The role of shareholders’ meeting’s reserve power in corporate governance in China

Abstract

Under China's company law regime, the power to represent the company resides not in the board of directors but in an individual senior corporate officer called the legal representative (fading daibiaoren). The office of the legal representative, however, is often rendered ineffective as it is inherently susceptible to abuse. The mechanism becomes dysfunctional when the legal representative who is capable of faithfully implementing the decision of the company is unavailable. The unavailability of the legal representative, especially where the board of directors is also ineffective, raises questions as to the general meeting's power to control corporate actions. This paper makes an attempt to answer this question by considering a range of issues relating to corporate powers and three recent cases wherein the general meeting's litigational powers were raised. This article supports the view that the legal representative functions as an agent rather than, as argued by most of scholars of China's company law, an organ of the company. It will be argued that given the nature of the legal representative's role and the power allocation arrangement under China's company law regime, the general meeting has power, subject to the 'no abuse of rights' principle, to control corporate actions where the board of directors and the legal representative are ineffective.