The civil liability can be divided into limited liability and unlimited liability according to whether there are any property limitations when it comes to the liability undertaking. For a long time in the history, unlimited liability has been the general form of the civil liability including in the area of commercial affairs. It was not until the early nineteenth century the general rule in commercial affairs was that the investors should bear unlimited liability. With the development of social economy, the concept of civil liability has been continuously evolved especially in the area of commercial affairs. The range of unlimited liability has been diminished while the range of limited liability has been expanded. Finally the limited liability got general recognition in the incorporated enterprises and then gradually extended to unincorporated enterprises.
The limited liability in commercial affairs is essentially a special form of civil liability, which refers to the ability of a shareholder of a corporation or a interest holder of a limited liability entity (LLE) to risk only the capital that such individual invests into the entity.[1] The past two centuries have witnessed tremendous economic development caused by the creation and extension of limited liability. As scholar Nicholas Murray Butler, who said at a chamber of commerce banquet: "In my judgment the limited liability corporation is the greatest single discovery of modern times ... even the steam engine and electricity are far less important than the limited liability corporation and they would be reduced to comparative impotence without it."[2]
The general acceptance of limited liability in commercial affairs started from the beginning of the nineteenth century. The concept of limited liability was first appeared in the joint stock company. The nineteenth century witnessed the rapid development of economy due to the fact that the shareholders of the joint stock company could assume limited liability. At the beginning, the joint stock company only applied to those large scale enterprises with lots of shareholders. For those small and medium-sized enterprises, joint stock company couldn't be their option. Almost in the whole nineteenth century, the limited liability seemed to be a privilege only enjoyed by the owners of large enterprises. Those entrepreneurs working in small and medium-sized enterprises had to suffer from the lost of unlimited liability. With the later development of small and medium-sized enterprises, the owners of the small and medium-sized enterprises started to ask for equal treatment with those owners of large enterprises. At the request of those owners in small and medium-sized enterprises, the limited liability started its first extension. In 1892, Germany passed Limited Liability Company Law, which created a new type of limited liability enterprise applied to small and medium-sized enterprises. After German's creation, other countries of Civil Law Legal System established their own limited liability company systems. As far as those countries in Common Law Legal System concerned, they had no such concept of limited liability company as their counterparts in Civil Law Legal System. However such enterprise forms as private company in England and closed company in America, which also applied to those companies with smaller scale and fewer shareholders, are the proximate forms with the concept of limited liability company in Civil Law Legal System countries. Just as Mareus Lutter has said: "Besides its manufacturing commodities, the other thing that has been widely accepted by the world from German is limited liability company".[3]
The creation and extension of limited liability in corporation at that time had created a series of wonders. First, the limited liability and liquid shares that have given entrepreneurs and professional managers the power to concentrate and use capital for innovative and risky projects that created technological miracles and human comforts; second, it encouraged millions of people to invest their money and go about their daily lives, leaving to skilled managers and workers the responsibility for the businesses they have financed; Third, it protected capital that has produced, freeing so many people to pursue other dreams and lead lives of greater meaning than merely making a living.[4]
After going through extension from joint stock company to limited liability company, limited liability didn't stop its extending footstep on incorporated enterprises. It continued extending to unincorporated enterprises. The most remarkable
- 151/152 -
extension of limited liability from incorporated enterprises to unincorporated enterprises started from America in the seventies of the 20th century. The extension could be found in such areas.
(a) Since 1970s', some states of America modified its Limited Partnership law, relaxed the limitation on the limited liability enjoyed by the limited partners in limited partnership (LP). The American Uniform Limited Partnership Act is now in its fourth generation.[5] It was originally promulgated by NCCUSL in 1916 and substantial revisions were first made in 1976, which substantially relaxed the original rigid limitation on the limited liability of limited partner. The partners in limited liability partnership can be divided into limited partners and general partners, the basic concept of limited liability in limited partnership is that the limited partner will not be liable to third parties for limited partnership' s debts, obligations and liabilities, beyond the value of the contributions agreed to be made by the limited partner. In contrast, general partners have unlimited personal liability for the debts, obligations and liabilities of the limited partnership.[6]
(b) New types of partnership, such as limited liability partnership (LLP), limited liability limited partnership (LLLP), appeared in America since 1990s'. Limited liability partnership first appeared in Texas in 1991, now all the states of America have limited liability partnership acts .In these jurisdictions - and in most LLP statutes of America - a partner in an LLP is relieved of liability for the negligence, wrongful acts, and other misconduct of other partners and of employees, agents, and representatives of the partnership unless the wrongdoer was under the partner's direct supervision and control. [7] Currently, besides America, other countries such as Canada, England, Singapore, Japan and India have passed their own limited liability partnership act.[8] China also modified its partnership law in 2006 and introduced the limited liability partnership system from America.
