Company Law in China
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Company Law in China

Regulation of Business Organizations in a Socialist Market Economy

JiangYu Wang

This accessible book offer a comprehensive and critical introduction to the law on business organizations in the People’s Republic of China. The coverage focuses on the 2005-adopted PRC Company Law and the most recent legislative and regulatory developments in the company law landscape in China. The book covers a wide range of topics including the definitions of companies as compared with other forms of business organizations, incorporation, shareholders rights and legal remedies, corporate governance (including the fiduciary and other duties and liabilities of directors, supervisors and managers), corporate finance (including capital and shares offering), fundamental corporate changes (including mergers & acquisitions, and takeovers), and corporate liquidation and bankruptcy. In addition to presenting strong doctrinal analysis, the author also considers China’s unique social, political and economic contexts.
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Chapter 3: Corporate legal personality and limited liability

JiangYu Wang


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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