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Clearing Away the Mist: Suggestions for Developing a Principled Veil Piercing Doctrine in China

Posted by on Friday, September 21, 2012 in Notes, Vol. 39 No. 5, Volume 39, Volumes.

It was less than thirty years ago that China stood economically isolated from the rest of the world. Times have certainly changed.  Today China’s economy is one of the fastest growing in the world, and Western businesses are inundating the country to access the abundance of cheap labor. Corporate activity is progressing, yet it was only twelve years ago that China enacted its first corporate law which officially recognized the concept of limited liability. And it was not until less than a year ago that China recognized one of the most important (and most often litigated) corporate law doctrines: piercing the corporate veil.

This Note considers how the veil piercing doctrine fits into China’s civil law system. In the United  States, the doctrine has developed progressively through the courts. This Note argues that, contrary to the U.S. doctrine, veil piercing in China must be codified with specificity if it is to play a significant role. In particular, the statute must lay out guidelines for Chinese courts to follow when deciding whether to pierce the veil. The current veil piercing statute, enacted in January 2006, is too ambiguous to be useful.  If left unchanged, it will likely produce the same confusion and unpredictability that has plagued the doctrine in the United States.  As a result, this Note suggests specific guidelines that could be codified to avoid this result and to strengthen the doctrine’s usefulness in China’s civil law system.

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