The limited liability limited partnership (LLLP) is a unique enterprise form appeared in America in the 1990s'. At that time some states of America modified its limited partnership law to allow limited partnership to select to be limited liability limited partnership. The 2001 Uniform Limited Partnership Act ("RULPA 2001"), which was a complete revision of the prior Revised Uniform Limited Partnership Act, provided that a limited partnership may elect LLP status.[9] The LLLP is a special form of limited partnership. It's a combination of limited partnership and limited liability partnership. In a traditional limited partnership, organized under RULPA, the general partners are subject to liability for the debts and obligations of the partnership while the limited partners, subject to conditions that preclude them from active participation in the management of the partnership, enjoy limited liability.[10] The LLLP arose as a mean of providing limited liability to all partners in a limited partnership, whether general or limited. In a LLLP, the limited partner can enjoy the limited liability like its counterpart in limited partnership, while the liability limitations of the LLP provisions apply to its general partners and to any limited partners who, under other provisions of the limited partnership statutes, are liable for the debts and obligations of the limited partnership. Thus, if a limited partner would otherwise be liable for participating in the control of the partnership, the limited partner should be protected in an LLLP even though the creditor reasonably believed the limited partner was a general partner.[11]
(c) The extension of limited liability not only reflected in its extension to the partnerships, but also the creation of new types of unincorporated limited liability enterprises, such as limited liability company (LLC) and series limited liability company(SLLC),both were created in America. American LLC is totally different from the limited liability company concept in Civil Law Legal System countries, which is essentially a kind of enterprise form between the corporation and the partnership. The first LLC act came into effect in Wyoming State of America in 1977.[12] As a new form of limited liability enterprise, LLC combined the advantages of corporation and partnership.[13] The owner of LLC, called members, can enjoy limited liability like shareholders in corporation, which means they are protected from some or all liability for acts and debts of the LLC depending on state shield laws, moreover, the members needn't follow the strict obligatory provisions which should be obeyed by the shareholders. The other primary characteristic of LLC is that it shares with the partnership of the availability of pass-through income taxation, while the members of LLC needn't worry about assuming personal liability for the enterprise debt.[14] Due to the above-mentioned advantages, LLC has been adopted by all the states in America and become the most popular business form for investors there.
The concept of the Series LLC was first introduced in Delaware in 1996. The state of Delaware has the most cutting-edge, business-friendly legislation, which has always been playing the leading role in terms of business form legislation.[15] As of the date of this article, nine states in America have amended their LLC statutes to allow for the formation of a series LLC. The series LLC is a type of limited liability company. Although the laws differ from state to state, creating a series LLC begins with forming an " umbrella" LLC or a "parent" LLC or a "master" LLC , then establish one or more designated series of members, managers, interests, or assets through formation documents under the "parent" LLC.
- 152/153 -
Each series of the "parent" LLC may have different assets, members, managers, and are independent from each other in terms of liabilities, duties and rights. [16] The series LLC was designed by legislatures to give companies flexibility by allowing each series to have its own separate assets, and only the corresponding liabilities from those assets. Each series is to be independent, with different duties and rights. This means that liabilities incurred by a series are enforceable only against that series, a loss in one series cannot roll over to consume the gains from another series. With proper planning though, ownership and assets could be shifted among series. In other words, companies may now segregate assets to avoid potential liability issues by using different series under the umbrella of one entity instead of creating many distinct entities or shell entities in a parent-subsidiary relationship.[17]
One of the primary advantages of the series LLC model is that it provides a business the ability to segregate assets and shield them from each others' liability, all under the umbrella of a single business entity, which save people from the trouble and the cost of establishing multiple companies.[18] Though a similar effect could be accomplished using a typical limited liability company (LLC) as a holding company and then established several other subsidiaries, Delaware introduced the Series LLC to the rest of the country primarily as a vehicle to provide more planning flexibility in business formation while also reducing administrative and filing costs associated with the use of multiple "ordinary" LLCs.[19] The other advantages of series LLC are that it can provide the ease of administration and save numerous cost on filing fee, annual report fee, taxes, accounting and legal expenses of operation. As one American scholar has pointed out: "Series LLC is the future of the unincorporated form."[20]
From the historical point, limited liability could not be generated without the development of commodity economy. In Chinese history, there had been a long term tradition of putting too much emphasis on agricultural development but not the commercial industry. So there had been a long period in Chinese history that had no basis for the existence of limited liability. As far as the business form concerned, the most prevalent business form in ancient China was partnership, which means that the partners should bear unlimited liability for the debt of enterprises. As the dominant liability form, unlimited liability was in accordance with the undeveloped economy, law and discipline rite in Chinese feudal society.
