893.5034 Registration/8–1645: Telegram

The Secretary of State to the Ambassador in China ( Hurley )

1331. Following is “Summary of Points of Agreement” on draft Chinese corporation law (revision of 1945) reached at meeting on August 22, under auspices China Legal Section, Department of Commerce, of representatives of business groups.

“Those present or represented at the meeting expressed their views on the question of whether the Draft Chinese Corporation Law in its entirety is such as to attract American investment and trade in and with China. The views of the meeting, as drafted by a subcommittee appointed to draw a summarization of the views expressed, are as follows:

  • “1. American business interests have not been afforded time sufficient to study and consider thoroughly the Draft Corporation Law, and are therefore unable categorically to state whether it is, or is not such as to attract American investment and trade in and with China.
  • “2. Critical analysis has been further deterred by reason of the fact that there has not been made available an official Chinese text of the Law. The English translation which was the basis of the study is very apparently not a literal translation, but a very free translation, and in many places is so vague and inexplicit as to leave its exact meaning in doubt.
  • “3. From the study which could be given to the Law in the very short time afforded to us, it appears that the Law is neither simple nor clear; it is over-complicated and is founded on Continental and other legal concepts and theories with which Americans engaged in international trade are not familiar.
  • “4. The Law is not modern in the sense that it is not a law similar to that in use by any of the leading commercial nations.
  • “5. A more detailed review of American reaction could have been obtained if more time had been made available in which to study and discuss the Law. Inasmuch as foreign corporations are not required to register in China until December 31, 1945, it would appear that immediate enactment of the Law is not necessary. And in the event that a thorough study could not have been completed by that time ‘Regulations for the Provisional Registration of Foreign Companies’ [Page 1230] (Summary of Points of Agreement at meeting of June 8, 1945, Appendix B) might have been found useful.
  • “6. American business interests have no desire to dictate to China what laws it shall enact, but are ready to cooperate in studies which might result in the drafting of simple, clear, modern commercial laws which China might consider to its benefit to enact and upon which a large volume of mutually profitable trade might be based. Considerable benefit would be gained by consultations and joint studies with such a mission as is referred to in Embassy telegram No. 1195, July 20, 1945,38 pertaining to the departure for America of Messrs. Wu Shang-Ying, Chang Chao-Yuan and Sheng Chen-Wei,39 members of the Legislative Yuan, on a mission to study and discuss legislation of this type.
  • “7. The Law purports to cover the entire field of Company Law and contains a chapter on Foreign Corporations. However, no mention is made of Joint Enterprises and the rules which shall apply to them as first set forth in the Resolution of the Central Executive Committee40 on September 9, 1943. The impression existed that special laws would be enacted with regard to this particular type of entity, which might supersede, if still in force, Regulations Governing Special Limited Corporations, promulgated March 21, 1940.41
  • “8. With particular reference to Chapter VII referring to Foreign Corporations, this Chapter sets forth, principally, registration regulations. The views of American business groups were fully set forth in the Summary of Points of Agreement at Meeting of June 8, 1945. Insofar as this Chapter differs therefrom or omits matters included therein, there now appears to be no reason to alter the views set forth therein.
  • “9. Chapter VII specifically applies to foreign corporations as do certain other articles by express reference or by their express terms. However, it appears that many other articles might apply to foreign corporations. For instance, it is not known if Article 194, referring to the setting aside as a reserve two-tenths of the profit, is applicable to foreign corporations. The Law should state specifically and particularly which articles apply to foreign corporations and should contain a statement that none other apply. See Summary of Points of Agreement, June 8, 1945, Appendix D, Section A.
  • “10. Previous information was to the effect that as to the internal affairs of a foreign corporation the law of its domicile would apply, and as to its external affairs Chinese law would apply. (See Dr. Wong [Page 1231] Wen-hao’s letter of June 23, 1944.42) Chapter VII contains no clear or adequate statement to this effect, nor does it draw a clear demarcation between internal and external affairs.
  • “11. Chapter VII contains no clear express statement to the effect that under Chinese law no stockholder or officer shall be held to any greater quantum of personal liability for corporation obligations than would be imposed by the law under which it is created.
  • “12. Article 261 should include definitions of ‘head office’ and ‘branch office’ as set forth in Summary of Points of Agreement, June 8, 1945, Appendix D.
  • “13. Articles 262 and 273 should be corrected to conform to the definition of ‘Business in China’ as set forth in said Summary, Appendix D, paragraph 9.
  • “14. Article 264, paragraph 3, Articles 275 [276], 291, 292 and 293, with regard to specification of capital and fee payable thereon, we are in full agreement with Embassy’s telegram43 containing suggested amendments, and further, should provision for fee be so eliminated, we strongly object to apportionment of capital for any purpose or reason whatsoever. See Summary,44 Appendix C, paragraph 1, subdivision 10.
  • “15. Article 264, paragraph 9 is not clear and what is required is not known. Everything normally required is provided for in paragraph 2 of this article.
  • “16. Article 264, paragraph 10, and Article 265, paragraph 2, are objectionable and should be omitted entirely as impractical, but if this is not possible then we are in accord with suggested amendment as set forth in Embassy’s telegram regarding amendments.
  • “17. Article 268 refers to matter which will no doubt be subject of treaty, and if so the article should state that if it conflicts with the treaty, the treaty provision shall prevail.
  • “18. Aricle 269 is confusing, apparently due to poor translation and no definite conclusion can be expressed.
  • “19. Article 272, paragraph 1, should include a statement that the untruth of the particular statement must have been willful.
  • “20. Article 273 is too limited. Refer to comment under Article 262 as to what companies should be considered as ‘doing business’ and therefore subject to registration. All other business should not be required to register. The provision that ‘such foreign corporation shall first designate an attorney etc’ is in effect a further registration regulation and would require every foreign corporation to register even if it were not ‘doing business.’
  • “21. Article 274 should be amended to read that as to the sale of shares foreign corporations shall be on the same basis as domestic corporations.
  • “22. Article 275 should be amended as suggested in Embassy’s telegram.
  • “23. Article 276 has been commented upon hereinabove.
  • “24. Article 277 as worded would seem to subject foreign corporations to unwarranted searches, and might lead to the forced disclosure of trade secrets, formulae, patents and agreements. The expression ‘books, documents or papers’ should be limited to apply to books of account.
  • “25. Article 278 is subject to the same comment as set forth under Article 273 hereinabove.
  • “26. Article 13 is anomalous in that it would appear to be contrary to long-standing Chinese custom and might seriously impede business.
  • “27. Article 17, as amended, should include additional wording to be appended after the last word, as follows: ‘Unless the permission of the original user of the name shall be given in writing.’ The word ‘character’ which appears in this article should be in the plural so as to refer to Chinese ideographs used in the name rather than as referring to businesses of the same type or character.
  • “28. Article 18 is not objectionable so long as it is understood that no penalty attaches to a non-registered company which performs an isolated act of business, provided such company is an actual legal entity. See also comment with respect to Articles 262 and 273.
  • “29. Article 19 is objected to strongly on the ground that it requires a report of a foreign corporation’s entire business, both inside and outside of China. Apparently a foreign corporation is required to file an inventory of its entire stock in trade both inside and outside of China, and this in many cases is a task of gigantic proportions and is entirely unwarranted.
  • “30. Article 20 is subject to the same comment as was made with respect to Article 277.
  • “31. Article 281 should be amended as suggested in Embassy’s telegram regarding amendments.
  • “32. Article 289 is indefinite in that there is no definition of ‘papers and documents’ and ‘to outside people.’ In addition it is onerous, unwarranted and unnecessary.

