International Open Access Journal Platform

I Problem Raising

“The focus of legal development is neither on legislation nor on jurisprudence or judicial decisions , but on society itself (Eugen Ehrlich, 2022).” As China’s private economy continues to grow, it has become an indispensable social material foundation for promoting high-quality modernization 1in the Chinese context. Not only does the central government continuously issue relevant normative documents to emphasize and guide the development of private enterprises, but also Articles 165,166, and 169 of the Criminal Law amendment emphasize the equal and fair protection of private enterprise property rights. The first three articles of the Criminal Law Amendment (XII) broaden the scope of protection to include private enterprises, and the subjects involved are expanded to include directors, supervisors, and senior management within private enterprises. Before this amendment, due to the limited number of state-owned enterprises and their application scope, cases involving crimes such as illegal business operations were not frequent. After the amendment, the frequency of applying crimes like illegal business operations will increase in response to the needs of social and economic development, while also generating new issues regarding the interpretation and application of these crimes.

First, how to understand the connotation and reasons for the equal protection of private property rights in the legislative purpose; second, whether the legal interests protected have changed after the introduction of the Criminal Law Amendment (XII); third, how to control the extent of criminal law intervention in the business activities of private enterprises under market regulation (scope of subjects, standards for criminalization); additionally, the second paragraph of relevant offenses all adopt a reference to the indictment to limit criminalization, so the application of specific provisions and their connection with pre-existing laws such as the new Company Law of the People’s Republic of China also need attention. This article analyzes and argues these issues from the perspective of fair criminal law protection, using the frequently occurring crime of illegal operation of similar businesses as an example, aiming to contribute to the application of the crime of illegal operation of similar businesses.

2 Differentiated Characterization of the Nature of Crimes under Equal Protection

The crime of illegal operation of similar businesses has been amended to include a second provision, shifting from single-sided protection of state-owned enterprises to diversified and equal protection for “other companies and enterprises,”(Shen C Y, 2023) aiming to achieve equal protection for private enterprises. However, based on the specific wording of Article 165 of China’s Criminal Law, compared with state-owned enterprises, the threshold for criminal liability for internal staff of private enterprises is higher. In addition to committing the acts above and causing significant losses to their company’s interests, they must also “violate laws and administrative regulations.” On the surface, this difference in the revised elements of the crime seems to contradict the goal of strengthening equal protection for private enterprises. Therefore, it is necessary to provide a logical explanation from the perspective of the essence of criminal law in protecting private enterprises equally, as well as the legal interests and nature of the crime behind the differentiated elements.

2.1 How to Understand the Equal Protection of Private Enterprise Property Rights by Criminal Law

First, from the perspective of legislative background and the formation process of amendments, the differentiated elements in the crime of illegal operation of similar businesses do not exclude private enterprises from equal criminal protection. On one hand, long before the introduction of the Criminal Law Amendment (XII)(B. Yinbo, 2024), China has placed great emphasis on equal protection for private enterprises: In 2016, the State Council issued the “Opinion on Improving the Property Rights Protection System(Li L, 2021) and Legally Protecting Property Rights(Jia Y, 2021),” which “increased the criminal law protection for non-public property”; in 2020, the Criminal Law Amendment (XI) was enacted to increase penalties for internal crimes in private enterprises(Dong F C, 2023), aiming to “implement the spirit of equal property rights protection,” reflecting the legislative concept of equal protection; in 2023, the Supreme People’s Procuratorate issued the “Opinion on Legally Punishing and Preventing Crimes Involving Internal Personnel of Private Enterprises Infringing upon the Legitimate Rights and Interests of Private Enterprises, and Creating a Favorable Legal Environment for the Development of Private Economy,” which aims to strengthen the protection of private enterprise property rights...(Tian H J, 2024) In summary, this amendment to the Criminal Law not only continues China’s commitment to equal protection for private enterprises, contributing to internal coordination within the criminal system, but it also represents a systemic transformation of policies aimed at legally protecting private enterprises. On the other hand, setting differentiated elements does not imply that the properties of two types of enterprises should be protected to different extents. Both are considered legitimate property under the Constitution and Civil Law, holding equal status, and neither should be infringed upon; based on the unity of legal norms, China’s Criminal Law should also provide fair protection.

