Civilian Tradition and the Chinese Company Law

Stefano Porcelli

Published online: 24 April 2009

� Springer-Verlag 2009

Abstract What is the role of company’s legislation in the Chinese transition? In the

first paragraphs of the paper it will show the emergence, in a historical perspective, of

some enterprise-related legal structures. These structures will be described by

emphasizing model-function relations, and connecting them to the features of ‘dif-

ferent societies’ in which they developed. We will consider then, the role of status.

The law, a legal structure as well, is used by China to manage its gradual and con-

trolled, yet rapid, transition. By these means, it has been possible, for instance, to

move status based distinctions among enterprises inside, at least formally, ‘equality’

based legal structures.

Keywords Social Transition � Chinese company law � Civilian tradition �Limited liability

JEL Classification K22 � P20 � P31

Introduction

‘In order to standardize the organization and behavior of companies, to protect the

legitimate rights and interests of companies, shareholders and creditors, to maintain

S. Porcelli (&)

LL.M. ‘‘Roman-Civil Law System, Unification of Law and Integration Process’’,

Department of History and Theory of Law, School of Law,

University of Rome ‘‘Tor Vergata’’, Rome, Italy

e-mail: stefano.porcelli@hotmail.it

123

Transit Stud Rev (2009) 16:438–449

DOI 10.1007/s11300-009-0075-0

the socio-economic order and to promote the development of the socialist

market economy, this Law is enacted1’. This is the first article of the reformed

Chinese company law, considering therefore its contents and their location from

a systematic point of view, it is possible to notice then, that the Law is enacted,

as an instrument, to manage the Chinese transition.2 What are the legal

structures used by this Law in pursuing this aim? The law is a structure by itself

but going deeper it is possible to find other legal structures chosen by legislators.

These legal structures could be considered as models, connected to other models,

containing models, contained in models employed to regulate the society

and, at the same time, influenced by the society. The results brought by the

utilization of these means are, for now, that the role of status in the Chinese

society seems to be gradually decreasing and the economic and social conditions

are improving.

We will focus our attention on three, closely related, aspects: the company

model; the limited liability model and the role of status. We will first analyze these

models and their relations with the society in a historical perspective trying to let

model–functions relations emerge. There will be an overview on how models

changed and developed, reconnecting then these results to the Chinese development

nowadays. The utilization of law3 as a kind of ‘grid’, seems to allow to add, modify

or remove4 models or sub-models with the result of fostering in a controlled way a

gradual, even if fast, social transition.

Models in the Roman Law

In Roman law, societas and limited liability were not so strictly connected as they

are nowadays in many Countries’ legislations, but, of course, they were possible to

be combined. Through the societas contract, that could be considered as the ancestor

of the modern company agreement, placed in many legislations on the basis of

companies’ incorporations, it was not possible to separate companies assets from

those of partners (Di Porto 1984; ‘Societa’, Talamanca 1990b). Nevertheless the

Roman law probably knew the limited liability, but instead of utilizing a contract on

its basis, the Romans used the potestas structure to get this result. Slaves and sons in

power were alieni iuris, which means that they were, from a legal point of view, not

1 Chinese Company Law, article 1:

“

”.

2 It was also clear in the previous version: –in order to satisfy the

requirements of the construction of a modern enterprise system-

3 Considered as legal order.4 Through the law considered as a source.

Civilian Tradition, Chinese Company Law 439

123

autonomous from pater familias because they were not recognized as juridical

persons; following their condition their assets were therefore not autonomous from

those of the pater familias. However, they had a certain degree of autonomy and

their assets (peculia) were regulated not completely in the same way as those that

strictly belonged to the pater familias. It was not possible, for creditors of slaves or

sons in power, to use the whole pater familias assets to take their money back, but

just the peculium of the son or slave they dealt with (D. 15.1.1; ‘Istituzioni’,Talamanca 1990a). Patres familias used therefore sons and, mainly, slaves5 to run

their business.6 A peculium could have been a whole enterprise or maybe a group of

enterprises7 and it was, anyway, possible that partners, linked by a societascontract, provided a peculium to a common slave. These models, the same as the

whole society at that time, were based on status distinctions but, considering them

from the point of view of functions, it is important to stress that, anyway, it was

possible to have a partnership, on the basis of a contract, and the limited liability on

the basis of the potestas. It is interesting, at the end, to remark that, while modern

legislations’ models are, as we will see, based on a juridical, not natural, person, the