“China–America Council of Commerce and Industry, Inc., was not formally represented at the meeting, but its views were expressed in two letters read at the meeting, the substance of which are as follows:

‘With reference to Chinese Company Law there is obviously not time for analysis of the provisions before August 15, the time scheduled by the Legislative Yuan for its third hearing. We are still in [Page 1233] accord with the principles agreed upon in our Conference on June 8th, 1945 with the Department of Commerce but the detailed application of them to Chapter VII of the proposed draft requires mature consideration.

‘It seemed to us that beyond indicating our continued accord with our agreed principles, we could do not better than to ask Dr. George Sellett, our Honorary Legal Advisor who is now in Chungking, …45 to present our views as he understands them.’ (Letter of August 13, 1945.46)

‘Obviously it is not feasible to send detailed suggestions immediately but we should, nevertheless, study the legislation as it is now proposed so as to present our ideas as a basis for later modification.’ (Letter of August 14, 1945.46)”

Department sends foregoing summarization without comment (having received too late to permit study thereof) or intention that it be transmitted to Chinese officials, but as of possible interest to Embassy and to be used at Embassy’s discretion. It is not intended as statement of Department’s views (Department’s comments in tel 1244, August 11, still valid) nor deemed as expressive of governmental policy or the views of any Department thereof. Further details re meeting and comments of Department follow by airgram.47

Byrnes
  1. Not printed.
  2. Also known as Robert C. W. Sheng.
  3. Of the Kuomintang.
  4. A translation of these regulations was transmitted to the Department by the Ambassador in China in his despatch No. 2434, April 15, 1944, not printed.
  5. See footnote 11, p. 1208.
  6. No. 1309, August 9, p. 1225.
  7. Department of Commerce Memorandum of June 9; see footnote 34, p. 1227.
  8. Omission indicated in the original telegram.
  9. Copy not found in Department files.
  10. Copy not found in Department files.
  11. Airgram No. A–301, September 5, not printed.