Transplantation And Change: A Dissertation On The Limited Liability Company

The aim in this dissertation is to assess where China's limited liability company (LLC) could be going and what other enterprise legislations could learn from it by analyzing the reasons why the LLC originated and succeeded in west countries and the change when the LLC was transplanted to China. The LLC originated in Germany. It was first governed by Gesetz betreffend die Gesellschaften mit beschr?nkter Haftung (GmbHG) of 1892. It is a German invention without any historic precedent. The object was to fill a gap between the existing types of associations, the stock company on the one hand and the partnership on the other hand. The immediate stimulus behind the search for a new form of organization was the realization that the marketable share companies (MSC) was not suitable for small and medium-sized businesses or for firms composed of a few members who were not only acquainted with one another but who also supplied all of the capital themselves. This was particularly true after the reform of 1884 tightened the rules governing the founding of MSCs and disclosure.While the German GmbH was an entirely new creation of the legislative process, the English private company (PrC) developed first in practice and was only later given recognition by the legislature. The Companies Act of 1907 for the first time contained a statutory definition of the "private company" and equipped it with certain advantages not enjoyed by the public company. However, the evolution of both German GmbH and England PrC is closely related to the history of legislation regulating the MSC. Reforms tightening the rules governing the MSC led to the idea of creating a second kind of company to meet the need of small and medium-sized enterprises. The LLC invented by German lawmakers has the following characters: (1) Shareholders are not personally liable for the company's debts, which effectively limits risks of shareholders. (2) The relatively closed membership makes the relationshipbetween shareholders stable. Shares in the LLC cannot be offered to the public and cannot be traded on the stock exchange. There are special requirements provided by the law or the articles for effecting a transfer of shares either in the form of burdensome formalities or through substantive restrictions. The LLC is distinguishable from the MSC primarily because of restrictions on the transfer of shares. This character is the core of all characters of the LLC. (3) The memorandum of association of the LLC is to a great extent governed by the principle of freedom of contract. Relatively few legal provisions are mandatory so that there is ample room for an individual design of the articles of incorporation. (4) Shareholders retain absolute control power. Unlike the MSC, the degree of separation of ownership and control in the LLC is slight. (5) The legal structure of the LLC is simple so that the cost is low. The PrC in England also has these characters.These characters correspond to the requirements of small and medium-sized enterprises so that the practice of the LLC/PrC is successful. Since the introduction of the LLC, the number of corporations organized as GmbHs has grown steadily. Today, the LLC is the most widely used corporate legal form in Germany. The number of PrC also far exceeds the number of the public company in England. The LLC/PrC has spread around the globe in only 100 years and now constitutes the world's most successful form of enterprise. China is one of the countries that have taken over the idea of the form of enterprise and issued regulations similar to the German provisions of GmbH. The Company Law enacted by the Qing dynasty's legislature in 1904 recognized the LLC for the first time but the rough content and the business tradition of being personal liable for the business prevented investors using the LLC. When the Minguo's legislature amended the Company Law of 1929 in 1946, the LLC was recognized again to develop state-owned enterprises (SOEs). Reality proved that not only SOEs using the LLC gained no improvement,...