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The Misunderstanding between Legal Person and Limited Liability of Investors in Chinese Civil Law

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DOI: 10.25236/edbm.2020.071


Yufei Shao

Corresponding Author

Yufei Shao


In China’s newly enacted General Principles of Civil Law, some new content is added: firstly, the legal person system is much more advanced; secondly, a new type of civil subject is added, namely the unincorporated organization, which transform the dual-type civil subjects system - legal person and natural person - into a ternary one, which seems to be a big change in China’s civil law. However, when looking carefully into the content of that part, one of the crucial articles is art.108, according to which, most clauses in this legislative document designed for legal persons are applicable to unincorporated organizations. Since both of them are legally artificial, and apply to almost the same legal rules, then the necessity and legitimacy to add this new type civil subject is worth of rethinking.In order to figure out the answer, the author make a comparison between these two kinds of civil subjects. What comes to the author is that the essential distinction between them is that their equity investors undertake different form of liability concerning the artificial subjects’ debt: the equity investor, namely the shareholders, of a legal person undertakes limited liability towards the debt of that subject, while for that of unincorporated ones, its investors shall undertake unlimited liability. What’s more, in China’s law system, legal person equals shareholders’ limited liability. In addition, this is the reason to treat unincorporated organizations as an independent type of civil subjects for its equity investor shall undertake unlimited liability. In order to figure out the relationship between legal person and shareholders’ limited liability, it is necessary to retrospect the evolving of them. By analyzing their respective function in civil and commercial activities, the correlation between them can be clarified and some misunderstanding will be dissolved. This is helpful for the social transformation in China today in order to deepen its reform. Thus, in the future civil and commercial legislation, the unique corresponding relationship between legal person and equity investors’ limited liability might be regarded improper for social development.


Legal perso, Unincorporated organization, Equity investors’ limited liability