Roman one, as we have seen, was based on a natural, not juridical, person (Di Porto

1997).

Following Developments: From the middle ages to the ‘industrial age’

During the middle ages other ‘subjection’ legal structures spread, whose

features did not match the peculium structure.8 At the same time, the role of the

5 With a particular attention on slavery, we read (Serrao 2006) that while the previous ‘dependant’ work

relationships, such as all those gentes connected relations, where in crisis; the slavery due, mainly, to the

enlargement of the area under Roman control, and the related social changes, was in expansion. At the

end of the IV century a large part of the previous, ancient, ‘subjection status’ were disappearing or

reduced to ‘negligible’ extensions and slavery prevailed; quoting Serrao, many trickles were going to be

substituted by a river, that will be more and more enlarged in the following centuries, until it arrived to its

higher level during the II and the I century B.C. (Serrao 2006).6 About the economic role of the family and of the other persons involved in this scheme, it is stressed by

scholars (Fadda 1987) that it mostly happened that it was not the pater familias who directly managed the

commercial enterprise, but it was managed by sons-in power, liberti, and slaves. Anyway, actually, the

assets as well as the liability and the earnings belonged to the pater familias. The whole overland and

maritime commerce was handled by institores and exercitores, but, it does not mean that citizens had not

practiced commerce. In most cases, it was not directly practiced by citizens just because the ‘rich’ citizen

does not do anything by himself, he has procuratores and actores that move away from him all ‘bothers’

connected to business. Those aspects are extremely important if used in a comparison with the changing

of circumstances during the middle ages.7 Through the actio tributoria it was, for instance, possible to operate more ‘assets divisions’ inside the

peculium: it was divided into merces peculiares and creditors of each merx peculiaris could not use other

merces to recover money of their credits (D. 14,4,5,15; Di Porto 1984). The peculium could also contain

other slaves and those slaves (servi vicarii) could also have a peculium: in this case creditors of the servusvicarius could not use the whole peculium of servus ordinarius (the one in whom peculium are servivicarii and their peculia) to recover their money, but only the part that is assigned to the servus vicariusthat is his debtor (D. 14,4,5,1; Di Porto 1984).8 (About the colonatus, the so called serfdom and so on, Conte 1996; De Martino 1988).

440 S. Porcelli

123

family9 continued, anyway, to be strong. The society changed and also models

changed together with it; the role of status continued, nevertheless, to be strong in

the family, in the society,10 as well as in legal structures. Under these new

circumstances, it seems that, on the one hand, the peculium model continued to be

used,11 on the other hand it rose, inside corporazioni professionali and among their

members, the so-called ius mercatorum, the merchant law. From the ius mercatorumnew models derived (the commenda12, for instance), and one of its main features, is

necessary to be recalled, is that it was in force among merchants without

considering their territorial origins, but, just because of their status. This is one of

the reasons for which it ‘survived’ the crisis of the Italian comune, that was,

anyway, the environment in which it is possible to find a considerable part of its

initial developments.