Since the 1900s, china started to introduce the limited liability system from other countries due to the urge to develop commodity economy. In 1904, the first Commercial Act was issued in China. Such limited liability business forms as joint stock company and limited liability company were introduced to China at that time.[21] The above-mentioned Commercial Law was then modified and adopted by Guo Min Dang Government till 1949. Although China introduced limited liability at that time, but due to the reasons of the undeveloped economy background and traditional against limited liability thoughts, the extension of limited liability encountered certain resistances, especially in terms of its extension to the small and medium-sized enterprises, which led to the fact that a lot of enterprises still chose to be partnership in practice at that time.[22]
After the establishment of People's Republic of China (PRC), the old laws, including the laws regulated such business forms as limited liability company and joint stock company were abandoned by the new government. At the early stage of PRC (from 1950s' to 1970s'), the business forms were divided into three categories, state-owned enterprise, collective-owned enterprise and private enterprise. The major responsibility form which assumed by the investors of the above-mentioned enterprises was unlimited liability.
Since 1978, China started to carry out reform and opening-up policy, a series of laws and regulations were issued to encourage limited liability extension. The extension first started in those foreign related enterprises and private enterprises. From 1979 to 1995, China issued Chinese-Foreign Equity Joint Ventures Law,[23] Chinese-Foreign Contractual Joint Ventures Law,[24] Foreign Capital Enterprise Law,[25] the regulations for enforcement of the above-mentioned three laws[26] and Provisional Regulations of the People's Republic of China on Private Enterprises.[27] According to the above-mentioned laws and regulations, the investors of enterprises regulated in those laws could enjoy limited liability by choosing the form of limited liability company. On Apr.13 1988, China issued the Law of Industrial Enterprises Owned by the Whole People, which specifically regulated that Industrial Enterprises Owned by the Whole People (state-owned enterprises) could assume full responsibility with the properties which they were authorized to manage by the government; the government would not take any further responsibilities.[28] From then on, limited liability expanded to state-owned enterprises, which played an absolutely dominant role in China at that time.
On Dec. 29, 1993, the issuance of Company Law was a milestone for the extension of limited liability in China. In this law, it regulated two kinds of companies, limited liability company and joint stock limited company. As for a limited liability
- 153/154 -
company, the shareholders shall be responsible for the company to the extent of the capital contributions they have paid; as for a joint stock limited company, the shareholders shall be responsible for the company to the extent of the shares they have subscribed for.[29] The limited liability company normally applied to small and medium-sized enterprises, while the joint stock company normally applied to large size enterprises. Company form has got wide acceptance both in state-owned enterprises and in private enterprises since 1993.
On Oct.27, 2005, China made a major modification of its Company Law which came into effect on Jan. 1, 2006. The new modified law also reflected the extension of limited liability. It not only relieved certain restrictions on company, and moreover, according to the original Company Law, one Chinese natural person alone couldn't set up a company, the limited liability company should have at least two shareholders. The new modified Company Law allowed the establishment of One-person Limited Liability Company. The above-mentioned modifications of company law reflected the new trend of the extension of limited liability in incorporated companies.
In terms of the limited liability's extension to the unincorporated enterprises in China, the original Partnership Law which came into effect on Aug.1, 1997 only regulated one kind of partnership called general partnership in which all the partners should assume unlimited joint and several liabilities.[30] The newest version of the Partnership Enterprise Law of the People's Republic of China was amended and adopted by the National People's Congress on Aug.27, 2006 and became effective on Ju. 1, 2007. One of the new developments in the Partnership Enterprise Law is the addition of the Limited Partnership Enterprise and Specialized General Partnership Enterprise to the menu of enterprise choices available in PRC.[31]
As for the limited partnership, it is composed of general partners and limited partners, with the former bearing unlimited joint and several liability for the debts of the partnership and the latter bearing liability for such debts respectively within the limits of the capital contributions subscribed for.[32] The purpose of introducing limited partnership was to encourage the venture investment in China. After its adoption, this form has got widely acceptance in those venture investment enterprises and small and medium-sized scientific enterprises in China.
