Enterprise Law: Business Organizations

Enterprise Laws

• Encompass forms of business organizations and regulations governing enterprises in different countries and contexts.

Enterprise Forms in Civil Law Countries

• In some civil law states, any business organization is a company, referring to an association of persons or capital for commercial, industrial, or similar purposes.
• These companies may be corporations or partnerships.
• In some civil law states, like France, companies have a legal existence independent of their owners.
• In Germany and the US, corporations are juridical entities, but partnerships are not.

German Enterprise Forms

• Sole proprietorship: An enterprise owned and run by one person
• Partnership (Personengesellschaft): A business owned by multiple individuals as members.
  • Offene Handelsgesellschaft (OHG): A general partnership without limited liability
  • Kommanditgesellschaft (KG): A limited partnership with some partners having limited liability
  • Gesellschaft mit beschraenkter Haftung & Co. KG: A limited liability partnership.
  • Gesellschaft des Buergerlichen Rechts: Civil Law Partnership
• Company (Kapitalgesellschaft): A capital corporation.
  • Gesellschaft mit beschraenkter Haftung (GmbH): A limited liability company.
  • Aktiengesellschaft (AG): A stock corporation.

Enterprise Forms in Common Law Countries

• Includes England, the US, and British Commonwealth countries.
• Two main forms are partnerships and corporations.

US Enterprise Forms

• LP: Limited Partnership.
• LLP: Limited Liability Partnership.
• LLLP: Limited Liability Limited Partnership.
• LLC: Limited Liability Company.
• Corp: Corporation.

Legal Entity vs. Non-Legal Entity

• Distinction depends on whether the enterprise is recognized as separate from its owners.
• China CIVIL CODE Article 57 defines a legal person as an organization with capacity for civil rights and conduct.
• Such organizations independently enjoy civil rights and assume obligations under the law.

Qualifications of a Legal Person (China)

• Article 58 mandates formation according to the law, requiring its own name, organs, domicile, and property or funding
• Formation conditions and procedures are governed by laws and administrative regulations.
• Article 59 states capacity for civil rights and conduct arise upon formation and cease upon termination.
• Article 60 states a legal person assumes liabilities independently with all of its property.

Importance of Separate Legal Identity

• Owner liability is limited to their investment.
• Rights and benefits belong to the company, not the owners.
• A company can own property, trade secrets, and formulas.
• Owners may not act as managers, agents, or representatives, and cannot create liability through their actions.

Limited vs. Unlimited Liability

• Limited liability restricts financial liability to a fixed sum, typically the investment value in a company or partnership.
• In a lawsuit, plaintiffs target the company, not the owners or investors.
• Unlimited liability has no maximum cap and exists regardless of investment amount.
• Owners' personal assets can be seized to cover business obligations if a business cannot settle outstanding liabilities.
• Unlimited liability is common in general partnerships and sole proprietorships.

Enterprise Forms in China

• By ownership: state-owned, collective, private, and foreign-invested.
• By legal subject form: legal entity (corporation) and non-legal entity (sole proprietorship, partnership).
• By investor: sole proprietorship/investment, partnership, and corporation/company.

Sole Proprietorship Enterprise Law of PRC (1999)

• Designed to encourage individual business and solve employment issues.
• Article 2: Defines a sole proprietorship as a business entity in China with capital from one individual.
• The owner assumes unlimited liability to the extent of personal assets.
• Article 18: Where a sole proprietor declares family-owned property as capital, they assume unlimited liability to the extent of that joint property.

Partnership Enterprise Law (China)

• Governed by Civil Law of PRC(1986) and Partnership Enterprise Law of PRC(1997).
• Article 2 defines partnerships as general and limited liability partnerships established by natural/legal persons or organizations within China.
• A general partnership (普通合伙) includes partners with unlimited joint and several liability for partnership debts.
• A limited liability partnership (有限合伙) has general partners with unlimited joint and several liability, and limited partners whose liability is capped as capital contributions.
• Law firms, accounting firms, and consulting firms are examples.

Corporation/Company Law (China)

• Chinese Company Law (1993)
• Article 3: Defines a company as a legal entity with independent property rights, bearing liability for debts with all assets.
• Limited liability company shareholders are liable to the extent of their capital contributions.
• Joint stock limited company shareholders are liable to the extent of their subscribed shares.