After the ‘crisis’ of the Italian comune and the advent of absolutist monarchies in

Europe appeared a new model of companies, in which partners had limited liability

and the capital was limited by shares, the so-called India companies. Both the

limited liability and the capital divided into shares were based on a charter for

exclusive permission issued by the Crowns that represented a kind of agreement

between the sovereign and groups of entrepreneurs who carried out the task of

9 On the basis of the family’s structure, rises just in this period (from the Latin words ‘‘cum-panis’’ that

refers to the persons who share bread, and therefore family members), the Italian word compagnia(Santarelli 1992). Its economic role is linked both to the commerce scale (Luzzato 1963; where, is also

recalled a commerce manual written on the first half of the XIV century by a commerce agent of

Compagnia dei Bardi, Firenze, which explains the different features of the different markets far from each

other, the existence of this kind of manuals could therefore indicate the size of commerce at that time) and

to the comune institutional structure based on the relation between the cities’ institutions and the

corporazioni professionali.10 Status was the element on which corporazioni professionali were built and it also influenced relations

among corporazioni as well: commerce corporazioni used to have goods they exchanged on markets,

produced by craftsmanship corporazioni and probably because of their richness they were extremely

influent on those of the second kind, the same as on cities institutions. (Galgano 1993; Luzzato 1963).11 To draft the structure of the middle ages company, it is, under this aspect, impossible to avoid referring

to the family law. It is stressed by scholars that the pater is the person who, on the basis of its potestas,

represented the whole family; sons had limited capacity (usually alieni iuris sons) that continued until his

death. The unity of the family’s patrimonium managed by the pater respect to which sons just had their

peculia, represents, therefore, the ground on which the company relationship developed (Santarelli 1992).

The legal structures of family law we are talking about, were, in some aspects, influenced by the rules of

Justiniani Corpus Juris (Bellomo 1967).12 This was, on the beginning, a credit operation in the sea commerce and then became a type of

company agreement. The credit operation scheme was the following: a person gave an amount of money

as a credit to a merchant under the duty, for the merchant, of giving back money and a percentage on

profits of the expedition. After it became a ‘company agreement’, it created a model close to the limited

liability partnership (societa in accomandita, in Italy—art. 2313 and following, 1942 civil code—and

, youxian hehuo qiye, in China—article 60 and following, partnership law) where money

that once was a credit became a risk capital (it is considered thus the commenda in a close relation with

the origins of the tendency spread in the XVII and XVIII century with the phenomenon of the so-called

India companies. Merchants started to involve in their enterprises’ risks also other persons).

Civilian Tradition, Chinese Company Law 441

123

colossal economic initiatives linked to the colonization of new areas. To reduce

risks, kings conceded them the privilege of limited liability.13

If the absolutistic State supported the authoritarian tendency of merchants in

companies, the bourgeois State changed its approach and tried to coordinate

different interests of the different social classes. The ‘apparatus State’ mediation

was thus substituted by a ‘legal order State’ mediation. In laws and codes, creditors’

as well as shareholders’ interests and so on, were protected. Scholars describe these

facts as ‘socializing’ of share assets, that were parallel to this of the State, both

linked to a XIX century bourgeois classes will (Galgano 1993). The importance, for

example, of the French 1807 Code de Commerce, must be remarked, not only for

the abolishment of privileges in India companies,14 but also on a larger scale: it

started the trend that in the Italian 1882 Codice di commercio lead to an, at least

formal, drastic reduction of the role of status15; whose influence has been (or should

have been) circumscribed to those cases in which it was strictly (from a functional

point of view) necessary.16

The mentioned legal not natural person, through codes, rise in the shape of a

company. This is related to the needs arose from the industrial revolution, under

which, even if for reasons different from those on the basis of India companies, the

model, the legal structure, after a few modifications, was anyway suitable.

Nowadays

Status Related Aspects

These we are talking about are ‘industrial society’ structures; what about the ‘post-

industrial society’17?