Secondly, this amendment emphasizes not formal mechanical equality but substantive equality with differentiated characteristics, which is closely related to the legal interests protected by the law and the nature of crimes. The academic community has yet to reach a consensus on how criminal law should protect private enterprise property rights, leading to two perspectives: the “equal protection theory” and the “differentiated protection theory.” The former advocates eliminating differences in sentencing standards between enterprises of different natures to achieve “equivalent” protection for private and state-owned enterprises(Zhang M K, 2023). Since the perpetrator’s breach of trust does not differ in legal interests between state-owned and private enterprises, it is sufficient to broaden the types of enterprises without adding a second provision. The differentiated protection theory argues that compared to state-owned enterprises(Chen X L, 2023), private enterprises have essential differences in investment entities, sources of funds, and liability. Therefore, equal protection does not mean applying the same protective measures to both. Criminal law has the dual functions of protecting legal interests and punishing crimes; the differentiated elements focus on equal protection rather than equal punishment for private enterprises. On one hand, private enterprises are the targets of this crime rather than the subjects, meaning they are the carriers of the legal interests protected by the crime of illegal operation of similar businesses, not the objects of punishment. On the other hand, “equality in crime and punishment does not mean absolute uniformity”; fundamentally, the setting of differentiated elements is closely related to the legal interests involved and the nature of crimes for both types of entities.

2.2 Definition of the Nature of Dual Crimes

After the addition of a second provision to the crime of illegal business operations, both the connotation and extension of this offense have undergone significant changes, leading to diverse interpretations and controversies regarding its criminal essence and protected interests(Zhi Y G, 2024). Some scholars, based on the mainstream views in German and Japanese criminal law, argue that the crime of illegal business operations is a special form of breach of trust(Xie Y, 2016), protecting primarily the property rights of enterprises. Another perspective is the “property + order + duty of loyalty” theory, which posits that the perpetrator violates the duty of loyalty under special positions, infringing upon the property rights of enterprises, the self-management order of companies, and the regulatory order of the state over companies and enterprises. The purpose of criminal law determines the understanding of each element; since the Criminal Law Amendment (XII) sets different elements for criminalizing different types of companies, the unlawful nature and protected interests should also be determined separately for each category.

2.2.1 The Crimes of Directors, Supervisors, and Senior Executives of State-owned Companies and Enterprises are Public Office Crimes

Directors, supervisors, and senior management personnel of various companies and enterprises who hold key core positions within the company must not violate their “duty of loyalty and diligence” towards the company. However, interpreting the illegal business operations of directors, supervisors, and senior management of state-owned companies and enterprises solely as a breach of trust is difficult to align with current regulations in our country(Shigeru Otsuka, 2023). The consensus in German and Japanese criminal law holds that the essence of breach of trust is the violation of the duty of good faith, causing damage to the principal’s property, which falls under the category of actual harm in property crimes. However, the first provision of the crime of illegal business operations in our country only requires that the perpetrator “obtains substantial illegal gains,” implying a requirement for personal gain(Yuan G H, 2024), without setting up a second provision to require “causing significant loss to the interests of the company or enterprise,” meaning that the establishment of the first provision does not require the infringement of public property. This does not align with the purely property-oriented nature of breach of trust crimes. In other words, property alone cannot comprehensively cover the legal interests involved in the elements.

Defining the nature of crimes involving state-owned enterprise personnel through dereliction of duty, which has the characteristics of public official crime, can reasonably explain the differentiated elements set for this offense. First, the subject of this crime is limited to “directors, supervisors, and senior management” of companies and enterprises, which is significantly narrower than the scope of subjects in the crime of illegal profit-making by relatives and friends (the “staff members” of the employing unit). This limitation indicates that the identity of a state official must be possessed to commit the first provision of this crime. Second, different types of companies and enterprises have different elements of criminal consequences(Liu RW, 2024); for the criminal liability of directors, supervisors, and senior management of state-owned enterprises(Zhang Y & Jia M D, 2024), it is required to have the result of illegal profit-making, unlike the result of “losses suffered by companies or enterprises” caused by illegal business operations in private enterprises. In other words, “the threshold for criminal liability set for state-owned enterprise personnel is lower, while that set for private enterprise personnel is higher.” The root cause lies in the different criminal nature and types of legal interests represented by the identity attributes of these two categories of subjects(Chen Y S, 2020). For example, the penalty range for bribery is higher than that for non-state official bribery.1 Finally, in line with China’s supervisory practice, Article 15 of the “Provisions on the Jurisdiction of the National Supervisory Commission (Trial Implementation)” also includes the involvement of directors, supervisors, and senior management of state-owned enterprises in illegal business operations within the scope of supervisory crimes under the jurisdiction of the Supervisory Commission. If it were merely a breach of trust crime, it should be under the jurisdiction of the public security organs rather than the Supervisory Commission.

