| An examination of the logic and the evolution of capital system in the company law from the perspective of the commercial practice is conducive to understanding different approaches to the reform of corporate capital system worldwide and the controversy over the reform of the capital system in China carried out in the end of 2013. The legal constraints on corporate capital originate from the description of the process of incorporation of a business by its charter. The continued existence of corporate entities brought about the original idea of "capital maintenance", which evolved into the whole legal capital regime in 19th century where people struggled with the concept of the limited liability. The law, however, is good at qualitative, rather than quantitative analysis, which results in the failure of legal capital system to catch up with the rapid development of commerce. As a result, a number of commercial technologies, such as accounting and valuation, have emerged to help legal capital system function, while debt covenant practice and securities regulation have gradually shared part of the burden of legal capital. All these have become inherent incentives for the reform of the legal capital system. Reform means that it will abandon the ossified traditional concept of "legal capital" and will deal with the issue of capital not for the sole purpose of protecting the creditors as it used to do, but mainly for mediating the conflicts of interests between shareholders and other participants of a company. In this sense, the Company Law of PRC has realized the modernization of the capital system at the regulatory level, but it still has a long way to go after the reform, due to the lack of commercial history and credit environment. So, much still needs to be done with the new capital regime under the Chinese Company Law. |
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