13 If the limited liability was helpful to overcome such huge risks, the capital divided into shares helped

merchants in raising funds also outside from the merchants class. On the one hand, it was created the

opportunity to take part in commercial enterprises without an unlimited risk; on the other hand, shares

could be sold to others and represented, anyway, a risk capital instead of a credit that the entrepreneur has

to pay back on a certain date with interests regardless of the result of the undertaking (Galgano 1993). In

this kind of company, anyway, status continued to play a strong role (accurate descriptions on these

models are available, for instance, in Galgano 1993).14 The rise of the so-called shareholder assembly sovereignty is usually reconnected to the Code decommerce (Galgano 1993), as well as the fact that the governmental check of companies’ articles of

association, probably derived from the kings’ permissions of the XVII and XVIII centuries, became first

focused on shareholders’ protection and then disappeared in the second half of the XIX century replaced

by other means.15 The criterion employed to delimitate the commercial law and its application area is not the subject to

whom commercial code articles are addressed, but the object that these articles were going to regulate

(Santarelli 1992). The ius mercatorum became a ius mercaturae and the trend started from the Napoleon

commerce code was concluded (Santarelli 1992) with an ‘objectification’ of the commercial law.16 It is remarked (Schipani 1999) that, through the European codes (not only commercial codes), the

‘ancien regime’ distinction among noblemen, bourgeoisies, merchants, peasants and so on, was

eliminated, and it was therefore unified the person’s condition.17 Sociologists recognize the passage from an industrial to a post-industrial society when the number of

persons employed in the service sector is higher than the number of those employed in the industrial

442 S. Porcelli

123

It is stressed that, in the post-industrial age, it seems as the pre-industrial

commerce ‘primacy’ is coming back (Galgano 1993) and there is a trend, in the

international enterprises environment, for which are growing in importance

contracts and the so called ‘lex mercatoria’ based on a reference to the middle

ages lex mercatoria. The same as in the middle ages there is a kind of law created by

the ‘commercial’ class outside from the States’ legislative power influence that

regulates the commercial relationships on the markets that is suitable in overcom-

ing the juridical fragmentation connected to the differences among the States’

legislations.

Is the new ius mercatorum the proper way to face the post-industrial society

needs? It could work because it would be easier to create rules among those that

have similar interests, but what could be its impact on the society? The main

problem of the new lex mercatoria seems to be the same as the previous one: status

weighs too much on it, and it could be therefore not so suitable, in particular for

other social classes different from ‘merchants’.18 It is stressed, for instance, that ‘a

certain degree of regional approach is indispensable for the global governance,

where the ‘different speeds’ of convergence must take into account specificities and

backgrounds of the starting conditions’ (Dominese 2007). These ‘different speeds’

could be considered not only on a transnational perspective. Social costs of legal

structures that do not consider the different interests rising in the society, but just a

part of them, could be high. A gradual approach could be, in the long period, better

than a faster one (Hoff and Stiglitz 2005),19 also because it could allow to consider

and ‘mediate’ a larger number of interests.

China is using the Law as an instrument for its transition, and seems to be

gradually creating, as in Europe from the Code Napoleon, a formally equal citizen

based society. The ‘grid shaped’ model, enforceable by and through the law, could

be the proper one.

Footnote 17 continued

sector, USA is in a post-industrial age since 1956; Italy since 1982 (Galgano 1993). Among the features

of ‘post-industrial’ period we can find out that; (a) the technological development is reducing the number

and therefore the social role of employed workers; (b) the same result is brought by the conversion of

employed work to autonomous work and by the ‘new shape’ of big enterprises that outsource to a large

number of small enterprises the production of single components of goods; (c) the increase in the number

of ‘groups’ of enterprises where there is a holding company and many sub-holding or controlled com-

panies far from the ‘head’ that decides the groups’ strategies; (d) the financial capital development that

changes the entrepreneur and manager figure: in the industrial age those persons where linked to a certain

sector, but now entrepreneurs buy shares in completely different kinds of companies and managers seems

to be more ‘flexible’ too; the interest in the one’s own enterprise is hence decreasing (Galgano 1993).18 It could be, for sure, one of the solutions to face the post-industrial global society challenges due to its

suitability in overcoming the juridical fragmentation, but it could be not so suitable rely only on it.

