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This chapter outlines the emergence of the modern firm in relation to the introduction of Company Law in China from the late nineteenth century. The Company Law of 1904 redefined the role of the state in relation to business by replacing the idea of privileges granted by imperial charter with state recognition for private mercantile initiative in return for tax. From then on, private trade was the citizen's right, and the modern firm came about in China as a result of the privatization of regional government enterprises combined with the evolution of regional family businesses into full corporations.

Japanese company law originally came from Germany. After the Second World War, there was some influence of US corporate law. In the aftermath of the economic crisis in the 1990s, Americanisation of corporate law was promoted by the business community. In line with ‘deregulation of corporate law’, regulations were relaxed. The amendments culminated to the enactment of the Company Law in 2005, separated from the Commercial Code. This led to the confusion regarding permissible scope of defensible measures in M&A (mergers and acquisitions). A positive development in corporate law is the improvement of corporate governance which is symbolised by the introduction of the Corporate Governance Code and the increased transparency in the system.

This chapter discusses the laws that grant foreign investors legal status to operate in the Chinese economy. The joint venture (JV) law was the first corporate law in China. It created legal economic entities in a system consisting only of state-owned enterprises (SOEs) and non-legally defined organizations like urban collectives. Laws that govern foreign-invested enterprises (FIEs) and pertain to economic contracts predated the passage of China's primary corporate statute. In 1994, the Company Law took effect and became the centerpiece of Chinese law governing corporations.

Directors of a company are identified by their functions, rather than their descriptive title. The Joint Stock Companies Act 1844, the first of the Victorian statutes on company law, defined directors as ‘the persons having the direction, conduct, management, or superintendence of the affairs of the company’. The Companies Act 1862 did not provide definitions, but since 1908 the Companies Acts have provided that in those Acts a director ‘includes any person occupying the position of director, by whatever name called’, so including de facto directors. Whereas the 1844 Act made it clear that the directors, not the shareholders, had the conduct of the ordinary management of the company, with power to make contracts, execute documents, and hire employees and agents, subsequent Companies Acts have imposed duties on directors, but left it to the company’s constitution to provide for the directors’ functions and powers.

One instance of obvious conflict between the interests of the company and those of a director concerns contracts entered between the director (or an individual or entity associated with the director) and the company, also referred to as ‘self-dealing’. A classic example of self-dealing is the case of Aberdeen Railway Company Ltd v Blaikie Brothers, in which the director and chair of a company, Mr Blaikie, had a conflict of interest due to his role as managing partner of the firm that supplied office furniture to the company. This case was outlined in Chapter 4 where it was shown that, despite the fact that the price paid for the furniture was fair, the company was entitled to have the contract set aside due to Mr Blaikie’s conflict. Interestingly, some jurisdictions now provide a defence where the contract is fair to the company. Case law from each of the jurisdictions provides a rich source of examples of such conflicts. These include payment for services or purchase of goods, transfer of company money or assets to directors and their associates, and usurpation of company business. Some of these cases involve multiple directorships and corporate opportunities, which are more specifically discussed in Chapters

At general law breach of the duties to avoid conflicts and profits (the conflicts and profits rules), as fiduciary duties, can be excused or authorized by the company as beneficiary of the duty. This can be done by approval of the company’s shareholders (usually in general meeting) or by provision in the company’s constitution (allowing disclosure to, and authorization by, the other directors). There are, however, limits placed on such authorization or ratification. The first part of this chapter discusses these limitations. It then discusses relevant statutory provisions in each of the jurisdictions, with a key focus on sections 175, 180, 239, and 232 of the Companies Act 2006 (UK). This includes more detailed discussion of the authorization provisions in sections 175(5) and (6), which are notably absent from section 176. The complex issue of ratification of breach of statutory duty in Australia is also canvassed. This limitation, which does not apply in the UK, renders a number of aspects of directors’ duties problematic. This includes attempts by companies to adopt more stakeholder-friendly approaches.

Corporate opportunities are opportunities that arise as a result of a director’s position or opportunities that are relevant to the company’s business. The taking up of corporate opportunities by directors is governed at general law principally by the duty to avoid profits (the profits rule) but also by the duty to avoid conflicts (the conflicts rule), as well as by statutory duties and corporate governance principles. This chapter first outlines the general law position given that it subsists in a number of jurisdictions and that the interpretation of the statutory duties in the Companies Act 2006 (UK) is guided by this jurisprudence. The chapter then provides detailed examination of the relevant statutory duties and includes comments on relevant corporate governance principles.

This chapter focuses on the legal and institutional factors that shaped the development of the entrepreneurs in China. The non-state sector has been a strong driver of China's growth and outweighed the importance of state-owned enterprises (SOEs) in generating industrial output by the late 1990s. Private firms benefited from the corporatization transformation of enterprises and became shareholding companies under the Company Law. As a result, private firms largely operated without guidance from laws or policies, and often at a disadvantage to SOEs.

This chapter provides comprehensive analysis of the duties to avoid conflicts and profits (the conflicts and profits rules) and their statutory equivalents. The parameters of the term ‘conflicts’ are explored, including conflicts of interest and conflicts of duty. Debate surrounds whether ‘real sensible possibility’ of conflict is sufficient to give rise to a breach of the conflicts rule or whether proof of ‘actual’ 76 conflict or ‘pursuit’ of a conflict is necessary. The duty to avoid unauthorized profits is also discussed given that, in many cases, this duty also pertains to conflicts. The interrelationship between the duties to avoid conflicts and profits is critically analysed and comprehensive commentary on statutory iterations is provided. It is suggested that the key requirement, which also operates as a ‘rule of thumb’ and underlying principle, is that directors act in good faith in what they consider to be the interests of the company, thus exercising independent judgment. In this sense, the requirements imposed by corporate governance regimes essentially protect the ability of, and require, directors to act in good faith in the interests of the company. The final part of the chapter outlines the law concerning directors’ fiduciary duties to individual shareholders.

Whilst a scheme of arrangement is a court-sanctioned process, any company that proposes a scheme to its members or creditors or is otherwise involved with the scheme (for example, as a bidder in a takeover offer that is affected by way of a scheme of arrangement) must consider whether the corporate action at the centre of the scheme is governed by other applicable laws and regulations. These laws will include the laws of the country of its incorporation and, where the shares of the company are publicly listed, the rules of the relevant market or markets.