2.2.2 The Crimes of Other Companies and Enterprise Directors, Supervisors, and Senior Executives are Breach of Trust Crimes

The “Appointment Relationship Theory” advocates that, based on the fiduciary relationship between directors, supervisors, and senior management and the company, these individuals should actively fulfill their duties and be responsible for shareholders ‘interests. The “Duty of Good Faith Theory” posits that there is an appointment relationship between directors, supervisors, and senior management and the company(Ye L, 2021). Although the two theories differ in perspective, neither undermines the special trust relationship between directors, supervisors, and senior management and their appointing entities, nor does it negate the duty of loyalty and diligence owed by directors, supervisors, and senior management to the company(Shi T T, 2018). Article 180, Paragraph 1 of China’s Company Law also explicitly stipulates the duty of loyalty owed by directors, supervisors, and senior management, prohibiting them from using their positions to gain improper benefits and requiring them to take measures to avoid conflicts of interest between their personal interests and those of the company(Zhao H L, 2023). Acting without the company’s consent, taking advantage of the convenience granted by the company based on trust and position to engage in similar business activities violates the non-compete clause within the duty of loyalty, which is also a specific manifestation of breaching trust and the duty of loyalty and diligence, thus constituting a breach of trust crime.

This crime falls under the category of true identity offenses, with the essential element being the perpetrator’s use of their position for personal gain. Classifying this crime as a broad form of official duty offense is reasonable; moreover, it is necessary to distinguish between crimes committed by state employees and non-state employees based on official duty offenses. Specifically, defining public duty crimes can effectively guide the interpretation of the elements constituting this crime, reflecting the substantive considerations of legislators when distinguishing between state-owned enterprise staff and private enterprise staff. The “use of position for personal gain” by directors, supervisors, and senior management personnel in private enterprises differs from that in state-owned enterprises. On one hand, the sources of authorization and the nature of the rights/power they represent differ. For example, Zhou, an executive at a state-owned real estate development company in Town A, was aware of his company’s business scope and secretly funded the establishment of a similar B company with Zhu.2 He used his influence to secure approval at a meeting of the Town A government leadership to transfer the development project to B for investment and development; this shows that as a state employee, Zhou’s position and power had the potential to interfere with the normal operation of other public powers when setting up similar businesses. On the other hand, directors, supervisors, and senior management personnel must fulfill their duties of care and custody of company assets to achieve the original purpose of corporate profit. The “use of position for personal gain” is an abuse of their entrusted authority over the company’s assets, which aligns with the essence of breach of trust, where the perpetrator violates the statutory duty of care and causes loss to others’ property within the company(Yuan G H, 2024).

2.3 Explanations of Dual Protected Interests

The discussion of the nature of the crime is closely related to the legal interests protected by this offense. The dual nature of this crime, which combines elements of both public duty offenses and breaches of trust, indicates that its legal interests span multiple domains and have a dual nature. On one hand, this crime has the attributes of a public duty offense, where directors, supervisors, and senior management of state-owned companies and enterprises use their positions to undermine the fairness of official duties, thereby infringing on state property rights. On the other hand, this crime also has the attributes of an economic offense (or a breach of trust offense), where directors, supervisors, and senior management of other companies and enterprises violate their loyalty obligations under their positions, thereby infringing on the property rights of competitive business profits of these companies and enterprises.

In the first amendment, the legal interests infringed upon by state-owned companies and enterprises in criminal offenses have not undergone fundamental changes. Previously, scholars generally believed that the legal interest of this crime was “national interests”(Feng J et al., 2023) and “the normal management order of state-owned companies and enterprises.”(Wei D, 2010) After the amendment, there is a greater emphasis on the integrity and fairness of public officials conduct, which not only infringes upon state-owned property rights but also undermines citizens ‘trust in public officials’ conduct(Luo X, 2024). It is evident that when directors, supervisors, and senior management of state-owned companies and enterprises commit crimes, the academic community generally defines the specific legal interest as dereliction of duty by state officials. However, terms such as “national interests” “the integrity and fairness of public official conduct” and “the normal management order of state-owned companies and enterprises” are relatively vague and lack clarity. All dereliction-of-duty crimes involving state officials inevitably infringe upon the fairness of their official duties, public trust in the fairness of their official duties, and related property interests. For example, crimes such as embezzlement, misappropriation of state assets, and illegal profit-making for relatives and friends all infringe upon these vague legal interests. Therefore, it is necessary to further narrow and specify the legal interests infringed upon by the crime of illegal operation of similar businesses. The premise for establishing this crime is that the perpetrator uses their position to operate a similar business, which narrows the legal interests infringed upon by this crime through the method of behavior. Firstly, it inevitably infringes upon the fairness of the official duties of “senior executives of state-owned companies and enterprises.” Secondly, the property rights infringed upon by this crime are operational and competitive property rights, distinguishing it from other types of property crimes. Therefore, the first paragraph of this crime protects the fairness of official duties and the property rights of competitive business profits of “state-owned companies and enterprises”. This not only keeps in line with the traditional mainstream views of Chinese academia, but also further specifies and standardizes the application scope of this crime.