Moreover, the juridical fragmentation is not just linked to tightly legal policy choices made by States, but,

taking into account that the law could be, under many aspects, considered as a mirror of societies, the

juridical differences therefore reflect social differences.19 In this work is also remarked that a gradual approach to transitions, with the institution building as first

step, could be more suitable than a ‘privatization first, institution-building second’ (‘big bang’

privatization) approach. For the Chinese point of view, it is stressed that ‘‘China rejected ‘shock therapy’

and worked through the existing, imperfect institutions while gradually reforming them and reorienting

them to serve modernization’’ (Zhang 2006) that, as we have seen (footnote no. 2), was placed as first

issue in the previous version of the first article of the Company Law.

Civilian Tradition, Chinese Company Law 443

123

New Models?

Among the features of the ‘post-industrial age’, it is remarked the conversion of

employed work to autonomous work as well as the ‘new shape’ of big enterprises

which outsource to a large number of small enterprises the production of single

components of goods (Galgano 1993). This could be one among the other reasons

of the rise of sole proprietorship limited liability enterprises that are spreading

in different countries, the Italian societa unipersonale and the Chinese

(yiren youxian zeren gongsi, one person limited liability

company) introduced by the 2005 reform (Zhang 2007)20 could be examples of

the terminological21 and conceptual model arrangements often required by

evolution. If the industrial age economy required an ‘associative’ enterprise model

(i.e. company); in the post-industrial age it seems that due to this large number of

‘outsourcing enterprises’ and to the development in technology, the limited

liability is required also in individual enterprises. The economy shape is changing

and models are influencing and are influenced by it. With regard to the sole

proprietorship companies, it is quite clear that to give answers to the needs rising

in the society, the company models are being forced.22 Each kind of society

requires some models on the basis of its needs, it seems that it is not so suitable to

use too unmovable categories in describing these phenomena. It could be probably

useful to focus our attention on the relation between models (structures) and

functions; creating new models, even if combining existing models, on the basis

of the functions they have to undertake, would allow to avoid to ‘force’ existing

models and to create, not only terminological, paradoxes.

The Chinese Way

Scholars (among the others, Gan 2006) underline that the enterprise legislation in

China, after a transition period, is now based on three main models regulated

by three different laws: gongsifa ( —company law); hehuo qiyefa( —partnership law); geren duzi qiyefa ( —sole

20 It is important, anyway, to underline that China, due to the ‘speed’ of its development, seems to be

facing, at the same time, industrial and post-industrial age challenges.21 Keeping the attention on these two examples, societa, is the noun used in the Italian legislation to

indicate companies; its origins are in the Roman Law societas contract we talked about in the beginning;

the Chinese , indicates ‘in Chinese language’ companies as well and also this term has a ‘plural’

connotation.22 The Chinese Company Law article 62 could be an example: ‘‘No shareholders assembly

shall be set up in a one-person company with limited liability. When the shareholder makes a

decision on the matters specified in the first paragraph of Article 38 of this Law—it contains a list of

the shareholder assembly ‘functions and powers’ (‘ ’ etc.)—, he shall do so in

written form and sign it before keeping it for the record in the company.’

(“”)

.

444 S. Porcelli

123

proprietorship enterprise law). While in the past, the enterprise types differentiation

was obtained using a subject based distinction,23 trying to overcome this subject

based distinction through a more scientific and equitable organization based

distinction, the instrument used was and is the law. In the law there are indicated the

main models and then, inside laws there are more distinctions based on models,

keeping, nevertheless, the attention also on subjects. Subject, however, differently

from the past, is not a basement for distinctions, but, as happened in some European

