Piercing China's Corporate Veil: Open Questions from the New Company Law

In 2006, China undertook a major overhaul of its legal framework governing corporations by implementing a new Company Law.' Much of the previous Company Law was revised or eliminated, with many new provisions added This development was much anticipated by Chinese and foreigners alike, as China's previous corporate law was unable to keep pace with its fastgrowing economy.3 One of the highlights of the new Company Law is its formal establishment of the concept of "piercing the corporate veil" in Chinese law. The concept of piercing the corporate veil is a longstanding feature of the corporate law of capitalist economies. An important corporate form in such economies is the limited liability corporation (LLC), a key attribute of which is that shareholders are not personally liable for corporate debts in excess of their investment in the LLC. Creditors seeldng payment of debts or tort victims seeking redress generally can reach only the corporation's assets, not those of its shareholders. At times, however, courts ignore this corporate fiction and treat a corporation's debt as the debt of the corporation's shareholders. In doing so, courts "pierce the corporate veil."