Company Law

Company Law
I. SHORT HISTORY OF CHINESE COMPANY LAW
The People’s Republic of China did not have any formal national company law until the National People’s Congress promulgated the Law of the People’s Republic o f China on Company Law in 1993 and substantially amended it in 2005.
There is no doubt that the modern concept of a company has played a very important role in standardizing Chinese enterprises, especially the State-owned enterprises. As a modern business form, the company form has been utilized as a tool to reform the SOEs in China.
Companies have also been recommended as an effective way to combine public ownership with the market economy.
II. OVERVIEW OF EXISTING PROBLEMS
The 1993 Company Law cannot be regarded as a well-drafted law for various reasons, such as its short history, insufficient experience, and changeable circumstances during the transitional period. Another major reason was that China needed to protect the existing SOEs rather than to get rid of them. Thus, many provisions under the 1993 Company Law could not be considered as compatible as those of developed countries or regions.
The 2005 Company Law
Despite the existence of the 2005 Company Law, it is still a valid topic to improve the Chinese company law in the following aspects: (1) to enhance the check and balance relationship between the shareholders’ general meeting and the board of directors; (2) to improve the check and balance relationship between the board of directors and the board of supervisors (or supervisory committee); and(3)to improve the mechanism of protecting minority shareholders.
III. THE EVOLUTION OF CHINESE COMPANY LAW
From a legal perspective, China did not have a concept of “company”
or “corporation” until the end of th e Qing Dynasty, when the
government promulgated the first Chinese corporation law, the Da Qing Gong Si Lu, in 1904.
The term “company” became a formal legal term in China in 1903 when the Qing Dynasty published its Da Qing Gong Si Lu.
After t he People’s Republic of China was established in 1949, the development of company law could be divided into three periods: Firstly, during 1949 to 1956, in order to encourage many private enterprises to continue their operation in China and to protect their legal status as well, the government passed the Provisional Regulations on Private Enterprises (1950) and the Implementing Methods for the Provisional Regulations on Private Enterprises (1951).
Secondly, during 1957 to 1978, there existed only the SOEs and collectively-owned enterprises in China. According to the Working Regulation on State-owned Industry Enterprise (1961), all factories should establish co-operational relations if they manufactured similar products or had similar needs. Some special companies in charge of factories making the same or similar products were established. Even though at that time the word “company” was used for these special companies, it did not contain the same meaning as that in western countries because those companies were not established for the purpose of operation for profit, but were administrative institutions that were mainly responsible for organizing production and sales in line with the State plan.
Thirdly, during 1979 to 1993, companies with a modern concept became demanding in China. The State recognized the need for establishing modern companies in order to implement the economic reform of China. One of the major tasks of economic reform was and still is for the State to release the heavy burden of poorly managed SOEs. It was believed that companies were one of the best business forms to realize the goal of reducing government intervention,
and of separating investors from direct management.。