Countries starting from XIX century, it is an element to make distinctions inside

models regulated by the law. An example could be helpful: the Company Law

regulates companies with legal personality and contains the largest part of the

Chinese legislation on this kind of enterprises. From a combined view of articles 3

and 6 it is possible to notice that the types of company regulated by this law are

companies with limited liability.24 Inside the Company Law the main distinction is

between youxian zeren gongsi ( —limited liability company) and

gufen youxian gongsi ( —company limited by shares). While

company limited by shares are divided in listed and not listed, the limited liability

company regulation pays ‘more’ attention to the owner, so there are rules for

‘normal’ limited liability companies but also specific rules for sole-proprietorship

23 The different types, as recognized by scholars are: quanmin suoyouzhi qiye ( —public

ownership enterprises); jiti suoyouzhi qiye ( —collective ownership enterprises); siyingqiye ( —private enterprises); Zhongwai hezi jingying qiye ( —Sino-foreign

joint ventures); Zhongwai hezuo jingying qiye ( —Sino-foreign cooperative enter-

prises); waizi qiye ( —exclusively foreign owned enterprises) (Zhao 2006).24 Article 3:

(A company is an enterprise legal person, which has independent property of a legal person and enjoys the

property rights of a legal person. The company shall be liable for its debts to the extent of its entire property.

Shareholders of a company with limited liability shall assume liability towards the company to the

extent of the capital contributions subscribed respectively by them; and the shareholders of a company

limited by shares shall assume liability towards the company to the extent of the shares subscribed

respectively by them.).

Article 6:

(Where an entity intends to incorporate a company, it shall, in accordance with law, apply to a

company registration authority for registration of such incorporation. Where the conditions for

incorporation provided for by this Law are met, the company registration authority shall have the

company registered as a company with limited liability or a company limited by shares; and where the

said conditions are not met, the company shall not be registered as one with limited liability or as one

limited by shares).

From article 3, scholars underline that limited liability is the basement of the company as well as of the

company law (Wang 2007) and, looking at the explanations given to laws regulating other kinds of

enterprises it is clear that, in China, companies with limited liability must follow the company law

regulations (it is also explained that Chinese-foreign equity joint ventures were regulated by the Chinese-

foreign equity joint ventures law, but, after it was introduced the company law, these kinds of enterprises are

regulated as companies by the company law, except for those features, connected with the previous law, that

distinguish this kind of company from the ‘normal’ Chinese companies—Gan 2006). In the Company Law

there there is a large part of the basic rules regarding enterprises with limited liability in China.

Civilian Tradition, Chinese Company Law 445

123

limited liability company and wholly State owned companies.25 The ‘macro-level’

distinction by subject that remains, for now, in the Chinese enterprises legislation is

only the one that comes into play when there are foreign capitals involved. It seems

that, anyway, it will be overcome too,26 maybe (for what regards companies with

limited liability) could be placed by future reforms inside the Company Law together

with the distinctions referred to the wholly State owned enterprises and sole propri-

etorship limited liability enterprises. However, what in this example is important to

stress is that there is a transition, in China, from a subject based enterprise regulation to

an enterprise structure based regulation. The same as in the other countries, there are

different models distinguished on the basis of the enterprise organization and then, of

course there are differentiations related to different subjects, but it is just in case there

are such considerable interests involved that it is necessary to make these distinctions.

Using this solution they created ‘common models’ with differences, inside them to be

closer, from a functional point of view, to subject needs.

It is stressed that the 2005 Company Law contains a lot of amendments and new

contents compared to the 1993 Company law and also that this 2005 reform is not

the end of Chinese Company Law modernization, but its beginning (Zhang 2007). A

brief overview on the preceding events is therefore needed.