As for the specialized general partnership, it is actually the imitation of the limited liability partnership in America. But in America, the majority states have no restriction on the type of enterprise which can chose to form limited liability partnership ,only such states as California, New York, Nevada and Oregon require that only professional partnership can choose to be limited liability partnership. While according to Chinese partnership law, only professional entity that provides paid services to its clients with specialized knowledge and skills may form a specialized general partnership.[33] In a specialized general partnership, where the partnership incurs debts through the intentional acts or gross negligence on the part of one or more partners in business activities, he or they shall bear unlimited liability or unlimited joint and several liability, and the other partners shall bear limited liability based on the share of property they each have in the partnership. All the partners of a partnership shall bear unlimited joint and several liabilities for the debts the partnership incurs not through the intentional acts or gross negligence on the part of a partner in his business activities and for the other debts incurred by the partnership.[34] The purpose of introducing the limited liability partnership to China is to promote the development of such professional entities as Chinese accounting firms and law firms, so that they can compete with other large international accountant and law firms, which normally adopt the form of limited liability partnership. In practice, the specialized general partnership has got wide acceptance in those professional firms, such as law firms and accounting firms in China. Taking the accounting firms as example, till the end of 2012, all the top ten Chinese accounting firms have turned into specialized general partnership.
A commonly cited rationale for allowing enterprises to adopt limited liability is based on the economic principles which were described by Frank H. Easterbrook and Daniel R. Fischel in their book, The Economic Structure of Corporate Law. The authors offer several reasons in support of their theory: (1) Limited liability reduces the entity's and its shareholders' need to monitor its agents. By reducing the amount of risk to investors, investors will expend fewer resources on the monitoring of agents, which will reduce the costs of operating the entity.[35] (2) Limited liability makes shares homogenous commodities that reflect all the information publicly available about the entity, it can allow all investors to trade on the same terms, the price of the shares is based on all available information, which can bring benefits to market. (3) Limited liability allows for more efficient diversification of one's assets.[36] (4) Limited liability can bring management efficiency by promoting the free transfer of shares, which creates incentives for managers to act efficiently since the inefficient
- 154/155 -
management team will be replaced by new investors.[37] (5) Limited liability can bring investment benefits. It allows the managers to invest in any project with positive net present value, including higher risk ventures, because investors will not lose more than their investment if such project fails.[38] As can be drawn from these five examples, the key economic justification for limited liability is based on the premise that apart from the simple shifting of loss from interest holders to creditors, there is a change in behavior due to the limited liability status of interest holders.[39]
Some Chinese scholars also used economic principles as the rationale for the justification of limited liability. They pointed out that the ultimate goal of limited liability was the economic value. Through the adoption of limited liability, the investors could limit their liabilities to certain expectable range, which could reduce the investment risk and stimulate the investor to carry out more efficient production activities.[40]
In conclusion, economic principle is the basis and soul for the creation and extension of limited liability. First, the limited liability decreases the investor's need to monitor the agents and other investors, which will subsequently reduce the management costs. Second, limited liability can bring efficiency to market transaction, management and investment. Limited liability supports market informational efficiency (all the shares of enterprises will be traded according to all available information), which can facilitate the free transferability of shares and bring market transaction efficiency; Limited liability and the increased transferability of shares provide incentives for managers to act efficiently, or else they could be replaced by other more efficient managers; Limited liability can also bring investment efficiency by investing some higher risk but high return projects, because investors will not lose more than their investment if such project fails.
Some scholars argued that the purpose of the extension of limited liability was to encourage small-sized enterprises, guarantee the competitiveness and democracy of the market entrance. Prior to the wide acceptance of company form, only very rich people could have the privilege to invest in company. But the major beneficiaries of limited liability should be the small-sized enterprises. Sometimes the protection towards the small-sized enterprises is more important than the protection towards the large-sized enterprises. It was unfair and undemocratic if we didn't extend the limited liability to small-sized enterprises. Some scholars pointed out that in addition to the facilitation of capital investment and economic efficiency, limited liability was favored for its ability to provide democratic access to capital and investment.[41] Prior to limited liability, only the wealthiest investors could afford the risk of personal liability.[42] Once armed with the protection limited liability offered against personal liability, less affluent investors were able to participate in the market.[43]
Some Chinese scholars also used democratic theory to support the extension of limited liability. They pointed out that for investors, whether they invested their properties in such large-sized enterprises as joint stock company or in other small and medium-sized enterprises, they should face the same risk and same opportunity to avoid the risk. The democracy in the economic field required to give the same treatment to the investors under the same circumstances.[44]
In conclusion, according to economic principle, you may draw a conclusion that limited liability only applies to large-sized enterprises, while not suitable for the small and medium-sized enterprises, which means that the economic principle can only explain the phenomenon of limited liability's extension to the large-sized incorporated enterprises, but it can't explain why limited liability need to extend to those small and medium-sized enterprises, especially those unincorporated enterprises. So the economic principle is a necessary but not sufficient proof for the extension of limited liability. The democratic theory should be used as a complement to support the rationality of the extension of limited liability.
