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Understanding Chinese Company Law, Second Edition

Understanding Chinese Company Law, Second Edition

Series: Law Series
Copyright Date: 2010
Edition: 2
Pages: 408
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  • Book Info
    Understanding Chinese Company Law, Second Edition
    Book Description:

    In China, the thirty-year economic reform reflects the process of moving from planned economy towards market economy. This could be seen from the changes in the 2005 Company Law, which recognizes the owners’ property rights and gives more freedoms to them to decide various matters. In this new edition, besides offering a systemic discussion of the nature of companies, the constitution of companies, the establishment of various companies, role and function of various parties in corporate governance, and corporate financing, Gu Minkang highlights the major changes in the 2005 Company Law, and addresses many new issues such as shareholders’ derivative action, American limited liability company, and asset restructuring of listed companies. Another important feature is a comparison between the 1993 Company Law and the 2005 Company Law that will facilitate reading and understanding.

    eISBN: 978-988-220-807-0
    Subjects: Law

Table of Contents

  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-viii)
  3. Preface to the Second Edition
    (pp. ix-x)
    GU Minkang
  4. Preface to the First Edition
    (pp. xi-xii)
    Gu Minkang
  5. 1 General Introduction
    (pp. 1-16)

    The People’s Republic of China (hereafter referred to as “China”) did not have any formal national company law until the National People’s Congress (hereinafter referred to as the “NPC”) promulgated the Law of the People’s Republic of China on Company Law in 1993 (hereinafter referred to as the “1993 Company Law”) and substantially amended it in 2005 (hereinafter referred to as the “2005 Company Law”).¹ After more than 15 years’ implementation of the Chinese company law, many achievements have been made both in theory and in practice. In terms of theoretical research, there are many publications, in Chinese and in...

  6. 2 Nature of Companies
    (pp. 17-42)

    In common law jurisdictions, differences exist between a company and a corporation. The word “company” does not contain certain legal meaning. In fact, every association that is formed for certain goals can be called a company regardless of whether the association intends to make profits or not, and whether it is a legal person. Sometimes, the term “company” cannot only be referred to as a big corporation with legal person status, but also as a partnership organization or other association.¹

    However, the word “corporation” is often regarded as a legal term, which may contain following four meanings:

    It is a...

  7. 3 Constitution of Companies
    (pp. 43-77)

    Generally speaking, the articles of association (or a byelaw) are recognized as the “constitution” of a company. By using the term “constitution” it is clear that the articles of association are so important for the operation of companies. In China, a company’s constitution refers only to the articles of association (Gong Si Zhang Cheng). This approach is the same as that of Taiwan.¹ However in the United States, different names have been used to describe companies’ constitutions, such as “articles of incorporation”, “certificate of incorporation”, “company’s byelaw” or “charter”. Here, it is important to point out a distinction between the...

  8. 4 Establishment of Limited Liability Companies
    (pp. 79-113)

    A “limited liability company (You Xian Ze Ren Gong Si)” is a special term to describe one of two company forms in China. Contrarily in common law jurisdictions, the term “limited liability company” could be broadly interpreted as a company in which shareholders’ liability will be limited to the total amount of their capital contributions (including guaranteed capital contributions). Thus, a limited liability company (hereinafter referred to as “LLC”) may refer to either a private company or a public company. In comparison, a Chinese LLC is equivalent to a private company or a closed company which is popular in the...

  9. 5 Establishment of Joint Stock Companies
    (pp. 115-134)

    In China, joint stock companies (hereinafter referred to as the “JSC”) could also be called companies limited by shares (Gufen Youxian Gongsi). The establishment of JSCs is required to follow specific procedures that are provided for the establishment of JSCs under Chinese company law. For example, an LLC can only be established by adopting a promoter method, while a JSC may be established by either a promoter method or a share offering method. Furthermore, a JSC is a typical company form used for gathering capital from the public so that the public interests need to be protected seriously. For this...