Limited Liability Company (LLC) & Company Limited by Share (CLS)/Joint Stock Limited Company (China)

• Article 2: The term "company" refers to a limited liability or joint stock limited company within China under the governing laws.
• LLCs are designed for small to medium-sized enterprises
• CLSs are designed for larger firms.
• An LLC is required to include the words "limited liability company" in its name.
• A CLS must incorporate the words "company limited by share/joint stock limited company” into its name.
• LLC shareholders' liability is to the extent of their contributed capital, while for CLSs, it is up to the amount of shares held.
• Co., Ltd./Ltd/LLC = Company Limited. Corp. = Corporation (often means company or CLS). Inc. /CLS = Incorporated.

Foreign-Invested Enterprises (FIE) Law in China

• Introduction to FIEs and FIE Laws in China(before 2020, Jan. 1st ) covered general principles of EJV, CJV, and WFOE law.
• Foreign Investment Law of PRC(FIL) has been in effect since 2020.

Foreign Investment Forms in China

• Non-legal person forms include representative and branch offices, non-legal person contractual joint ventures (CJV), and wholly foreign-owned enterprises (WFOE).
• Legal person forms include equity joint ventures (EJV), contractual joint ventures (CJV), wholly foreign-owned enterprises (WFOE), investment (holding) companies (IHC), and foreign-invested CLS (FICLS).

Introduction to FIEs Laws in China

• China maintained a distinct legal framework for foreign-invested enterprises (FIEs) that constitutes integral and increasing factor in investment climate.
• Starting in the late 1970s, China adopted economic reforms that granted a constitutional authorization and protection.
• According to Article 18, foreign entities and individuals can invest and cooperate with Chinese enterprises in line with the law of the People's Republic of China.
• All foreign enterprises and joint ventures within China must follow the established laws.
• Rights and interests are protected by these laws.

Foreign Investment Law (effective from Jan. 1st, 2020)

• The Foreign Investment Law (FIL) was issued on March 15, 2019, and became effective on January 1, 2020.
• As the FIL came into effect, legacy foreign investment statutes were repealed:
  • Law on Sino-Foreign Equity Joint Ventures (“EJV Law”)
  • Law on Sino-Foreign Cooperative Joint Ventures (“CJV Law”)
  • Law on Wholly Foreign Owned Enterprises ("Three FIE Laws").
• Implementing Regulations for the Foreign Investment Law were approved and put into effect on December 12, 2019, along with the FIL on January 1, 2020.
• The FIL and its Implementing Regulations are short and generally composed of principles.
• The FIL is made up of 42 clauses, while an initial draft in 2015 contained 170 clauses, so more regulations and legislative changes are needed to implement the FIL fully.

Foreign Investment Law (Article 2)

• Applies to foreign investments within China which refers to investment activities conducted by foreign natural persons, business entities, or organizations.
• Includes establishing foreign-invested enterprises, acquiring stock shares and equity,investing in new projects, and other forms provided by law.

Forms of FIEs after FIL Implementation

• Foreign investors can now establish businesses in China using the same legal forms as domestic enterprises, primarily:
  • Limited Liability Company (LLC)
  • Company Limited by Shares (Joint Stock Company)
• Foreign investors still invest through:
  • Partnerships (less common for foreign investors, but legally allowed)
  • Representative Offices (cannot engage in direct business activities)
  • Joint Ventures with State-owned Enterprises (SOEs) (typically in sensitive or strategic sectors)

Multinational Enterprises (MNEs)

• Strategies for Doing Business Globally.
• The Multinational Organization.
• International Regulations of Multinational Enterprises.
• Home county Regulations of Multinational Enterprises
• Host Country Regulations of Multinational Enterprises.

Strategies for Doing Business Globally

• Ways to enter a foreign market:
  • Exporting and Importing.
  • Branches & Subsidiaries, MNEs.
  • Licensing Intellectual Property and Franchising.

Branches & Subsidiaries

• Foreign companies can establish branch offices or subsidiaries in a host country by registering with the appropriate state agency.

The Multinational Organization

• Organized around a parent firm in one state, operating through branches or subsidiaries in other states.
• Branch: A unit or division of the parent company, e.g., assembly, purchasing, or manufacturing plant.
• Subsidiary: A separate legal entity owned by the parent.

