Social Sciences in China (Chinese Edition)

No.6, 2020

The Concept of Profit Making and the System Effect of Chinese Legal Person Law

(Abstract)

Song Yahui

The concept of “profit making” runs through the main line of Chinese legal person law, and its meaning consists of two elements: one is the pursuit of profits; the other is the distribution of profits to investors. In accordance to this standard, the civil code distinguishes between profit-making and non-profit legal persons, and binds the legal person’s nature with its organizational form. The adoption of a specific organizational form means that a legal person can only engage in behaviors in specific nature, and the legal person’s “identity” directly determines its “capability.” This law aims to comply with the management system of legal person’s hierarchy from the perspective of public law and maintain the consistency of the public-private law system, but restricts the power and social vitality of profit-making legal persons, having poor system effects in private law. This problem has a long history in the civil law system. As one of the two major legislative examples, the classification of profit-making and public welfare legal persons adopted earlier in Japanese law experienced a difficult reform process, being plagued by the two elements of profit-making all the time. The classification of association and financial group legal persons adopted by German law breaks away from the shackles of the conception of profit, leaves the distribution of profits completely to the autonomy of an economic association, allowing the engagement in any business not prohibited by law in the organizational form of corporate legal persons. This neutral kind of technical structure of the organization law of legal persons has fully released the right ability and social vitality of corporate legal persons. Based on China’s national conditions, the structure of private law on legal persons in China should properly handle the corporate control relationship from the perspective of public law, gradually relax the improper restriction of profit distribution elements on the profit-making legal persons, promote the decoupling of corporate organization law and behavior law step by step, and release the right ability of profit-making legal persons to participate in public welfare.