  10. 6 Shareholders’ Meeting
    (pp. 135-162)

    Corporate governance concerns the exercise of power over corporate entities. It has become one of the central issues in running and regulating modern enterprises today.¹ In order to understand the concept of corporate governance, one must clearly know the internal management structure. Furthermore, one should bear in mind that the purpose of establishing a company is not only to increase property of the company, but also to increase profit for shareholders.

    It has been said that good corporate governance relies on a good internal management structure and internal relationship. “Weaker shareholder rights are associated with lower profits, lower sales growth,...

  11. 7 Directors and Board of Directors
    (pp. 163-214)

    The Chinese company law does not define the term “director”. This is similar to the situation in the United States or in Hong Kong. The Chinese Encyclopedia (Law Volume) defines a director as “a standing organ which carries out businesses and represents a company”. Some books describe a director as a member of the BOD and the legal standing organ of a company for carrying out businesses. In fact, Taiwanese scholars originated this kind of definition when they interpreted Japanese company law. In line with the continental legal system that Taiwan belongs to, the term “director” means two things. Firstly,...

  12. 8 Board of Supervisors
    (pp. 215-235)

    Why is a BOS needed? In common law jurisdictions, the functions of the BOS are usually exercised by the BOD. The duty of care will ensure that the BOD shall perform its duties properly and effectively. In the case where the relevant directors have breached their duties they should be sued and are liable for the consequence. In addition, the activities of directors will be supervised by external directors who are much more independent. The financial activities will usually be controlled by independent audit firms.

    On the other hand, the BOS is a tradition of continental law jurisdictions. France is...

  13. 9 Other Organs
    (pp. 237-245)

    In China, even though workers are considered as the masters of the State and have been given very high political status, it has never been made clear how that important political and legal status is guaranteed in practice, especially in the employment relationship. Under the previous system of a planned economy, most enterprises were owned by the State and all jobs were allocated by the governments at various levels. The workers were regarded as the masters of the enterprise in which they were working. The enterprises did not have the autonomy to dismiss any workers. Thus, even though workers might...

  14. 10 Corporate Finance
    (pp. 247-285)

    Under the Chinese company law, capital has been given a special meaning, i.e. the stock capital. It is the total amount of capital usually stipulated in the articles of association which should be contributed or would be contributed by shareholders. So far, different jurisdictions provide different systems concerning capital.

    Authorized capital can also be called the stated capital or nominal capital, which is normally seen in common law jurisdictions. It usually refers to the total amount of capital provided by the articles of association and a company may not need to issue all the shares to shareholders or to the...

  15. 11 Merger and Acquisition
    (pp. 287-320)

    People often see merger and acquisition as a part of corporate finance. This is simply because the merger and acquisition may enable one company to obtain controlling power of another company by acquiring a certain percentage of shares of that company.¹ Through this way, a company increases its capital and size of operation.

    A merger is different from an acquisition. A merger refers to the situation where by agreement two or more companies are combined into one company in accordance with the legal procedures. An acquisition, on the other hand, refers to the situation where one company acquires a substantial...

  16. 12 Bankruptcy Proceedings
    (pp. 321-361)

    British law may define the word “bankruptcy” for a different purpose. Thus, a company cannot be made bankrupt but may be wound up if it is insolvent. The terms “winding up” and “liquidation” may bear the same meaning, i.e. the process by which a company’s assets are collected, its debts are paid and the surplus, if any, is distributed among its members. These two terms, however, are different from the term “bankruptcy”. In Hong Kong, for example, the rules of bankruptcy are contained in the Bankruptcy Ordinance (Cap. 6) whereas liquidations are governed by the Companies Ordinance.¹ Certainly, there is...

  17. 13 Future Chinese Company Law
    (pp. 363-389)

    It is evident that research books and papers around the world have criticized the 1993 Company Law for being underdeveloped. Most of these comments are not groundless. Some flaws of the 1993 Company Law should be examined by reviewing its legislative background and economic condition. During the drafting stage, the Legal Working Committee of the NPC Standing Committee has sent the 1993 Company Law (Draft) to more than 200 various government agencies, companies, enterprises and legal research institutions in order to solicit views from them.¹ To a large extent, the view-seeking process reflects the democratic nature of law-drafting and law-making...

  18. Index
    (pp. 391-394)