The Freedom and Compulsion of Corporate Organ Selection: Interaction Between Organ Selection and Organ Authority

Abstract

Regarding the selection of corporate organs, the 2023 revision of the Company Law introduced the audit committee as a new supervisory organ, enhancing the diversity of organ selection. It also expanded the scope of simplified organs to joint-stock companies, increasing the flexibility of organ choices. Furthermore, under certain conditions, for the first time, limited liability companies (LLCs) are allowed to operate without a supervisory organ. However, after this revision, the differences in organ selection between LLCs and joint-stock companies have further diminished, failing to address the practical needs of companies of different scales adopting different corporate types. Without changing corporate types, companies can essentially be categorized into two forms based on whether they establish a board of directors, and an interaction model between organ selection and organ authority can be adopted:(1) For companies without a board of directors, there is no separation of ownership and decision-making powers. Authority allocation is unified, and both LLCs and joint-stock companies follow the principle of shareholder centralism. In this model, the shareholders’ meeting acts as an all-powerful organ, with shareholders directly participating in management, engaging in negotiations at the shareholders’ meeting level, and supervising one another. (2) For companies with a board of directors, ownership and decision-making powers are separated, adopting a board-centric model. The shareholders’ meeting only exercises statutory and chartered powers, with residual authority delegated to the board of directors.