Some scholars used Enterprise Contract Theory to explain the extension of limited liability. The Enterprise Contract Theory viewed the enterprise as a series of contracts among investors and creditors. Those scholars who supported Enterprise Contract Theory also viewed limited liability as just one more contractual term among creditors and owners.[45]
Some Chinese scholars pointed out that Enterprise Contract Theory trigged the fundamental reform of the business organization forms, promoted the development of limited liability and facilitated the creation of new enterprise forms. One Chinese scholar mentioned that the limited liability was the product of the agreement of the owner of the entity and other people.[46] One Chinese scholar pointed out that according to Enterprise Contract Theory, the organization forms of enterprise were composed of different factors, through the negotiations between the investors and the creditors, the different factors can be reasonably assembled to create the most needed form for investors.[47]
We can use the above-mentioned theory to analyze the extension of limited liability. For the
- 155/156 -
purpose of promoting the development of small and medium-sized enterprises, we put the small and medium-sized enterprise factor together with the limited liability and created limited liability company. Due to the consideration of encouraging the venture investment, we combined limited liability system with partnership system and created limited partnership (LP) system, through this system, limited partners can enjoy the limited liability and pass-through taxation .The original creators of limited liability partnership (LLP) were lawyers and accountants, who traditionally carried out their practice in general partnership. With the expansion of the professional firms, the partners worried about taking responsibilities for other unknown partners in the firm, so they put the limited liability system together with the partnership system and created limited liability partnership system. American limited liability limited partnership (LLLP) system is the combination of limited partnership system and limited liability partnership system, which also has the advantages of the both systems. American limited liability company (LLC) system is a combination of incorporated company system and partnership system. On one hand, the members of the limited liability company can enjoy the limited liability like the shareholders in the incorporated company; on the other hand, they can enjoy the pass-through taxation treatment as the partners in partnership. American series limited liability company system is a combination of limited liability company system and parent and subsidiary company system. Through setting up a couple of series limited liability companies (Series LLCs) under a "master" (or "parent") limited company, the Series LLCs can enjoy independent limited liability like the subsidiary companies, while it can save a lot of paper work, administration fees , legal and accounting fees which can't be saved through setting up the subsidiary companies.[48]
In conclusion, for many years, due to the consideration of promoting economic efficiency, saving the cost and providing equal treatment to all kinds of enterprises etc, the investors combined the limited liability system with different enterprise entities and then continuously created new types of enterprise forms, which caused the continuous extension of limited liability.
Limited liability was originally derived to encourage economic extension through investment.[49] Following the Industrial Revolution, capital-intensive businesses required substantial amounts of capital that regularly exceeded the means of the typical entrepreneur. One way to fulfill this need was to encourage outside investment.[50] Investors were often willing to risk their entire net worth to businesses they operated, they were not willing to invest such value in businesses that they did not operate or closely monitor. Through granting limited liability to those who contributed the capital encouraged such investment, because investors could invest without risking their entire personal assets. With limited liability, owners are set free to invest in various business ventures without the need to incur the excessive costs necessary to monitor each enterprise closely.[51]
Limited liability was formally established and got its first wide acceptance in those joint stock companies. During this period the limited liability system was closely related to the capital-intensive movement, which enormously promoted the development of economy. But limited liability didn't stop its extension footstep in the commercial affairs; afterwards it went through twice extensions. At the end of the 19[th] century and the beginning of 20[th] century, the limited liability experienced its first extension to the small and medium-sized companies and caused the creation of a new form of enterprises, the limited liability company. The first extension process of limited liability was not very radical and relatively peaceful because the extension was limited within the scope of incorporated enterprises and didn't break away from the traditional "legal person" system. The second extension of limited liability, which was the extension from incorporated enterprises to unincorporated enterprises, took place in the middle and later period of the 20[th] century. Take America as an example, in shorter than twenty years from 1970s to 1990s, such unincorporated limited liability enterprises as LLC, LLP, LLLP, Series LLC were created. The speed of extension and the creation of ney types of limited liability enterprises were unprecedented during that period. Moreover, the traditional application terms for limited liability, the framework of "legal person" system has been broken. The breakthrough caused by the extension was also unprecedented, which not only reflected in such new types of enterprises as LLP and LLLP, but also reflected in such enterprise types as LLC and Series LLC, especially Series LLC. In a Series LLC, you can set up several independent LLC with limited liability under one "master" LLC, which means that you can even set up several limited liability entities within one limited liability entity. After reviewing the extension process of limited liability, you will be amazed at how further the extension of limited liability can be. Like one Chinese scholar has pointed out: "Just as a famous saying has said that