DaimlerChrysler AG

• A German multinational automotive corporation with Daimler AG as the parent company.
• As of 2014, Daimler owns or has shares in brands like Mercedes-Benz, Mercedes-AMG, and Smart Automobile.
• Daimler-Benz AG and the United States-based automobile manufacturer Chrysler Corporation merged in 1998 with Daimler-Benz AG buying 92% of Chrysler.

Royal Dutch/Shell Group

• Enterprise made up of two or more parents from different states that co-own operating businesses in two or more states.
• Jointly owned holding company with common directors and unified management

Top Brands from China

• In 2020, Alibaba ranked 7th, Tencent 5th, Moutai 11th, Meituan 34th, JD 44th, Douyin/TikTok 45th, Ping An (Insurance) 49th, Huawei 50th, ICBC (Bank) 51st, Haier (IoT) 65th, China Mobile 68th, Xiaomi 70th, Baidu 77th, Pinduoduo 81st.

Bytedance

• Bytedance Ltd. (Cayman) operating entities include BytePlus Ltd. for BytePlus operating entities, Nuverse Pte. Ltd for gaming. Douyin and TikTok operate with various entities.
• TikTok is also a global business with several entities
• There are also China State Ownd Enterprises

The Subordinate Structure

• Non-legal entity/person forms a company may create to establish a foreign presence:
  • Representative office: A contact point where interested parties can get information; does not conduct business.
  • Branch: A part of a company not separately incorporated, such as an assembly plant.
  • Agent: An independent person or company authorized to act on behalf of another.

Disadvantages of Representative Offices, Agents, and Branches

• The parent assumes all investment risk abroad.
• Foreign firms are often taxed at a higher rate.
• Many developing countries require local participation for foreign ventures.

Legal Entity Enterprise Forms

• Includes subsidiaries, joint ventures, and holding companies in general:
  • Subsidiary: A company which is owned by its parent or is related to a parent's holding company, and is separately incorporated
  • Joint venture: An association that collaborates in a business venture Can assume any type of business form (LLC, limited partnership, or association) Can be a limited project or continuing business relationship
  • Holding company: A parents' company supervises and coordinates subsidiary companies' operations

International Regulations on MNEs

• No uniform international laws exist for MNEs.
• International frameworks, guidelines, and treaties by OECD, ILO, and World Bank influence MNE behavior.
• Includes regulation of human rights, labor standards, anti-corruption, and environmental protection.
• MNEs often need to rely on states, and cannot always participate fully in international institutions, like the WTO.
• MNEs can represent themselves independently in institutions like the ICSID, NAFTA, and ICC.

International Rules of Ethical Behavior for MNEs

• Include the United Nations Convention Against Corruption (2003)
• OECD Anti-Bribery Convention (1997).
• States pass their own anti-bribery criminal statutes, such as the US's Foreign Corrupt Practices Act(FCPA) of 1977 and China's Supervision Law of 2018.

OECD Anti-Bribery Convention

• Aims to curb corruption in developing countries by encouraging sanctions against bribery in international business deals by Convention member countries.
• Seeks to establish a level playing field in international trade.
• Signed on December 17, 1997, and enforced on February 15, 1999.
• The Convention is open to any country that is a member of the OECD or becomes a participant in the OECD Working Group on Bribery in International Business Transactions.
• 46 countries have ratified or acceded as of 2025
• 38 OECD and 8 non-OECD (Argentina, Brazil, Bulgaria, Croatia, Peru, Romania, Russia, and South Africa) have adopted.

Definition of Foreign Bribery by OECD (Article 1)

• Includes promises to offer or giving undue money to the advantage of an official for them or a third-party to act on performance in their official duties in international business

Data from OECD Foreign Bribery

Report 2014 and Enforcement of the Anti-Bribery Convention 2017

• A 2014 report covers 427 concluded foreign bribery cases that have involved 41 countries that are signatories to the OECD’s 1999 Anti-Bribery Convention.
• In 41% of cases, management-level employees either paid or authorized a bribe.
• A company CEO took part in 12% of cases.
• Bribes were mostly paid to obtain public procurement contracts (57%)
• Average, bribes equaled 10.9% of the transaction value and 34.5% of the profits.
• From the Anti-Bribery Convention 2017, there have been 560 individuals and 184 entities that received criminal sanctions for foreign bribery from 1999 to the end of 2017.

