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Corporate Governance in China

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Corporate Governance in China

shareholding accounts for at least 50% of the total share capital of a joint stock company; or a shareholder whose capital contribution or shareholding, although not accounting for 50%, is nonetheless, through the voting rights attaching to his or her capital contribution or his or her shareholding, able to materially affect the resolutions of the shareholders’ meeting or shareholders’ general meeting.” Regulations governing related-party transactions have been strengthened. Amendments to the Company Law now establish procedures for entering into related-party transactions, and require shareholder approval before a company can provide security to a shareholder or to the actual controlling person/entity. However, rules concerning majority/controlling shareholders should be more clearly elaborated as the market for corporate control/takeover develops in China. The CSRC Code is fairly detailed in its description of rules pertaining to related-party transactions. First, such matters as the nature, type, and other pertinent information of related-party transactions among a listed company and its connected parties should be disclosed in accordance with relevant regulations (“Disclosure of Related-Party Relationship and
Transactions” published by the MOF in 1997 and rules as amended by the CSRC from time to time regarding the contents and standard format for information disclosure). Second, listed companies should take efficient measures to prevent related parties from damaging company interests. Third, related-party transactions should observe commercial principles. Fourth, a listed company should not provide financial guarantees for its shareholders or their affiliates7. The CSRC Guideline accords a special role to independent directors to oversee related-party transactions in a proper manner. Specifically,...

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