- 156/157 -
the scholars looked back on the past, the lawyers paid close attention to the current, while the businessmen always prepared for the future. The extension practice of limited liability tells us that as long as it is permitted by the law and there is the possibility to choose, those entrepreneurs whose ultimate goal is to persue profit will never stop their steps to create new types of enterprises".[52]
However, the process of the extension of limited liability has always been accompanied by numerous against voices. The attitudes toward commerce and centralized accumulations of wealth have evolved over the years, but at no time has there been a single overarching attitude toward them. As one American scholar has mentioned: "Historians have long recognized that American political culture contains a number of differing political and social traditions (e.g., liberalism, civic republicanism, dissenting protestantism) that have been woven together in the documents and ideas that make up our common culture. However, historians have also realized that no one of these traditions has ever been completely dominant."[53] Use the extension of limited liability as an example, historically, people have been suspicious of large and powerful corporations and, despite the many highly proclaimed benefits of the corporation, people have never quite overcome the early and strong suspicion of corporations as hard-to-control entities that are dangerous to the general public. This sentiment can be seen in the words of Thomas Cooper, in the 1800's, who described limited liability as a "mode of swindling, quite common and honorable" and "a fraud on the honest and confiding part of the public."[54] Today, however, much of the criticism of limited liability focuses on the concern that the liability protection creates a greater incentive for managers of firms to engage in risky behavior.[55] Critics caution that managers of a limited liability firm, knowing that the burden of risk will fall elsewhere, will engage in overly risky endeavors.[56] The attitude toward limited liability reflects the conflict among different traditions, on the one hand, for those people who manage to succeed through their own efforts, the attitude of general public is tolerant and even complementary; on the other hand, the general public have never overcome their worries about the enterprises with limited liability as hard-to-control entities that are dangerous to them. That is why one commentator described limited liability as a tale of two conflicting goals. On the one hand, the general public Americans sought to promote efficient wealth maximization by as broad a range of people as possible; on the other hand, Americans wanted to regulate the business enterprise in order to protect those who lost out on that wealth creation.[57]
In conclusion, after repeatedly weighing the above-mentioned factors, due to the consideration of saving the transaction cost, promoting the economic efficiency and economic democracy, the limited liability and its extension were finally accepted by the relative parties. At the same time, in order to restraint the negative factors of limited liability, such as undercapitalization, alter ego or instrumentality etc., a lot of measures have been taken to restrict the limited liability. In the most extreme circumstances, we can even use the system of "piercing the veil of limited liability entities" to protect the creditors of the limited liability enterprises.[58]
Based on the above-mentioned materials, we can find that the limited liability was first introduced to China in 1904. From 1904-1949, the extension speed was very slow. The extension came to a pause from 1949-1979. Since 1979, the limited liability restarted its extension process, first to incorporated enterprises, then to unincorporated enterprises. It was not until the year of 2006 that the limited liability started its extension to the unincorporated enterprises in china, reflecting in the modification of Chinese Partnership Law. Compare with the extension of limited liability in China and other countries in the world. We can find out that limited liability was not born in China due to the lack of basis of commodity economy. Due to the consideration of stimulating the economy, attracting the investment and encouraging the development of small and medium-sized enterprises, china introduced limited liability from the outside world.
Today in China limited liability has been fully accepted in incorporated enterprises and even gradually expanded to unincorporated enterprises. Although the history of the extension of limited liability in China is not very long, this extension absolutely has promoted the development of Chinese enterprises, especially those small and medium-sized enterprises and brought tremendous development of the economy. But as mentioned before, the extension of limited liability in china has several deficiencies, especially the extension to the small and medium-sized enterprises. In terms of the limited liability's extension to incorporated enterprises, Chinese company law puts a lot of restrictions on limited liability companies, especially one-person limited liability companies. For example, According to the current Chinese Company Law, the limitations on the joint stock company and the limited liability company are almost the same, the one-person limited liability company should follow more restriction rules, the above-mentioned restrictions cannot facilitate the development of small and medium-sized enterprises.[59] In terms of the limited liability's extension to unincorporated enterprises, china
- 157/158 -
introduced limited partnership system and limited liability partnership system from America in 2006. But compares with the related American legal system, the limited liability enjoyed by partners in limited partnership has much more restrictions in China. As far as the limited liability partnership concerned, on the one hand, the range of limited liability enjoyed by the partners in China is narrower than the partners in America, on the other hand, in China, limited liability partnership only applies to such professional firms as law firm and accounting firm, while the majority states of America has no such limitations.