Highlights from the 2021 OECD Anti-Bribery Convention Data

• Collected from the Parties from February 15, 1999 to December 31, 2021:
  • 25 Parties convicted/sanctioned 687+ natural and 264 legal persons for foreign bribery via criminal proceedings.
  • 7 Parties sanctioned 88+ natural and 121 legal persons for foreign bribery through administrative/civil means.
  • 11 Parties convicted/sanctioned 76+ natural and 109 legal persons for related offenses through criminal proceedings.
  • 3 Parties sanctioned 76+ natural and 182 legal persons for related offenses through administrative/civil means.

Cases About Foreign Bribery

• Siemens: Europe’s biggest engineering firm, faced the biggest foreign bribery case.
• The firm in 2008 pleaded guilty in its bribing of officials across continents for government contracts, totaling $1.4bn between 2001 and 2007, most being external contracts
• One example of payout includes $40M in bribing the Argentine President to make an identity card contract which Siemens engaged in Argentinian officials for a decade.
• Other payouts included $20,000,000 to construct power plants in Israel, $16M to construct rail lines in Venezuela, and another $14M to construct equipment in China.
• As a result, an intermediate court in Henan sentenced a China Mobile executive to death plus forced labor for the Siemens bribery scandal.
• A German investigator reported that bribery was the Siemens business model.

GlaxoSmithKline (GSK)

• UK-based pharmaceuticals giant in 2014 fined $490M after being found guilty by the Chinese Government in 2014 for bribing doctors and hospitals with cash/sexual favors.
• Estimated, it made around $150m from these illegal activities, resulting in the biggest fine that the country’s history ever saw.
• Mark Reilly, who was the chief head was deported and jailed for three-years

Home Country Regulations of MNEs (Domestic Law)

• Applies to the location where the MNE is headquartered or legally registered
• Multinational Enterprise is regulated the same within the country as a national enterprise

Important Forms of National Regulation

• Regulation of competition（竞争法）
• Regulation of injuries caused by defective products（不合格产品的侵权）
• Prohibition of sharp sales practices （禁止欺诈销售）
• Regulation of securities （证券法）
• Regulation of labor and employment （劳动法）
• Establishment of accounting standards （会计准则）
• Taxation （税法）

Home Country Regulations of MNEs: China Laws

• Relevant laws include:
  • Company Law, Partnership Law, FIE laws
  • Bankruptcy Law, Accounting Law, Anti-unfair Competition Law
  • Advertising Law, Production Safety Law, Audit Law
  • Contract Law, Regulations relating to Employment Contract Law, Labor Law
  • Social Insurance Law, Tax laws

Selected Regulations

a. Regulation of competition (Competition Law)

b. Regulation of injuries caused by defective products/ Tort and Product Liability Laws

Regulation of Competition /Competition law/Antitrust Law

• Involves laws that seeks to regulate and maintain companies for anti-competitive conduct, which is set forth by companies.

The U.S. Antitrust Laws

• Is essentially a body of US laws that govern and regulate federal, state and local corporations to keep and promote fair competition meant for the good of consumers
• Its main statutes are Sherman Act of 1890, Clayton Act of 1914 and Federal Trade Commission Act of 1914.

The Sherman Act of 1890

• US law preventing anti-competitive trading practices in the US:
  • Section 1: Prohibits colluding to restrain interstate/international trade.
  • Horizontal Price Fixing: Competitors agree to set the same prices at same levels.
  • Vertical Price Fixing: Seller at one level sells to buyer at different level who agrees to not resell below a set price.
  • Section 2: Forbids monopolies and attempts to monopolize interstate and international trade.
  • Applies to the conduct of one firm if it is a dominant firm. Circumstantial evidence includes discriminatory pricing, dumping and tying clauses

Examples of Horizontal Price Fixing

• Twenty airlines getting caught and arrested in 2006 of creating a price to ship international air-cargo, with fines adding to $3B
• UBS, Barclays and Rabobank colluding the LIBOR interest rate in 2012

Vertical Price Fixing

• Auto manufacturer and the dealers
• A manufacturer using it's popularity to force retailers and others to follow the "Manufacturer's Suggested Retail Price"
• This type of price fixing is usually deemed illegal under the law.

