and decision-making power.
Enhancing shareholders’ obligations and directors’ responsibilities. A dedicated section in the new guidelines now sets out the duties of controlling shareholders and actual controllers, with a particular emphasis on prohibiting the abuse of control by these parties.
The new guidelines also introduce provisions holding directors liable for misconduct in the performance of their duties, as well as new rules on the management of directors’ departure. It is now clear that directors’ liabilities incurred during their tenure are not discharged or terminated on departure.
Updating independent director rules. The new guidelines introduce a dedicated section on independent directors, requiring listed companies to clearly define the role, independence, qualifications, core responsibilities and special powers of independent directors in their articles. The guidelines also enhance the mechanism for meetings of independent directors.
Following these reforms, independent directors will exercise their supervisory functions and rights collectively through dedicated meetings. Notably, certain requirements for independent directors to issue opinions on occasions such as acquisitions, equity incentive schemes and employee stock ownership plans have been removed.
Lifting ban on capital reserves offset. The new guidelines remove the absolute restriction, established by the 2005 Company Law, on using capital reserves to cover company losses. Under the revised rules, capital reserves may now be used to offset losses, but only after any discretionary and statutory reserves have been exhausted. Companies should exercise caution when applying capital reserves in this way, as doing so may trigger tax obligations. It is essential to comply with the requirements of local tax authorities to mitigate potential tax risks.
A compliant governance framework forms the foundation for regulated business operations, while the robust regulations are essential for the healthy development of any company. The newly issued governance regulations for listed companies primarily involve revisions to key documents such as the articles of association, rules of procedure for shareholders’ meetings and boards of directors, and internal audit systems. Listed companies are required to complete these adjustments within specified timeframes and are advised to promptly begin updating their internal governance systems in line with the new requirements.
Lu Tongtong
Senior Partner
Kangda Law Firm
Tel: +86 136 9324 1334
E-mail: [email protected]
Zhang Qiwei
Senior Partner
Kangda Law Firm
Tel: +86 186 1837 9116
E-mail: [email protected]