There are several reasons caused the above-mentioned defects. First, the extension history of limited liability in china is not very long, there are still lots of experiences and lessons should be learned. Second, the development of Chinese economy is unbalanced in western regions and eastern regions, so the acceptance of limited liability cannot reach the same tone in those regions. The last but not the least, China had a long history when people held a strong opinion against limited liability. So the extension footstep of limited liability will never be as easy as that in western countries.
However, the extension of limited liability has been an irreversible trend and got general acceptance in China during the past few years, the above-mentioned deficiencies have definitely restraint the extension of limited liability, measures should be taken to facilitate the extension. The latest measure taken by China was the recent modification of Company Law in Dec. 28, 2013, it came into effect in Mar. 1, 2014. In this modification, it relieved several original restrictions on incorporated companies, for example, it abolished the original capital requirement on registered capitals of companies and simplified the registration formations. It is sure that the modification will definitely promote the extension of limited liability in China. And it is also sure that in the future a lot of measures will be taken to extend the limited liability in more commercial affairs in China. ■
NOTES
[1] See Rebecca J. Hussy, Revamping Veil Piercing for All Limited Liability Entities: Forcing the Common Law Doctrine into the Statutory Age, 70 U. Cin. L. Rev, 103 (Fall, 2001)
[2] See Daniel J. Morrissey, Piercing All the Veils: Applying an Established Doctrine to a New Business Order, 32 Iowa J. Corp. L, 535 (Spring, 2007)
[3] See Mareus Lutter, Limited Liability Companies and Private Companies, J.C.B Mohr Press, 8 (1998)
[4] See Lawrence E. Mitchell, Corporate Irresponsibility: America's Newest Export, Yale University Press, 1 (2001)
[5] See Yong Wu and Thomas Earl Geu, The New PRC Limited Partnership Enterprise Law And The Limited Partnership Law of The United States: A Selective Analytical Comparison, 25 Ucla Pac. Basin L.J, 142 (Fall, 2007)
[6] Id. at 158.
[7] See Carol R. Goforth, Limiting the Liability of General Partners in LLPs: An Analysis of Statutory Alternatives, 75 Or. L. Rev, 148 (Winter, 1996)
[8] http://en.wikipedia.org/wiki/ , Limited liability partnership
[9] See Elizabeth S. Miller, Are there Limits on Limited Liability? Owner Liability Protection and Piercing the Veil of Texas Business Entities, 43 Tex. J. Bus. L, 445 (Fall, 2009)
[10] See Thomas E. Rutledge , To Boldly Go Where You Have Not Been Told You May Go: LLCs, LLPs, and LLLPs in Interstate Transactions, 58 Baylor L. Rev, 219-220, (Winter, 2006)
[11] See Elizabeth S. Miller, supra note 9, at 445.
[12] See Susan Pace Hamill, The Origin behind the Limited Liability Company, 59 Ohio.St.L.J,1459 (1998)
[13] See Bao-Shu Wang, The Development of the Legal System of Unincorporated Enterprises in Current Age, Social Scientific Document Press PRC, 355 (2009)
[14] See Susan Pace Hamill, supra note 12.
[15] See Jared L. Peterson, Unlimited Potential or Uncertain Future: Series LLCs and Intra-Family Wealth Transfers, 9 J. L. Fam. Stud, 385 (2007)
[16] See Christopher S. McLoon and Margaret C. Callaghan, The dangerous Charm of the Series LLC, 24 Maine Bar J, 226 (Fall, 2009)
[17] See Wendell Gingerich, Series LLCs: The Problem of the Chicken and the Egg, 4 Entrepren. Bus. L.J, 197 (2009)
[18] See Christopher S. McLoon and Margaret C. Callaghan, supra note 16.
[19] See Wendell Gingerich, supra note 17, at 193.
[20] See Sandra Mertens, Limited Liability Companies: A Possible Solution to Multiple LLCs, 84 Chi.-Kent L. Rev, 284-288 (2009)
[21] See Yu Li, The Research on the Construction of Corporation System in Late Qing Dynasty, People's Publishing House, 4(2002)
[22] See Zhen-Ming Xie, The Legislation History of Republic of China, China University of Political and Law Publishing House,744(2000)
[23] Chinese-Foreign Equity Joint Ventures Law, promulgated by the Standing Comm. Nat'l People's Cong. on Jul. 1, 1979, amended on Apr. 1, 1990 and Mar. 15, 2001.