Strategies to Circumvent Law

• Vertical Integration: where a manufacture gets around the issue by owning their products or store through full-price
• Apple: Found accountable for online price fixing and book selling in 2013 in part to its conspiracy in raising e-book prices

Tying of Apple Products

• Apple sold the first iPhone (2007) with an exclusive AT&T service, but had to undergo legal action as Apple violated antitrust laws.

The Clayton Act of 1914

• Law that set forth rules and regulations to define which actions were deemed illegal such as:
  • Exclusive dealing and tying clauses where an retailer or wholesaler is 'tied' to make a purchase from only a select area of a supplier. -Mergers that result in monopolies occur.

FTC v. Phoebe Putney Health System

• Phoebe Putney Health System requested to gain possession to the hospital in Georgia in 2011, only for government to decline because plan would a monopoly.

Anti-Competitive Regulation Behaviors by the EU

• European Community, article 81 and 82 is there for legal competition and regulation with: 1. Article 81: Forbid and prevent a competitor from doing, setting up, trade and stop a trade between competitors. Expressly it does: - Conditions that are fixed on trading - Products that are limited to investment, controlling and production - Parties acting in unequal manners. - Clauses that tie to unrelated behavior.

Volkswagen Restrained Trade Case

• Fined 102 by European Trade for discriminating towards native-born and born and raised Italians who traded the 90s model Volkswagen cars.

EC Treaty Article 82

• dominant businesses forbade for their advantages within their own for the cost of customers. With what:
• Conditions that are imposed that is is indirectly or directly un unfair
• Developments or the products in limitations
• Acts in unequal events from different and same trading colleagues
• Term based clauses

EU Accuses Google of Abusing Dominance of Online Ad Market

• Google was accused for rules set by EU’s antitrust for advertising in the tech marketplace. Google was alleged to prefer online display for advertising tech for their services.

(b.) Tort and Product Liability Laws (Tort and Consumer Responsibility)

• Tort: is a civil law act that causes person to suffer loss and harm, placing legal responsibility to the suspect that committed said crime.
• Product liability is an area to make sure that manufactures make items and objects safe to be sold to the public, or face legal action for products’ harm.

Case Study about Ledraplastic Balancing Ball

• Sacramento Kings and the NBA superstar, Francisco Garcia have faced an issue with said firm. A lawsuit happened between the athlete and company after his injury in 2009 which the parts didn't advertise it.

McDonald's Coffee

• One of US’s most prominent lawsuit around consumer safety after Stella, was burned severely due to high heat levels.
• Her lawyers argued that her coffee in question was 180 degrees Fahrenheit , over the average 140F degree by McDonalds.
• She was later awarded almost three millions for punitive damages and medical bills.

Toyota Cars

• Safety issues with multiple Toyota cars for brake failures as well as the engine ignoring the gas pedal, leading in large quantities of recalls in 2010.
• The product liability caused over a billion for class action lawsuits.

Host State Regulation of MNEs

• Location in which MNE acts and holds the country location where a MNE performs or acts outside its main region.

Legal points:

• Regulations
• Investors potentially being denied access in areas of investing (such as areas based around the country of China).
• Joint operations

Subsidiaries of MNE's Parent Company

• The area is not on making and being held responsible for local operations for MNE, but where is can be made for conducting action. A U.S-based company or firm operates where Indonesia is the host while the U.S is the main where Indonesia oversees the U.S to handle local and operations.

General Rule:

• The system has a certain separate legal that may result in one case of a subsidiary is seen as separate But: - The area can consent under what the host's region is consenting to. - A part of what the enterprise with what it is in common to do so. - If the what can be be seen has can be ignored it.

What is Consenting Jurisdiction

• For one party to operate and run the business, be told that it has to jurisdiction For the company or people who have office in that region is consented upon and must make a certificate of one of them.

Common Enterprise

• With the main system is two party or business operating and coming to certain agreed action together, with that
• If that comes to fruition, each number party will be what the operation is held for
• The intent of the courts will the be that it has that the agreement

Action with Touche Ross & Co. in Regards with Bank Intercontinental

• There was some work or duties done for Bank Intercontinental where it was found that:
• Some of office duties were in the NY location
• They were found and deemed international due to their location and headquarters.
• The courts found them part of an entirity.
• It was the company’s responsibility.