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November 21, 2005

Revisions to the Chinese Company Law

Few Chinese would give much credence to the notion that law is at all important to the their businesses, despite the growing number of regulations that impinge upon commerce. Traditionally, to the Chinese, whatever the law might be at the moment depends very greatly on the man who is executing it and your relation to him. This remains true to a large extent even today, especially since Chinese judges need not rely upon precedent, nor need they in practice explain their rulings.

However, given the many tens of thousands of lawsuits proceeding throughout China at this moment, far more than perhaps ever before, as well as the central government's insistence upon what it calls "rule of law," the law has become something like the fly that buzzes constantly around one's head, until one must take notice of it. And that is precisely what I would suggest. Your attorney will guide you through the minimal requirements that Chinese law demands of you in your particular situation, which with exception, will be generally less that what you would find inescaple in the West.

The Chinese Company Law has just been revised. The Legal Daily (法制日报) has reported upon the changes in the law with a brief comparative review, portions of which I have translated. Here is our first installment:

Understanding Revisions to the Company Law: A Comparison of the New with the Old

By Wu Kun

On October 27 [2005], the 18th Session of the Standing Committee of the Tenth National People’s Congress approved by majority vote the revised Company Law, to take effect beginning on January 1 [2006]. This is the third revision enacted by China’s legislative body to the Company Law since its passage on December 29, 1993, at the 5th Session of the Standing Committee of the Eighth National People’s Congress

As all know, the Company is the most important form of enterprise in a market economy. Enterprises with the company form do not represent the largest percentage among all enterprise forms, but their total capital and overall economic contribution far exceed other enterprise forms. At the same time, the company is an important mode by which the modern enterprise system is created. Currently, in China's state-owned enterprise reform, the use of the company structure to implement reform is very important. The revision of the Company Law and China’s company legal system contributes to the strengthening of China’s establishment and perfection of the Socialist market economy, hastening economic development. We may clearly discover, through a comparison of the old and the revised law, what of the new Company law will have various effects on the maintenance of the market economy structure.

1. Introduction of "Piercing the Corporate Veil"

Current law: Not in the current law.

Revised law: A shareholder who abuses the independent position of the company’s legal person and the shareholder’s limited liability to evade obligations, seriously damaging the interests of the obligees, assumes responsibility for those obligations.

To be continued...

Comments

Posted by: mengfanpeng at January 2, 2006 12:39 AM

Posted by: mengfanpeng at January 2, 2006 12:40 AM

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