“The legal interests infringed upon by the illegal operation of similar businesses by ‘other companies and corporate executives’ are closely related to the content of this amendment, and academic opinions vary widely. Some scholars argue that from the perspective of ‘official duties,’ the protected legal interests in the crime of illegal operation of similar businesses by private enterprises and companies should be interpreted as the company property rights, creditor interests, and employee legitimate rights protected by China’s Company Law and other regulations. Others point out that the crime of illegal operation of similar businesses falls under economic crimes, and its protected legal interests include the property rights, trust interests, and market competition order of private enterprises, which differ from the fairness of public official conduct and public property rights protected in the first provision. The consensus among these views is that crimes involving private enterprises should constitute a breach of trust, primarily infringing on the property rights of the enterprise; the difference lies in whether there are other legal interests beyond property rights. This article maintains consistency with the mainstream criminal law views in Germany and Japan, arguing that the legal interests infringed upon by corporate managers’ breaches of trust crimes only include property rights.”(Tetsuji Nishida, 2020)

Some scholars argue that it is unreasonable to categorize this crime solely as a breach of trust while neglecting it as an official duty offense. However, as profit-seeking organizations, the responsibilities of directors, supervisors, and senior management in companies and enterprises are essentially duties of property care. Their “abuse of power for personal gain” fundamentally represents an abuse of authority over the company’s assets, which fully aligns with the characteristics of a breach of trust offense—violating the heightened duty of property management and causing financial harm to others within the organization. Whether classifying this crime under official duty offenses based on the perpetrator’s status or defining it as a breach of trust offense based on the method of action, neither approach fundamentally conflicts with the nature of this crime. Both methods analyze the nature of this offense by covering the characteristics of a breach of trust offense, where actions infringe upon the property rights of companies and enterprises.

In brief, given that the directors, supervisors, and senior management of state-owned enterprises hold the status of public officials and enjoy certain public powers, their illegal business operations infringe upon the property rights of competitive business profits of “state-owned companies and enterprises” and the fairness of official duties; when the directors, supervisors, and senior management of private companies and enterprises engage in similar actions, they violate the duty of loyalty in breach of trust crimes, directly infringing upon the operational property rights of private enterprises.

3 The Reasonable Definition of the Scope of the Subject

The amendment to the crime of illegal business operations has broadened the scope of protection and expanded the range of subjects eligible for criminal liability(Zhou G Q, 2016). While actively expanding the criminal circle in legislation, it is necessary to limit it from a judicial application perspective, ensuring that the legal net is tight but not overly expansive. The interests protected by law guide the interpretation of criminal law. After determining the interests protected by this crime, it is essential to further reasonably define the scope of subjects and appropriately restrict the range of subjects eligible for this crime.

3.1 Factors to be Considered in Identifying “Directors, Supervisors and Senior Managers”

After the new Company Law was introduced, the scope of entities subject to non-compete obligations expanded to include “directors, supervisors, and senior management personnel.” The Criminal Law Amendment (XII) aligns with the preceding laws, adding “senior management personnel” as a criminal entity for the crime of illegal business operations(Shang H W, 2023). In practice, due to limitations in job titles and inadequate internal corporate management, it is common for positions to be misaligned with actual authority, which has led to some controversy regarding the scope of personnel covered by the regulations.

3.1.1 Based on the Purpose of Legal Interests: The Decision-making and Management Rights of Enterprise Property

Theoretically, any individual who actually controls a company or enterprise in specific areas such as production, sales, and human resources, and who can represent the company in commercial transactions within the scope of authorization, possessing the capability to engage in competitive business, and who, in practice, uses their position to engage in the same business as the company or enterprise, may violate the non-compete system and harm the company’s assets. Therefore, they could potentially be subjects of the crime of illegal operation of similar businesses. However, if all these individuals were included as criminal subjects, it would contradict the principles of restraint in criminal law and the legality of punishment. The scope of subjects should be reasonably interpreted based on the nature of this crime and with the aim of protecting legal interests.

State-owned company and enterprise directors, supervisors, and senior management personnel enjoy certain public powers possess the characteristics of official crimes and pose a threat to the fairness of official duties. Directors, supervisors, and senior management in state-owned sole proprietorships and wholly-owned companies are legally defined as “state employees.”(Liu W L, 2015) State employees engaged in the management and supervision of state assets in state-controlled or partially-owned companies and enterprises also fall under the first clause of this crime. If non-state employees among executives of state-controlled or partially-owned companies do not engage in official duties and do not have the status to infringe upon the fairness of official duties, they do not belong to the category of “high-level executives of state-owned companies and enterprises,” but rather to the category of “high-level executives of other companies and enterprises.”

