Yi Qixing shares the similarities and differences between the sponsors of private schools and the shareholders of the new company law

The term 'founder' in private schools refers to the individuals who establish such institutions. These founders may be social organizations or private citizens outside state institutions. They establish schools through capital contributions or fundraising, and are registered as founders under the School Establishment License. However, the role of founders often evokes comparisons to company initiators and shareholders—both groups invest capital and establish companies. What are the similarities and differences between these two roles?

The fundamental distinction between the two primarily lies in their legal basis. Rather than strictly adhering to the Company Law of the People's Republic of China, the organizers prioritize the Private Education Promotion Law of the People's Republic of China (hereinafter referred to as the "Private Education Law") and its Implementation Regulations (hereinafter referred to as the "Implementation Regulations"). The following analysis compares the two frameworks by referencing the Private Education Law, the Implementation Regulations, and the newly revised Company Law of the People's Republic of China (effective from July 1, 2024) (hereinafter referred to as the "New Company Law").

The Similarities and Differences of the Types of Capital Contribution and the Time of Payment

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Article 6 of the Implementation Regulations stipulates: Social organizations or individuals establishing private schools shall maintain a sound credit standing. Capital contributions for private school establishment may include monetary funds, or non-monetary assets that can be quantified monetarily and legally transferred, such as physical assets, land use rights, intellectual property, etc. Exceptions apply where laws or administrative regulations explicitly prohibit such assets from being used as capital contributions.

Article 7, Paragraph 1 of the "Several Provisions on the Management of Private Higher Education Institutions" stipulates that the assets of private universities must be transferred to the institution's name within one year from the date of approval for establishment.

Article 48, Paragraph 1 of the new Company Law: Shareholders may contribute capital in cash or in non-cash assets that can be valued monetarily and legally transferred, such as physical assets, intellectual property, land use rights, equity, and creditor's rights, except for those prohibited by laws or administrative regulations from being used as capital contributions.

Article 47(1) of the revised Company Law stipulates: The registered capital of a limited liability company shall be the total subscribed capital contributions of all shareholders as registered with the company registration authority. All shareholders shall fully pay their subscribed capital contributions within five years from the date of the company's establishment, in accordance with the provisions of the company's articles of association.

[Similarities and Differences]

The capital contribution scope for private school sponsors includes non-monetary assets that can be monetized and legally transferred, such as currency, physical assets, land use rights, and intellectual property. These assets must be fully paid within one year. For corporate shareholders, the contribution scope covers non-monetary assets that can be monetized and legally transferred, including currency, physical assets, intellectual property, land use rights, equity, and debt. The actual payment period for these contributions is five years.

As evident, firstly, the two differ in the timing of capital contribution fulfillment. Secondly, regarding contribution scope, the newly revised Company Law introduces equity and debt as non-monetary asset contribution forms for shareholders, which are exclusive to corporate shareholders and excluded from founders' contributions. Concerning land use rights as a contribution form, the Implementation Regulations explicitly specify "construction land use rights" for private schools, whereas the Company Law only abstractly defines "land use rights" without specifying land nature. However, both "construction land use rights" and "land use rights" must satisfy the condition of "being monetarily appraised and legally transferable." Thirdly, founders of private schools must undergo credit status review, a requirement not currently applicable to corporate shareholders, making the review criteria for private school founders more stringent compared to corporate shareholders.

II. THE SIMILARITIES AND DIFFERENCES IN THE ENJOYMENT OF BASIC RIGHTS

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Article 19 of the Law on the Promotion of Private Education: The founders of private schools may independently choose to establish non-profit or for-profit private schools. However, they are prohibited from establishing for-profit private schools that provide compulsory education.

The sponsors of non-profit private schools are not allowed to obtain any income from running the school, and all the surplus funds from the school are used for educational purposes.

The sponsors of for-profit private schools may obtain the income from running the school, and the surplus from running the school shall be handled in accordance with the Company Law and other relevant laws and administrative regulations.

Article 20, Paragraph 2 of the Law on the Promotion of Private Schools: The founders of private schools shall participate in the operation and management of the school in accordance with the authority and procedures stipulated in the school's charter.

Article 19 of the Implementation Regulations stipulates that the charter of a private school shall include the following key provisions:

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(2) the rights and obligations of the organizer, and the procedures for changing the organizer or transferring the rights;

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Private schools must publicly disclose their charters. Any amendments to the charter must be announced in advance to solicit feedback from stakeholders. Upon completion, the revised charter must be filed with or approved by the competent authority.

Article 11 of the Implementation Regulations: The organizer shall formulate the school charter in accordance with the law and be responsible for electing the members of the inaugural council, board of directors, or other decision-making bodies of the private school.

The organizer may participate in or appoint representatives to participate in the council, board of directors or other decision-making bodies in accordance with the procedures and requirements stipulated by laws, regulations and the school charter, and exercise the corresponding decision-making and management rights according to the authority stipulated in the school charter.

Article 57, Paragraph 1 of the revised Company Law stipulates: Shareholders are entitled to inspect and duplicate the company's articles of association, shareholder register, minutes of shareholders' meetings, resolutions of board of directors and board of supervisors, as well as financial and accounting reports.