Scholars underline that under the influence of the tradition, Chinese legal order had

not recognized, for quite a long time, the commercial company as a model of

organization: in the 80 s of the past century this model was not yet validated by the

law.27 At that time, the social perception in China, referred to public ownership and the

law just regulated two kinds of public ownership based enterprises: State enterprises

25 [A clear scheme on these structures in Wang (2007)]. While the structure differences between the

listed company limited by shares and the ‘normal’ company limited by shares does not seem so remarked,

it is not the same for differences between the limited liability company and its two ‘sub-types’: the one-

person limited liability company and, above all, the wholly State owned company. Even if in the last

mentioned case the status is still playing a role stronger than in other cases, this is anyway happening

inside a model where the distinction has been moved. Through the means of law a model was created,

based on an, at least formal, equality, inside which they have been, again through the law, placed these

more status based models. Status based differentiations, inside models, even if not so remarked, are,

anyway, also present in other Countries’ legislations; in the Italian one, for instance, articles 2458–9

regard companies which have the State or public agencies as shareholders.26 We could also consider that there are scholars who talking, for instance, about investment companies,

underlined that the difference between Chinese and foreign companies requirements does not match the

WTO requirements and the national treatment principle (Zhao 2004). This prospective could also give

rise to considerations about the role of international law and international environment on Chinese (and

not only) legal reforms.27 It is also underlined that the 1986 Law on General Principles of the Civil Law of the People Republic

of China only referred to the enterprise legal person (Zhang 2007). It does not mean, anyway that China

had not known the company model, but on the one hand it does not seem it was so spread and on the other

hand after the civil war companies were turned into State enterprises, collective enterprises and so on.

There was a Company Law promulgated on the end of Qing dinasty; then a Company Regulation issued

in 1914 under the Republic of China and then a more complete Company Law in 1929 during the

guomindang government that followed as examples the French, German, Japanese and other civil law

system company legislations (as we read in Wang 2007, p. 40 it is still into effect in Taiwan). After the

gongchandang got into power, the last mentioned Law was abrogated. The system gradually changed and,

after 1956 commercial companies as well as company laws disappeared (Wang 2007, p. 40). (An

overview on the development of company and company regulations in China starting from the Qing

dynasty, in Liu and Yu 2007).

446 S. Porcelli

123

and collective enterprises. It was only at the end of 1970s and the beginning of 1980s of

the past century that, due to enact the opening and reform policy, Chinese legal order

started to admit other models of enterprises different from those based on public

ownership: the so-called ‘sanzi qiye’.28 The same system was almost unaltered until

the beginning of 1990s when the point of view started to change and the relationship

between the company limited by shares model and the public ownership enterprise

model was not considered as a conflict anymore.29 The company limited by shares

model was considered as useful to transform the State owned enterprises and therefore,

after the authorization of the relevant administrative organs, in different areas they

started to test the transformation of State owned enterprises in companies limited by

shares, this is the so-called gufenhua.30 Due to the large number of tests, relevant

organs, in 1992, released ‘guidelines’ to regulate them.31

Along the same line, the Chinese Company Law was adopted on December

1993.32

If the 1993 Company Law represented a step forward, anyway, it needed

improvement. Among the issues that Chinese scholars recognize as ‘weak points’, it

is possible to stress the fact that more than to incentivize investments, it seems that

it was linked to the necessity of a State owned enterprise system reform. Related to

this aspect it is also underlined that the distinction between the limited liability

company and the company limited by shares was remarked33 not enough, because at

that time to give standard rules for State owned enterprises was considered as the

main aim (Zhang 2007).

Even if we do not want to consider the 2005 reform as the beginning, it is

however undeniable that it is not the end of the ‘modernization process’; it is just a

step. Some Chinese scholars think that the ‘mission’ of the Company Law is to

28 With the locution ‘‘sanzi qiye’’ (“ ”) are indicated: the Sino-foreign joint ven-

ture( – Zhongwai hezi qiye); the Sino foreign cooperative enterprise ( —

Zhongwai hezuo qiye); the exclusively foreign owned enterprise ( —waishang duzi qiye).29 Anyway during this period China faced a lot of changes and therefore under the new circumstances

also perceptions changed [an overview on these aspects, in Tenev et al. (2002)].30 The term is usually translated as ‘‘demutualization’’, it emphasizes, anyway, the transfor-

mation into shares; they started to test this kind of transformation in 1984 and then they enlarged the scale

of experiments (Tenev et al. 2002).31 The ‘‘Guidelines on standards for companies limited by shares’’ ( ) and the