Considering the legal interests of business property rights protected by the crime of illegal operation of similar businesses, regardless of the nature of ownership, the scope of “senior management” should be closely related to their decision-making and management authority over the company’s business property, manifested in the quantity (decision-making, execution, supervisory powers), value (income), actual control, and influence of these authorities(Liu J H, 2023). People with corresponding authority hold the power and resources of companies and enterprises, and use this authority to engage in similar business activities, thereby causing significant damage to the business property rights of the company or enterprise. Senior management refers to specific individuals within a company or enterprise who possess executive, decision-making, and supervisory powers. They hold core information for internal management and external operations, exerting significant control over the company’s decisions and development direction. Given that this particular group has both the ability and opportunity to engage in competitive activities, it is necessary to include such behavior within the strict scope of criminal regulation, as they objectively exploit their positions to conduct similar business activities, damaging the business property rights of the company or enterprise.

3.1.2 Adhere to the Identification Method of Combining Pre-positioning Limit with Substantive Judgment

The crime of illegal business operations involving similar businesses combines both administrative and criminal illegality. Article 184 of the Company Law expands the scope of entities subject to non-compete obligations to include directors, supervisors, and senior management, imposing higher requirements on them than ordinary employees. To further align with prior laws and achieve the goal of equal protection of corporate property rights, the Criminal Law maintains consistency between the subjects of this crime and those of the statutory non-compete obligations in prior laws.

The prerequisite for constituting the crime of illegal operation of a similar business is to violate relevant provisions of the Company Law, administrative regulations, and other prior laws. First, the non-compete clause in the Company Law emphasizes the decision-making, supervisory, and management authority of the actor over the company or enterprise as a whole, rather than specific projects or particular businesses. If the actor’s decision-making and management authority is limited to a department or a specific project or business, their impact on the entire company or enterprise is minimal. Thus, they do not qualify as an obligor, and criminal law should not overly intervene. Second, the relevant provisions of prior laws do not include internal charters of companies or enterprises. On one hand, the content of charters is inconsistent and can be modified, which is uncertain and does not conform to the principle of legality in criminal law. On the other hand, the formulation of charters must also comply with the provisions of the Company Law, administrative regulations, and other prior laws. Furthermore, the non-compete restrictions on employees do not fall under the scope of the obligors subject to non-compete prohibitions under Article 184 of the Company Law, nor should they be included in the scope of subjects for this crime.

Based on the consideration of protecting the business property rights of enterprises, the determination of the scope of directors, supervisors, and senior management should be substantively judged according to whether relevant personnel have the authority to make decisions, manage, execute, and supervise the company’s overall assets, without combining formal and substantive judgments. Some scholars argue that one should first look at whether the individual holds a position as stipulated in the Company Law or the articles of association, and then assess whether they have the authority to make decisions and manage the company’s assets, combining both aspects to determine the subject. The judgment process is shown in (Table 1), which reveals that the final determination ultimately depends on the second step: the scope of directors, supervisors, and senior management should be substantively judged based on whether relevant personnel have the authority to make decisions and manage the company’s overall assets, thus there is no need to incorporate formal judgments into the determination process. For example, a party appealed, stating that although the “deputy manager” was nominated by the general manager and appointed or dismissed by the board of directors, the Criminal Law does not explicitly state that they are subjects of the crime of illegal operation of similar businesses, and the party had never actually served as a “vice president.” Therefore, based on the principle of leniency in criminal law and legality of punishment, they claimed they should not be recognized as criminal subjects, but the court rejected the appeal.3 This indicates that when judicial authorities determine whether someone constitutes a “manager” under this crime, they do not solely rely on formal criteria but conduct a substantive evaluation based on the actual powers of the individual.

Table 1 Judgement of subject matter eligibility determination

To sum up, the determination of “directors, supervisors and senior managers” should be based on the consideration of the decision-making and management rights held by the actors in terms of the business property rights of the enterprise. On the basis of adhering to the limitations imposed by the Company Law on directors, supervisors, and senior managers, the substantive judgment method should be adopted to make a substantive judgment according to whether the relevant personnel enjoy the decision-making, management, execution, and supervision authority of the company’s overall property.

3.2 Determine the Reasonable Scope of “Directors, Supervisors, and Senior Managers”

3.2.1 Identification of Factual Directors and Shadow Directors

The crime of illegal business operations is a true status offense, and the definition of the scope of “directors, supervisors, and senior management personnel” is crucial for its application(Zeng Y X & Tan J Q, 2021). The Chinese Company Law does not explicitly define “de facto directors” or “shadow directors,” yet such situations are common in practice; this reflects a mismatch between legal provisions on identity recognition and actual operational conditions. In other words, whether these individuals fall under the category of “directors” as referred to in the second paragraph of the crime of illegal business operations is an inevitable issue in judicial practice. Moreover, there is no consensus among scholars on the characterization of these two categories and whether they qualify as subjects of the crime of illegal business operations. Some scholars argue that their meanings are the same, differing only in name; others maintain that their meanings differ, leading to different conclusions(Hu D F & Zheng B W, 2024). The concepts of “de facto director (de facto director)” and “shadow director (shadow director)” originate from British company law, with the former acting as directors in public view and the latter exerting influence through other directors behind the scenes. These two concepts are not the same, and their meanings have certain distinctions, so they should be discussed separately.

