Academic journal article Journal of Politics and Law

A Comparative Study of Legal Framework for Single Member Company in European Union and China

Academic journal article Journal of Politics and Law

A Comparative Study of Legal Framework for Single Member Company in European Union and China

Article excerpt

Abstract

Following the policy of "reform and opening up" since 1978, China has experienced a prolonged and impressive period of economic growth and development in the past nearly three decades. The 2005 Chinese new Company Law which was resulted from the economic and legal reform came into force on January 1st 2006. It is the milestone of recognition to the legal state of single member company in law for the first time in China. While in Europe, it has been commonly recognized by most countries thanks to the EU company law, especially the Single Member Company directive. This article is to explore the peculiarity and similarities between legal system of Single Member Company in Europe and China by analyzing and compare some key provisions in each legal system, thus to shed light on the advantages and drawbacks of the current legal system, so as to inspire law makers in the future.

Keywords: Chinese new company law, single member company, EU company law, Chinese company law

1. Introduction

Since Liechtenstein, the first country in the world acknowledged the legal position of Single Member Liability Company by statute law, this type of company has been legally recognized in an increasing number of countries.

Single member company emerged and developed rapidly in recent years, for the reason of their strong economic, political and legal theoretical basis. As a result, we can dig into their emergence and development from a social and historical point of view. It is helpful to encourage investment, develop economy and facilitate employment. Compared with ordinary types of companies, Single Member Companies' legal characters lie in the singularity of shareholder and the particularity of its corporate governance structure. Thus it increases the possibility for the single shareholder to abuse the rights and damage the interests of companies' creditors. In order to protect the company's creditors, it is necessary to regulate single member company strictly and set up integrated creditors protection rules. Therefore, the legal status for Single Person Companies should be authorized and as well positively standardized in order to seek advantages and avoid disadvantages.

In Europe, single member company has been commonly recognized by most Member States thanks to the unique European Company Law system.

China recognized the legal status and adopted the single member company by legislation when new Company Law took effect on January 1st 2006 which is a significant legislative progress in the legislation history of China. Yet the legislation is to be improved.

This article is to explore the peculiarity and similarities between legal system about single member company in Europe and China.

2. General Introduction of Company Law in Europe and China

2.1 Definition of a Company

Generally, a company is a form of business organization. In English law, and therefore in the Commonwealth realm, (Note 1), a company is a form of body corporate or corporation, generally registered under the Companies Acts or other similar legislation. It does not include a partnership or any other unincorporated group of persons.

In Chinese Company law, the term "Company" as mentioned in this Law refers to a limited liability company or a joint stock limited company established within the territory of the People's Republic of China in accordance with the provisions of this law.

2.2 Development of the Single Member Company

Single member company, resulting from the rapid development of economics and pluralisms of business practice in daily life, is a unique form of a Limited Liability Company that is commonly recognized by a significant amount of nation states. The European Union, for example has special provisions acts and directives for regulating Single Person Liability Companies. Similarly, China, as the biggest developing country, has also made a breakthrough in both legislative and academic aspects. …

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