‘‘Guidelines on standards for limited liability companies’’ ( ).32 It was composed of 230 articles divided in 11 chapters: general principles; incorporation and

organizational structure of a limited liability company; incorporation and organizational structure of a

company limited by shares; issue and transfer of shares of a company limited by shares; corporate bonds;

financial affairs and accounting of companies; merged and division of companies; company bankruptcy,

dissolution and liquidation; branches of foreign companies; legal responsibility; supplementary

provisions.

(

).

33 It is stressed, for instance, that regulations for shareholders assembly and board of directors

were almost the same both in the limited liability company and in the company limited by shares (Zhang

2007).

Civilian Tradition, Chinese Company Law 447

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balance the individual interests and to protect the investors’ interests, but to achieve

these results the economy has to be developed too and in the developing process the

protection of shareholders interests instead of the State owned enterprises34 should

be incentivized (Zhang 2007). The 2005 reform seems to be placed in this

direction35 but there are still problems that need time to be solved. Among these it is

stressed (Zhang 2007) that the reform did not remarked in the proper way a

structural difference between the limited liability company and the company limited

by shares; the heavy power maintained by administrative organs on the ‘life’ of the

company; the minimum amount of registered capital of the company limited by

shares,36 is still too high, and so on. It is anyway to be noticed that, in comparison

with the past, after the 2005 reform, investors are more encouraged and companies’

autonomy received benefits (similar remarks in Wang 2007).

Conclusions

After this brief analysis it is possible to notice that since the Roman age, even in the

field of commercial law, there are systematic legal structures (models). The status

element seems to have different influences on the basis, on the one hand, of the

economical conditions of the relative society and, on the other hand, of its legal

development degree. In a model–function relation, these structures could be

influenced by it and, at the same time, influence it. However it looks like some

models are ‘crosswise’ perceived in different societies as useful: an instance could

be the limited liability.

The law, the legislation, is the instrument used in China, to manage the transition,

also with regard to enterprises. Using the law they are providing rules that, at least

formally, are gradually putting subjects on the same level: status based differences

are made inside models instead of making models on the basis of status differences.

Through the law, conceptual categories are spread (the same law could be an

example) that ‘stimulates’ society in and towards a socio-economic transition and

that, at the same time, allows to control it. Is China through the legislation avoiding

34 Nevertheless, a State owned enterprise could be an investor too and have its interests protected through

this system, the same as happens in many other Countries.35 If we consider Chinese Company Law articles regarding the shareholders assembly in companies

limited by shares (mainly those from article 99 to article 105) it is possible to notice that the shareholders’

role is getting enforced as well as that of the citizens. If we consider that, at least formally, there are not

(contained in this Law) legislative restrictions to become a shareholder, it is possible to think that this

regime paves the way toward an, at least formal, status role reduction, both in terms of ‘access’ to the

position of shareholder, than in terms of involvements of citizens in some crucial managing decisions of

companies. From a structural perspective, also for boards of directors it is possible to notice, at least

formally, an ‘opening’; together with the legislative choice of a possible employees’ representatives

involvement in the management (about these aspects see, in particular, articles 109, 112, 113).36 It is established by article 81 third paragraph that the minimum amount of the registered capital of a

company limited by shares shall be 5,000,000 yuan (approximately 500,000 €) and it is possible that laws

or administrative regulations, probably for special sectors, set higher amounts

(“”)

.

448 S. Porcelli

123

what happened in other Countries transition where a ‘big-bang’ ‘privatization of

state enterprises increased private opportunities for wealth creation, but also—given

the absence of effective corporate governance systems—for theft’ (Hoff and Stiglitz

2005),37 together with the related social traumas? The Law seems to be a suitable

instrument to manage, in the enterprise field, the gradual transition that China

wants.38

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