“A de facto director” refers to a person who does not hold the title of director but publicly acts or appears to directly exercise the powers of a director. China’s Company Law defines the identity of directors in a formalistic manner, recognizing only those appointed through shareholders’ meetings. This results in individuals who have not been formally selected by company procedures or have gone through flawed processes, yet actually manage or make decisions on behalf of the company, being exempt from direct liability as directors(Liu Bin, 2021). A de facto director may use their position to illegally operate similar businesses. In such cases, there is no legal formal appointment between the individual and the company, and it seems inappropriate to classify this as the crime of illegal operation of similar businesses. However, the individual has already gained and exercised decision-making and management rights over the company’s operational assets. Essentially, the company has placed trust and granted authority to the individual akin to that of a director. Based on this factual relationship of trust, the individual’s actions violate corresponding fiduciary duties(Johannes Wessels et al., 2023). Japanese courts hold a similar view; even if a de facto director is not officially registered in the director register, they still possess actual power to decide important matters both internally and externally within the company. Therefore, according to Article 266-3 of the Japanese Commercial Code, the de facto director is held liable for the same legal responsibilities as a formal director(Tachibana Toshihiko, 2000). Thus, to protect the legal interests of the company’s operational assets and to combine prior laws with substantive judgments on whether one holds decision-making and management rights over corporate assets, a de facto director falls under the category of “director” as defined in the crime of illegal operation of similar businesses.

“Shadow directors” refer to individuals or entities that have not been formally appointed as company directors but actually influence the management or decision-making of the company through their instructions or guidance. These individuals or entities may be controlling shareholders, actual controllers, or other relevant parties. To define the identity of “shadow directors,” it is necessary to discuss whether controlling shareholders and actual controllers can be considered directors. In the first scenario, when controlling shareholders and actual controllers do not directly manage company affairs or bear legal responsibilities as directors, they influence board decisions through indirect instructions or guidance. In this case, these individuals are considered “shadow directors,” whose actions are more covert yet significantly influential. In the second scenario, according to Article 180, Paragraph 3 of the Company Law, when controlling shareholders and actual controllers actually execute company affairs, they essentially become “de facto directors.” At this point, controlling shareholders and actual controllers no longer indirectly interfere with authority but directly manage company affairs, and should be treated as shareholders.

On the one hand, Article 265 of China’s Company Law places controlling shareholders and actual controllers on par with directors when interpreting the meaning of terms. This indicates that controlling shareholders and actual controllers, acting as “shadow directors,” do not qualify as directors. On the other hand, from a systemic interpretation perspective, China’s Criminal Law clearly defines the principal responsibility of controlling shareholders and actual controllers when they organize or instruct others to commit crimes, distinguishing between the two. Specifically, in Articles 160 on fraudulent issuance of securities, 161 on illegal disclosure or non-disclosure of important information, and Article 169-1 on breach of trust that damages the interests of listed companies, it explicitly stipulates that such individuals should be held criminally responsible as principal offenders or accomplices according to the theory of criminal conspiracy. In other words, while “shadow directors” are not considered directors under company law, their actions have a more significant impact on corporate property management and cause more severe harm to legal interests. Therefore, based on the systemic interpretation of criminal law, they should be held criminally responsible as principal offenders or accomplices according to the theory of criminal conspiracy.

In brief, “de facto directors” and “shadow directors” are two distinct concepts. The former directly exercises authority, constituting the identity of a criminal subject for the crime of illegal business operations. The latter is not considered a director but, based on the interpretation of the criminal law system, should be held criminally responsible as an accomplice or co-conspirator according to the theory of joint offenses. Discussing the differences between “de facto directors” and “shadow directors” leads to the discussion of controlling shareholders and actual controllers. Their status in the crime of illegal business operations is determined by their method of exercising authority: direct exercise constitutes “de facto directors,” while indirect instructions to exercise authority constitute “shadow directors.”

3.2.2 Identification of Senior Management Personnel

Before the amendment of the Company Law, there was a debate in academia over the scope of senior management, with strict interpretation(Ye H Y, 2008) versus expansive interpretation(Wang Z F, 2016) being the main points of contention. The primary focus was whether “deputy manager” could be interpreted as part of the senior management. After the amendment, this controversy was resolved, and Article 265 clarified that senior management includes “managers, deputy managers, financial officers, board secretaries of listed companies, and other personnel as stipulated in the articles of association.” Meanwhile, the Legislative Affairs Commission of the Standing Committee of the National People’s Congress stated: “Senior management is a relatively open concept, with some room for expansion in practice, making the scope more appropriate(Zhang Y J, 2024).” Therefore, how to grasp the connotation and extension or the degree of openness of other personnel remains unclear, both in legal provisions and judicial interpretations, easily becoming a significant point of contention in judicial practice.

