Study On The SME’s Organizational Forms In China

Small and medium-sized enterprises (SMEs) in China have unique requirementsof their organizational forms due to the practical needs of economic diversificationand theoretical demands brought about by the expansion of the concept of enterpriseautonomy. The main theoretical argument is to look for a legal framework to enhanceSMEs’ vitality and viability in line with the economic efficiency of enterprisesorganizational forms. The limited liability company (LLC) in United States, withlimited liability, flexible management model and taxation single treatment advantage,is a good reference for Chinese SMEs to build the organizational form. This paperstarts from defining the basic theory of SMEs’ organizational forms and elucidatingthe legal status of SMEs and their unique requirements of organizational forms.The first chapter describes and analyzes the internal needs of SMEs for organizational form.It is mainly analyzed from three aspects, namely the characteristics of the development of SMEsin China, the legislation in force characteristics of SMEs and the SMEs investor’s considerationsof the organizational forms. The unique requirements of SMEs about organizational forms areanalyzed and summarized, including limited responsibility, single tax, low capital systems andflexible management mode.The second chapter firstly introduces the legal structure of the current organizational formsof SMEs. In addition, the advantages and disadvantages of each SME organizational form areintroduced and where they are not appropriate for the development of SMEs pointed out. Moreover, the origin, development and legal structure of the three organizationalforms—proprietorship, partnershipand and corporation--suitable to SMEs are analyzed, focusingon analysis of where they are not fit to the development of SMEs. Then the necessity andfeasibility to change the SMEs’ organizational structure is strengthened.The third chapter explained why LLC is not capable to be transplanted in China.We firstly introduced the development history, the legal structure, the pros and consof the LLC in United States, on the basis of which it is concluded that the LLC systemitself there is two aspects of the problem and our local environment is not suitable toLLC.After a comparative analysis suitable for the characteristics of SMEs’organizational forms, we proposed the transitional arrangements for Chinese SMEs’organizational forms: the autonomy of SMEs when choosing the partnershipagreement, the implementation of a limited liability partnership subject to legalefficiency at the same time relax the restrictions on limited partners the right tooperate the enterprise. Furthermore, SMEs are able to choose the corporategovernance management models when they choose corporate governance.The fourth chapter concludes from the previous analysis that: the organizationalforms innovation of SMEs should be emphasized to make the appropriate adjustmentsin the existing organizational forms for the development of SMEs. Under the existinglegal framework, we should establish a temporary system for the development ofSMEs: including the improvement of the autonomy degree of SMEs under theprinciple of operate independently, the elimination of double taxation while givingSMEs the right to choose in the personal income tax and corporate income tax, theflexible management mode protecting the limited liability of SMEs while preventingthe abuse of them.