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 8: Shareholders' litigation

JiangYu Wang


As noted in the previous chapter, shareholders have now gained avenues under the Company Law to protect their rights and enforce duties of the management (including the directors, supervisors, and senior executives) through administrative actions, criminal prosecution, or civil litigation. The first two punish the wrongdoer, but generally do not provide compensation to the harmed shareholders. Civil litigation, known as private enforcement, enables shareholders to sue the wrongdoer before a court of law to seek damages. From a macro perspective, private enforcement appears to be more efficient and provide a more effective deterrent to violations of shareholders' rights. La Porta, Lopez-de-Silanes, and Shleifer (2006) also found that, by examining the securities laws of 49 countries, private enforcement is more positively correlated to financial development than public enforcement. For example, in relation to equity offerings, '[p]ublic enforcement plays a modest role at best in the development of stock markets. In contrast, the development of stock markets is strongly associated with extensive disclosure requirements and a relatively low burden of proof on investors seeking to recover damages resulting from omissions of materials information from the prospectus'. One may certainly hold a different view about the macro impact of this, but one thing is clear from the shareholders' perspective: private enforcement - and probably only private enforcement - may help them and the company recover the losses suffered. By contrast, fines associated with administrative and criminal liabilities, no matter how large the amount, go to the state rather than the shareholders or the company.

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