The identification of senior management personnel should be based on the specific provisions of the Company Law and substantively judged according to the actual powers held by the individual. Other personnel specified in the company’s articles of association fall under the category of senior management personnel as defined by the Company Law. However, since this falls within the scope of corporate autonomy, whether they meet the principle of legality in criminal law and can serve as the basis for charging with the crime of illegal operation of similar businesses is worth discussing. On one hand, to maintain the unity of legal order, it is necessary to recognize the authority granted by the Company Law to the articles of association and acknowledge that other personnel specified in the articles fall under the category of senior management personnel as defined by the Company Law. On the other hand, determining whether an individual constitutes the subject of this crime solely based on whether they hold positions such as director, supervisor, or senior management in the company lacks substantial and reasonable grounds. Therefore, it is also necessary to examine, based on the purpose of protecting legal interests and the principle of legality in criminal law, whether these individuals actually hold powers within the top governance structure.

The identification of senior management personnel in companies and enterprises mainly depends on multiple factors, including the scope of authority (including decision-making, execution, and supervisory powers), economic value (covering explicit compensation and implicit benefits), as well as their actual control and influence within the organization. Firstly, they take advantage of their positions with decision-making power. Secondly, they use the information obtained from their positions to intercept business opportunities that belong to their units through various means. If these individuals actually hold significant decision-making power in core areas such as production, sales, and procurement, and have been authorized by the company to represent it in external commercial activities, possessing the qualifications to engage in competitive businesses, and actually use their positions to conduct commercial activities that compete with the company’s business, then these individuals can be identified as “senior management” and become eligible subjects for the crime of illegal operation of similar businesses.

4 Conclusion

As the private economy thrives, its role in the socio-economic structure has become increasingly prominent. The equal and fair protection of private enterprise property rights has become a key direction for criminal law reform. The introduction of the Criminal Law Amendment (XII) not only broadens the scope of protection for the crime of illegal business operations to include private enterprises but also shifts from a single, biased protection of state-owned enterprises to a diversified and equitable protection of all types of enterprises. This is a significant manifestation of progress in China’s criminal law. By analyzing the legal interests and nature of the crime of illegal business operations, we have clarified that this charge involves not only the protection of property rights but also the maintenance of fairness in public official conduct. When identifying the criminal subjects, it emphasizes the reasonable definition of the scope of “directors, supervisors, and senior management,” which requires us to adhere to the provisions of prior laws while also employing substantive judgment methods to ensure that the application of criminal law is both fair and precise. While protecting corporate property rights, it is essential to balance the principle of restraint in criminal law and the principle of legality in punishment, avoiding excessive interference with business operations.

At the same time, we should recognize that with the continuous development of society, new economic forms and business models are constantly emerging, which will pose new challenges to the application of the crime of illegal operation of similar businesses. Therefore, we need to continuously deepen our research on criminal law theory, strengthen its integration with practice, to more accurately grasp the elements and scope of subjects for the crime of illegal operation of similar businesses, providing stronger legal protection for the development of private enterprises. In summary, the reasonable determination of the scope of subjects for the crime of illegal operation of similar businesses is not only an enrichment and improvement of criminal law theory but also a strong support for the high-quality development of China’s economy and society.

Reference

[1] Eugen Ehrlich. (2022). Principles of Sociological Law, translated by Shu Guoying. Commercial Press.

[2] China Daily. State Administration for Market Regulation: There are 180.45 million private economic entities in China from https://caijing.chinadaily.com. cn/ a /202406/13/WS666a40d0a3109f7860de1a3d.html

[3] Shen, C. Y. (2023). Explanation on the Amendment (XII) of the Criminal Law of the People’s Republic of China (Draft). The fourth Session of the Standing Committee of the 14th National People’s Congress.

[4] B. Yinbo. (2024). Equal Criminal Law Protection of Private Enterprise Property Rights—— Focusing on the Amendment (XII) of the Criminal Law. Journal of Law, (3).

[5] Li, L. (2021). Explanation on the Amendment (XI) of the Criminal Law of the People’s Republic of China (Draft). The 20th Session of the Standing Committee of the 13th National People’s Congress on June 28,2020, published in the Bulletin of the Standing Committee of the National People’s Congress of the People’s Republic of China.

[6] Jia, Y. (2021). Systematic Construction of Corruption Crime Governance in Private Enterprises ——Taking the Relevant Amendments to the Criminal Law Amendment (XI) as an Opportunity. Journal of Law, (5).

[7] Dong, F. C. (2023). Passing on the Confidence of the Rule of Law to Consolidate the Foundation, Stabilize expectations and Benefit the Long-term. Legal Daily, August, (2).

[8] Tian, H. J. (2024). Criminal Governance and Improvement of Official Crimes of Internal Personnel in Enterprises. China Criminal Law Journal, (1), 100.

