Regulation of Business Organizations in a Socialist Market Economy
Chapter 3: Corporate legal personality and limited liability
The incorporation of a company brings two most important consequences. First, the separate legal personality for the company, and second, limited liability for the shareholders of the company. The two consequences form the two most fundamental concepts of corporate law as embodied in Article 3 of the Company Law, which provides: A Company is an enterprise legal person which owns independent legal person properties and enjoys legal person property rights. A company shall be liable for its debts to the extent of all of its property. The liability of a shareholder of a limited liability company shall be limited to the capital contribution it subscribes. The liability of a shareholder of a joint-stock limited company shall be limited to the shares it subscribes. Although theorists have long debated about the nature of a corporation, namely whether it is a legal creation, a real entity, or a nexus of contracts, Chinese law apparently follows the legal creation approach. As noted in the previous chapter, a Chinese company must be established in accordance with the law, following strictly the required formalities. In particular, the establishment of a company must be registered with the relevant Administration for Industry and Commerce (AIC) to take effect, and a company is viewed as being legally established only when the AIC grants a business license to it. Since the company is only a legal creature, it might be cancelled - namely de-registered or its business license revoked - by the AIC.
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