Article 2: Shareholders may request access to the company's accounting books and vouchers. To request such access, shareholders must submit a written request to the company, specifying the purpose. If the company has reasonable grounds to believe that the request serves improper purposes and may harm its legitimate interests, it may refuse the request and must provide a written response within fifteen days of receipt, stating the reasons. If the company refuses to grant access, the shareholder may file a lawsuit with the People's Court.

Article 3: Shareholders may engage accounting firms, law firms, or other intermediary agencies to review the materials specified in the preceding paragraph.

Article 59(1) of the amended Company Law stipulates that the shareholders 'meeting shall exercise the following powers: (1) to elect and replace directors and supervisors, and determine their remuneration; (2) to review and approve the board of directors' report; (3) to review and approve the supervisory board's report; (4) to review and approve the company's profit distribution plan and loss compensation plan; (5) to make resolutions on increasing or decreasing the registered capital; (6) to make resolutions on issuing corporate bonds; (7) to make resolutions on corporate mergers, divisions, dissolution, liquidation, or changes in corporate form; (8) to amend the articles of association; (9) other powers prescribed by the articles of association.

Article 65 of the new Company Law: Shareholders shall exercise their voting rights in proportion to their capital contributions at shareholders 'meetings, unless otherwise stipulated in the company's articles of association.

Article 210(4) of the revised Company Law stipulates: After covering losses and setting aside capital reserves, the remaining after-tax profits shall be distributed as follows: For limited liability companies, profits shall be allocated according to shareholders 'actual capital contributions, unless all shareholders agree to distribute profits beyond their respective contribution ratios; for joint-stock companies, profits shall be distributed proportionally to shareholders' shareholdings, unless the company's articles of association provide otherwise.

[Similarities and Differences]

In China, private schools are categorized into for-profit and non-profit types. Given their distinct natures, the rights granted to founders under laws and regulations differ accordingly. The legal provisions mentioned above indicate that both types of founders share the following rights: selecting the school's operational model, drafting charters, participating in school management and operations as stipulated in the charters, and exercising decision-making authority in governing bodies. The key distinction lies in the rights to school profits and residual asset distribution. Specifically, only for-profit school founders possess these rights, while non-profit founders are excluded. However, non-profit founders may still receive compensation or rewards in accordance with local regulations.

Regarding shareholders 'right to information, the revised Company Law explicitly grants shareholders the right to review and copy the company's articles of association, shareholder register (newly added), meeting resolutions of the shareholders 'meeting, board of directors, and board of supervisors, as well as financial and accounting reports. Additionally, shareholders may access the company's accounting books and vouchers (newly added). Beyond applying for access directly, shareholders can also authorize third-party institutions such as accounting firms or law firms to conduct the review. If the company refuses access, shareholders may seek legal remedies by filing a lawsuit to protect their right to information. Beyond the right to information, other significant shareholder rights include voting rights and profit distribution rights, both of which directly or indirectly impact shareholders' actual returns.

Comparative analysis reveals that the rights and obligations of private school founders are predominantly stipulated in the school's charter, which is formulated by the founders. This grants founders substantial autonomy in decision-making and management, with minimal external constraints. However, private school charters must be publicly disclosed, and any amendments require prior announcement to solicit stakeholder feedback. Post-revision, the charter must be filed with or approved by the competent authority. Under the new Company Law, shareholders primarily oversee the company's strategic direction in management and operations, with limited involvement in specific operational details. The Board of Directors is responsible for formulating detailed management plans.

III. Similarities and Differences in the Change Process

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Article 54 of the Law on the Promotion of Private Education: Any change in the sponsor of a private school shall be proposed by the sponsor, followed by financial liquidation. The change must then be approved by the school's council or board of directors and submitted to the regulatory authority for final approval.

Article 12(1) of the Implementation Regulations stipulates: When a private school's founder is replaced, a change agreement must be executed. Such agreement shall not involve the school's legal property, hinder its development, or infringe upon the rights of faculty and students. For existing private schools, the successor founder may negotiate profit distribution with the original founder based on their legally entitled benefits.

Article 2: If the sponsors of a private school no longer meet the statutory requirements, they must submit a request for modification to the approving authority within six months. Failure to comply will result in the authority ordering the necessary changes.

[Similarities and Differences]

When a private school's sponsor changes, approval must first be obtained from both the school's council and board of directors, followed by authorization from the competent authority for the change to take effect. The requirements for sponsors are particularly stringent; if a sponsor fails to meet statutory conditions, the competent authority may enforce the change if the original sponsor refuses to cooperate. In contrast, changes to a company's shareholders are primarily achieved through equity transfers, which generally require mutual consent between the parties and must not harm the interests of other shareholders, with minimal interference from regulatory authorities.

Therefore, because the private school and the company have different purposes in operation and management, the basic rights and authority enjoyed by the sponsors and shareholders are also different. In order to protect the legitimate rights and interests of investors, students, teachers and staff more effectively, it is necessary to follow a more strict examination process when the sponsors change