Research On The Balance Of Interests In Limited Liability Companies

Corporate law is the law which has the closest relationship with the development of market economies. Different realities decide the generation of different systems and reflect the value orientation in corporation law. Company Law of the People's Republic of China(hereafter as “the Company Law”) was issued in 1993, and revised a lot in 2005 and 2013 separately. The revision of the Company Law has to catch up with the ever-changing national economies. This dissertation uses the legal theory of the balance of interests doctrine, and focus on the different systems and the conflict of the value of efficiency and the value of security in cooperation, operation, and bankruptcy and liquidation of a limited company in PRC, and further explores the issue that there exists the imbalance of the value of efficiency and the value of security in the Company Law.In the INTRODUCTION part, the dissertation describes the problem awareness, the significance of research, current research status and research method.CHAPTER ONE is about the balance of interests in corporation. This chapter is firstly discusses the relationship with the balance of interests and the legal system, and analyzes the definition of “interests”, “balance” and “balance of interests”. Combing with the “King Clause” principle of good faith in civil law, this chapter then discusses the different types of conflicts between the different individuals, along with the individual and the public. In the meanwhile, the chapter emphasizes that the corporations, as the most popular “vehicle” participating in the market economies, are also influenced by the principle of good faith on many fields, including but not limited to pooling resources, sharing the profits and risks, the structure of the corporate governance, and the management and supervision mechanism. The chapter further discusses the balance of interests in the corporation legal systems, starting from the history of the development to the modern reform of the corporation, and generally describes the different legal entities relating to the corporation, such as the shareholders, the corporation itself, and the corporation's creditors together with their different interest and the conflicts among them. So the legal theory of the balance of interests doctrine and the principle of good faith is called for the balancing the two most important values, one is the value of efficiency and the other is the value of security. What's more, in CHAPTER ONE, the value orientation of the Company Law has also been proposed. From the different three versions(1993, 2005 and 2013) of the Company Law to the three Provisions of the Supreme People's Court on Several Issues concerning the Application of the Company Law(I, II and III). In details, the Company Law(1993) emphasizes the value of security, reflecting the strong national compulsory regulatory features, ignoring the role of the corporation to activate the market dynamic in economic life, not to speak of the value of efficiency. Then the Company Law was revised in 2005, and fully considered that the law should empower the cooperation and the individual more spaces and rights of autonomy. In the meanwhile, the Company Law(2005) increases the both value of the efficiency and the value of security, providing more security mechanisms for shareholders and the corporation's creditors. However, the Company Law(2005) still could not deal with the value of the efficiency and the value of security. In 2013, the Company Law reformed its capital system, further emphasizing the value of efficiency in the corporation, while still lacks of the value of security as the same in the Company Law(2005). This chapter also explores the four guiding cases on the practical issues of the Company Law released by the Supreme People's Court in the recent years. The Company Law is using the guiding cases to strengthen the value of security. In the last of this chapter is reviewing the current imbalance situation in the Company Law. The protection for the shareholders is still not enough, and there are many improvements to fix the current corporate governance. Furthermore, the Limited Liability Companies have the obvious characters and the own legal systems which play the various roles and reflects the diversity of value orientation.CHAPTER TWO is about the balance interests in cooperation. This chapter mainly discusses about two issues, one is the last capital reform in 2013 and the other is a single member limited liability company. Comparing with the three version of the Company Law relating to the articles of the minimum required registered capital and the details and the limitations of shareholders' capital contributions, the Company Law lays particular stress on the value of efficiency, and lacks the value of security. The reform of corporate capital provision of the Company law(2013) increases the worries from the corporation's creditors because of the potential risks of the debt and interest damages. Under the circumstance, failing to fulfill or to fully fulfill the obligation of capital contribution not only refers to the non-performance after the due date, but also includes these not yet due. Meanwhile, “shareholders' capital contribution not yet due” should be interpreted as that “creditors are not bounded by the performance periods”, and shareholders should not claim for the deduction of interests at the same time. This chapter also further discusses about a “substantive” single member limited liability company which means though a limited liability company apparently has more than one shareholder, actually all shares are controlled in one shareholder's hand. Them a single member limited liability company should pay more attention on the value of security.CHAPTER THREE is about the balance interests in operation. This chapter mainly discusses about three issues. The first one is about who can represent the company's will. As known to all, the company is a legal person, having same rights as natural persons. The legal person's rights and declaration of will have to be exercised and expressed by natural person. The legal representative should be the kind of natural person who has the right and plays the role to represent the company's will when doing the inside operation and outside business in the best interest of the company. From the perspective of the balance of interests, the legal representative reflects the values of efficiency. Moreover, what the legal representative have done also make the cooperation's creditors believe that actions are in good faith and could reflect the real will of the cooperation. The second issue of this chapter is about the relationship between the protection and the restrictions on the freedom transfer of equity. How to improve the transfer of equity more safely and more efficiently is the dilemma this chapter has to discuss. The third issue of this chapter is about how to govern the cooperation more efficiency, taking the principle of using the maximum corporate resources into account, the cooperation should try its best to avoid the situation of bankruptcy and liquidation.CHAPTER FOUR is about the balance interests in bankruptcy and liquidation. During this proceeding, the interests of the cooperation's creditors should be put in the first place which also highlights the value of security. Meanwhile, it is also very important to consider the value of efficiency, because once the cooperation goes into bankruptcy and liquidation, the Company Law should empower the related parties to rearrange the rest sources of the cooperation to make new profits as soon as possible.The last part of this dissertation is the CONCLUSION. It is easily achieving the conclusion that the law is always behind the actual practice. So the Company Law is definitely running after the development of the practice which further aggravates the imbalance of the value of efficiency and the value of security. Indeed, the rule makers should stay close to the two fundamental values to create the legal systems in the Company Law. The value of efficiency shows the “freedom” which could mobilize the enthusiasm of participants into the market economies, stimulate the vitality of the market, guarantee the freedom of investment and trading, and reduce the cost of trading and society. The value of security reflects the protection for all the participants relating to the cooperation's activities in the event of lacking the principle of good faith.