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Merger and division in China


This article will outline an overview of the extraordinary transactions common to Chinese Limited Liability Companies. As for the respective Italian companies, we can generally say that the characteristics of these operations are not very different. Within the New Chinese Company Law, extraordinary transactions are regulated starting from article 173.

The merger

The merger is the process by which two or more companies merge with each other or one company incorporates another. When a company has another company amalgamated with it, it is called merger by amalgamation, and the amalgamated company shall be dissolved. When two or more companies merge to establish a new company, it is merger for new establishment, and all parties being merged shall be dissolved.

From an executive point of view, both operations follow the same procedure. Within ten days from the date on which the merger plan is adopted, the companies involved must notify their respective corporate creditors of their intention to merge, and advertise it within thirty days in the company register. Creditors can object within thirty days of notification, or within forty-five days if they have not received written notice, unless suitable guarantees are given for the satisfaction of the debts of the companies. Even after the possible merger, the obligations and debts incurred by the companies involved continue to exist in the new company [1].

The division

The division process is the opposite of that of the merger. If a company proceeds in a division, its assets must be divided appropriately.

Also in this case, when the company decides to start the division process, it must draw up a balance sheet and a detailed inventory of the assets, exactly as in the case of the merger. Since the division project is approved, the company must inform the corporate creditors of the resolution taken within ten days, and publish a notice in the newspaper within thirty days. Debt liability remains with the company and is joint and several before the division, unless there is a written agreement between the company and the creditors regarding the repayment of the debts [2].

The reduction of capital

The reduction of capital is mentioned in article 178 of the CCL. When a company needs to reduce its capital, it must prepare the balance sheet and the inventory of assets. Within ten days before the capital reduction takes place, it must notify the corporate creditors. Creditors can object within thirty days of notification, or within forty-five days if they have not received written notice, unless suitable guarantees are given for the satisfaction of the debts of the companies. After the reduction, the total amount of the share capital cannot be less than the statutory minimum.

Capital increase

A limited liability company can increase its registered capital through new contributions by the shareholders or by increasing the value of the shares, as established by law [3].

Dissolution and liquidation of companies

The last case to consider is that of the dissolution and liquidation of the company, which occupies the entire chapter X of the CCL, from articles 181 to 198.

The company is dissolved in the following cases:

1) Expiry of the term;

2) If there is a cause for dissolution provided for by the statute;

3) By resolution of the shareholders’ meeting;

4) Dissolution by merger or division;

5) If the commercial license of the company is revoked, or the company is required to terminate the activity or if it is canceled from the company register, in accordance with the law;

6) Due to operational and management difficulties or persistent losses, if requested by shareholders who own at least 10% of the total number of votes.

In the event of dissolution, the company must appoint a liquidation team within fifteen days. In the event of bankruptcy, the bankruptcy court appoints the liquidators. During the liquidation period, the liquidation team may exercise the following functions and powers:

(1) Estimate the assets of the company and draw up the balance sheet and the assets inventory separately;

(2) Notify corporate creditors;

(3) Resolve and settle the company’s ongoing operations;

(4) Pay back taxes and taxes generated by the settlement process;

(5) Settle obligations and debts;

(6) Pay the corporate debts with the residual assets;

(7) Participate in civil cases on behalf of the company.

The liquidators must then draw up the liquidation plan and present he shareholders assembly, the shareholders general assembly or a people’s court for confirmation [4]. During the liquidation phase, the company continues to exist, but cannot carry out new transactions not related to the liquidation; the liquidators cannot abuse their powers, accept bribery attempts or illegally take possession of the company [5]. Profits cannot be distributed to shareholders until corporate liabilities have been paid. Once the liquidation process has been completed, the liquidation team prepares the liquidation report and submits it to the shareholders’ meeting; at this point they proceed with the cancellation of the company from the register of companies.


As we have seen, the regulation of extraordinary transactions for Chinese companies is very similar to ours. Furthermore, for both limited and unlimited liability companies, there are no appreciable differences. However, it should be noted that the part relating to the liquidation procedure is very extensive within the Chinese Corporate Law, and very detailed. Once again, it should be emphasized that China’s opening up to foreign markets and corporate reforms, which are perpetually underway, especially with regard to forms of foreign investment, are increasingly linking Chinese corporate discipline to international law. In this case, specific elements of commonality with Italian company law are certainly appreciable.

(A cura di Lorenzo Nobile)


[1] Artt. 173-175, Companies Law of the People’s Republic of China, 2006

[2] Artt. 176-177, Companies Law of the People’s Republic of China, 2006

[3] Art. 178, Companies Law of the People’s Republic of China, 2006

[4] Art. 187, Companies Law of the People’s Republic of China, 2006

[5] Art. 191, Companies Law of the People’s Republic of China, 2006

Rivista scientifica digitale mensile (e-magazine) pubblicata in Legnano dal 2013 – Direttore: Claudio Melillo – Direttore Responsabile: Serena Giglio – Coordinatore: Pierpaolo Grignani – Responsabile di Redazione: Marco Schiariti
a cura del Centro Studi di Economia e Diritto – Ce.S.E.D. Via Padova, 5 – 20025 Legnano (MI) – C.F. 92044830153 – ISSN 2282-3964 Testata registrata presso il Tribunale di Milano al n. 92 del 26 marzo 2013
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