[9] Zhang, M. K. (2023). Principles and Techniques of Criminal Law Amendment —— On the Improvement of Criminal Law Amendment (XII) (Draft). China Criminal Law Journal, (5).

[10] Chen, X. L. (2023). Normative Criminal Law (Volume I) (5th edition). China Renmin University Press.

[11] Zhi, Y. G. (2024-01-29). Changes and Considerations of the Law on Illegal Business Operations of the Same Kind. Shanghai Legal Daily.

[12] Xie, Y. (2016). Research on the Legal Benefits of the Crime of Betrayal. Political and Law, (1).

[13] Shigeru Otsuka. (2023). Criminal Law LecturesVol. 5 (5th edition). translated by Li, H. & Deng, Y. C. China Renmin University Press.

[14] Yuan, G. H. (2024). The Crime of Illegal Operation of Similar Business under the Perspective of Equal Protection. China Law Review, (4).

[15] Liu, R. W. (2024). The Latest Development and Judicial Application of Criminal Law to Strengthen Anti-corruption in Private Enterprises. Political Science and Law Forum, (2).

[16] Zhang, Y.& Jia, M.D. (2024). The Fair Value of Criminal Law Protection for Private Economy and Its Realization. Hebei Law, (4).

[17] Chen, Y.S. (2020). Study on the Subject of Official Crime under the Background of National Supervision System Reform (Doctoral Dissertation). South China University of Technology.

[18] Ye, L. (2021). The Duty of Loyalty of Directors and Its Expansion. Political and Law, (2), 21.

[19] Shi, T.T. (2018). The Company Law Theory (4th edition), Law Press, 2018.

[20] Zhao, H. L. (2023). Institutional Innovation of the Amendment of the Company Law: Review and Prospect——Based on the Second Review Draft of the Amendment of the Company Law. Law Application, (8).

[21] Yuan, G. H. (2024). The crime of illegal operation of similar business under the perspective of equal protection. China Law Review, (4).

[22] Feng, J., Liang, G.L. & Li, H. (2023). Commentary on Chinese Criminal Law (Vol. 2). Peking University Press.

[23] Wei, D. (2010). Standards for filing and Pursuing Criminal Cases of Crimes that Hinder the Management Order of Companies and Enterprises and Judicial Recognition. People’s Public Security University Press.

[24] Luo, X. (2024). Skills and Procedures: A Review of Criminal Law Amendments——The Development of the New Provisions on Crimes committed by Private Enterprise Staff in the Criminal Law Amendment (XII)). Law Review, (1).

[25] Tetsuji Nishida. (2020). Japanese Criminal Law. translated by Wang, Z. W. & Liu, M. X. Law Press.

[26] Zhou, G. Q. (2016). The Establishment of Positive Criminal Law Legislation in China. Law Studies, (4), 29.

[27] Shang, H.W. (2023). The Legal Doctrinal Analysis of the Crime of Illegal Operation of Similar Business. Journal of China University of Political Science and Law, (3).

[28] Liu, W. L. (2015). An Analysis of the Identification of State-owned Holding, Shareholding and Enterprise State employees. Journal of Henan University (Social Science Edition), (4).

[29] Liu, J. H. (2023). Reconstruction of the Director Responsibility System: Precise Accountability, Reasonable Tolerance for Failure and Tolerance for Failure ——From the Perspective of Promoting Entrepreneurial Spirit. Jiaotong University Law, (3), 97.

[30] Zeng, Y. X. & Tan, J. Q. (2023). Criminal Law Prevention of Internal Corruption in Private Enterprises: New Highlights of the Criminal Law Amendment (XII). Hebei Law, (5).

[31] Hu, D.F., Zheng, B.W. (2024). Judicial Determination of Breach of Trust Crimes by Internal Personnel of Private Enterprises from the Perspective of Substantive Equality Protection —— Based on Relevant Provisions of Criminal Law Amendment (XII). Law and Rule of Law Research, (4).

[32] Liu Bin. (2021). Reconstructing the Scope of Directors: From Formalism to Substantivism. Comparative Law Studies, (5).

[33] Johannes Wessels, Thomas Schilken, & Jan Schul. (2023). German Criminal Law: Crimes against the Value of Property. translated by Zhao Guannan. Law Press.

[34] Tachibana Toshihiko. (2000). Modern Japanese Company Law. translated by Kim Hong-ok. People’s Court Press.

[35] Ye, H.Y. (2008). On the Construction of the System of Non-competition. Journal of Southeast University (Philosophy and Social Sciences Edition), (1).

[36] Wang, Z. F. (2016). Criminal Law. China Renmin University Press.

[37] Zhang, Y. J. (2024). Understanding and Application of the Amendment to the Criminal Law (No.12). Law Application, (2).