Corporate Governance under the New Company Law (Part 1): Fiduciary Duties and Minority Shareholder Protection

By Craig Anderson and Bingna Guo, O'Melveny & Myers LLP

The new PRC Company Law (New Company Law)(中华人民共和国公司法), which became effective on January 1 2006, contains many important revisions intended to improve the operational efficiency of Chinese companies and serve the development of Chinese capital markets. The New Company Law has the potential to make a dramatic impact on the way Chinese companies are governed by recognizing that separation of ownership from the management of a firm, while beneficial, gives rise to certain risks of losses to investors at the hands of managers and controlling shareholders. The introduction of fiduciary duties and expansion of civil liabilities for company management, together with additional shareholder protections, may alter the systemic shareholding risks in China and possess great potential for catalyzing Chinese economic and institutional change. Corporate governance under the New Company Law, and the important implications for stakeholders in Chinese businesses, need to be understood by legal practitioners, investors and corporate executives alike. Newly introduced fiduciary duties and minority shareholder protections will be the focus of this article.

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