Social Sciences in China (Chinese Edition)

No. 11, 2022

An Obituary on Members’ Personal Relationships in Limited Liability Corporations

(Abstract)

Liang Shangshang

Chinese corporation law is influenced by the civil law tradition. The prevailing view states that the personal relationships of members is a core feature of limited liability corporations, but herein lies the classically confusing situation regarding the maintenance of such relationships in the transfer of stock rights. According to the relevant theory, such transfers are made up of internal and external transfers. The former can be freely accomplished because it does not affect the personal relationship of members, but the latter is subject to strict restrictions. This distinction flows from a static understanding of members’ personal relationships; it does not consider the effect of such factors as the impact of shareholding structure, the passage of time, and other dynamic elements, with the result that corporation law evinces a systemic incoherence. The personal relationship of members is by its nature interpersonal, and should not be regulated by mandatory rules. Article 71 of Chinese Corporation Law is thus a legislative dead end. The value of members’ personal relationships is ranked as follows: the liquidity of the transfer of stock rights prevails over personal relationships, and the agreement of the parties prevails over legal provisions. The transfer of stock rights should be based on the principle of free transferability, with the personal relationship factor becoming the subject of agreement on limiting stock transfer rather than a matter for statutory rules. As coercive legal relations’ strip out members’ personal relationships and stock rights transfer, the fundamental attribute of personal relationships in limited liability corporations will have come to the end of its life.