[24] Chinese-Foreign Contractual Joint Ventures Law, promulgated by the Standing Comm. Nat'l People's Cong. on /Apr. 13, 1988.
[25] Foreign Capital Enterprise Law, promulgated by the Standing Comm. Nat'l People's Cong. on Apr. 12, 1986, amended on Oct. 31, 2000.
[26] The Enforcement Regulations of Chinese-Foreign Equity Joint Ventures Law, promulgated by the State Council on Jan. 15, 1986, amended on Dec. 21, 1987 and Jul. 22, 2001; The Enforcement Regulations of Chinese-Foreign Contractual Joint Ventures Law, promulgated by the State Council on Sept. 4, 1995; The Enforcement Regulations of Foreign Capital Enterprise Law, promulgated by the State Council on Oct. 28, 1990, amended on Apr. 12, 2001.
[27] Provisional Regulations of the People's Republic of China on Private Enterprises, promulgated by the State Council on Jun. 25,1988.
[28] See The Law of Industrial Enterprises Owned by the Whole People (P.R.C.), art.2.
[29] See Company Law (P.R.C.), art. 3.
[30] See Chinese Partnership Enterprise Act, promulgated by the Standing Comm. Nat'l People's Cong. Feb. 23, 1997, art.2.
[31] See Yong Wu and Thomas Earl Geu, supra note 5, at 134.
[32] See supra note 30.
[33] See supra note 30, art. 55.
[34] See supra note 30, art. 57.
[35] See Frank H. Easterbrook & Daniel R. Fischel, The Economic Structure of Corporate Law, Harvard University Press, 41-42 (1991)
[36] Id. at 43.
- 158/159 -
[37] Id. at 42.
[38] Id. at 44. 39 Id. at 45.
[40] See Wan-Yi Zhao, The Differences on the Civil Law and Commercial Law and their Influences to the Legislation of Chinese Civil Law and Commercial Law, The Collected Papers of Commercial Law, Chinese Legal System Publishing House, 105 (2004)
[41] See Stephen B. Presser, Piercing the Corporate Veil 1.06 (1993)
[42] Id. at 1.03.
[43] See David L. Cohen, Theories of the Corporation and the Limited Liability Company: How Should Courts and Legislatures Articulate Rules for Piercing the Veil, Fiduciary Responsibility and Securities Regulation for the Limited Liability Company? 51 Okla. L. Rev, 438 (1998)
[44] See Bi-Hua Yuan, Extension and Constraint of Limited Liability: In the Perspective of Extension of Limited Liability to Small and Medium-sized Enterprises, 31 Modern Law Science Journal, 187 (2009)
[45] See Larry E. Ribstein, Limited Liability and Theories of the Corporation, 50 Md. L. Rev, 82 (1991)
[46] See Tian-Tao Shi, The Research on Company Law, Chinese Law Press, 27(2005)
[47] See Wei-Ying Zhang, The Theory of Enterprises and Chinese Enterprise Reform, Beijing University Publishing House, 31 (1999)
[48] See Wendell Gingerich, supra note 17, at 198.
[49] See Eric Fox, Piercing the Veil of Limited Liability Companies, 62 Geo. Wash. L. Rev, 1143 (1994)
[50] See Steven C. Bahls, Application of Corporate Common Law Doctrines to Limited Liability Companies, 55 Mont. L. Rev, 43 (1994)
[51] Id. at 56.
[52] See Fan Liao, First Exploration of American Unincorporated Enterprises, Legal Science Journal, 123 (Sep. 2003)
[53] See David L Cohen, Theories of The Corporation and The Limited Liability Company: How Should Courts and Legislatures' Articulate Rules for Piercing the Veil, Fiduciary Responsibility and Securities Regulation for the Limited Liability Company, 51 Okla. L. Rev,432 (Fall, 1998)
[54] Id. at 428.
[55] See Jeffrey K. Vandervoort, Piercing the Veil of Limited Liability Companies: The Need for a Better Standard, 3 DePaul Bus. & Comm. L.J, 55 (Fall, 2004)
[56] Id. at 56.
[57] See David L Cohen, supra note 53, at 430.
[58] See Carol J. Miller, LLPS: How Limited is Limited Liability, 53 J. Mo. B, 165 (May/June, 1997)
[59] See Bi-Hua Yuan, The Reflection on the New Company Law, Commercial Economy and Management Journal, 68-72 (Nov, 2006)
Lábjegyzetek:
[1] The author is Associate Professor of Nanjing Audit University, PRC, J.D. Special thanks to Professor Chang-Dong Wei, J.D, vice dean of Sino-Hungarian Academic and Cultural Research Center of Nanjing Audit University.
Visszaugrás
