Executive Summary
A miscommunication over a “tax guarantor” request highlights deeper structural mismatches between U.S.-style common law and civil-law systems such as China’s. This article explores key doctrinal differences and offers practical tips for U.S. counsel advising foreign clients—emphasizing cultural sensitivity, legal-system awareness, and early localization of advisors to avoid costly cross-border misunderstandings.
Introduction
A recent inquiry from a Chinese client caught me off guard. Preparing to incorporate a Texas subsidiary, they asked whether a “tax guarantor” (税务担保人) was required. I knew exactly what they meant—the term is common in People’s Republic of China (PRC) practice—but the concept simply doesn’t exist in U.S. law.[1] The moment highlighted more than just a translation issue. It revealed the deeper legal assumptions that can complicate cross-border business.
This misunderstanding is not unusual. In cross-border business law, especially between common-law and civil-law jurisdictions, assumptions about familiar structures—guarantors, seals, registered capital, and tax ID systems—often don’t map cleanly. As more foreign companies establish U.S. subsidiaries, these frictions pose real risks to deal flow, compliance timelines, and long-term trust between counsel and clients.
This article reviews a few doctrinal differences between bureaucratic, civil-law jurisdictions, such as China, and the United States, with an emphasis on Texas law. We also look at steps that practitioners can take to mitigate the risk of lost-in-translation moments and signal that they ‘speak a client’s language.’
Structural Mismatches Between Legal Systems
Many of these structural mismatches arise from the divergence between civil-law and common-law systems. Civil-law jurisdictions—prevalent in continental Europe, Latin America, and much of Asia—rely heavily on codified statutes, formal approvals, and documentary requirements.[2] China shares many, but not all, of these traits. Its legal architecture includes Communist Party organs embedded within companies, state approval bodies such as the National Development and Reform Commission (NDRC), and compliance mechanisms with no direct equivalent in Western corporate law. The result is a hybrid system: procedural and formalistic in structure, but discretionary in enforcement and outcome.
Registered Capital and Capital Accounts
These differences manifest immediately at the entity formation stage. One of the most visible examples is the concept of registered capital—a legal requirement in many civil-law systems but entirely foreign to U.S. corporate law.[3] It is quite common, for example, for French companies to list their registered capital in a contract header with their corporate name and address.[4] In Mexico—as in much of Latin America—any change in registered capital must be formally approved and recorded with public authorities.[5] Under the amended PRC Company Law (effective July 1, 2024), shareholders must contribute subscribed capital within five years, and there is a regulatory expectation that companies maintain clear records of capital contributions (which in many cases involve separate banks or capital accounts).[6]
These formal requirements are only the beginning. Personal liability and representational authority can also differ in ways that surprise U.S. practitioners.
Legal Representatives and Personal Liability
A similar divergence exists in the treatment of legal representatives and personal guarantees. While Texas corporate law provides for a board chair and president, these roles generally do not carry personal liability.[7] In contrast, many civil-law systems designate a single legal representative with statutory authority—often bearing personal responsibility for the company’s tax compliance, debts, or regulatory infractions.[8] In China, legal representatives can be restricted from travel abroad if the company is under investigation.[9] In South Korea, legal representatives similarly face heightened scrutiny and may be named in litigation as a matter of course, regardless of personal involvement.[10]
To manage this risk, some foreign firms appoint trusted local staff to these roles while limiting their substantive authority through internal governance documents. These distinctions are often invisible to American counsel but can have major implications for risk exposure and decision-making authority.
Corporate Formalities and Oversight Bodies
Corporate formalities may also vary considerably. Many countries require corporate seals, whereas Texas has no such requirement or official format.
Governance structures may also diverge. The U.S. emphasizes independent boards and fiduciary duties, while foreign systems—especially in Asia—rely on internal committees or state oversight bodies. In China, for example, the National Development and Reform Commission (NDRC) and in-house Party Committees play influential roles in decision-making.[11] In Vietnam, state approvals for major capital expenditures or leadership changes may be required, even within private firms.[12] These embedded formalities can shape internal expectations and complicate external negotiations.
Business Scope and Blacklists
Many jurisdictions impose formal business-scope requirements. [13] These limit companies to activities expressly stated in their formation documents. In China, stepping outside this scope—even inadvertently—can result in administrative penalties or restrictions on future licensing.
Regulatory blacklists, often opaque and difficult to challenge, may further complicate compliance for foreign-owned entities.
These constraints aren’t unique to China. Brazil, for instance, requires governmental pre-approval for foreign ownership in sectors such as media and aviation, with violations potentially leading to fines or forced divestiture.[14] By contrast, Texas law allows broad corporate purposes and does not require detailed descriptions of business activity,[15] a gap which can easily lead to misunderstanding.
Not Just a Difference in Degree
In sum, foreign jurisdictions vary significantly from the U.S. These differences are not just procedural—they are conceptual.[16] Many core legal concepts simply don’t translate across jurisdictions. This leaves practitioners in a bit of a conundrum.
Bridging the Divide: Practical Steps for Counsel
When advising clients from different jurisdictions, attorneys should be mindful of these differences. This perceptiveness typically involves three facets: (i) understanding the differences in legal systems; (ii) being sensitive to the client’s potential misunderstanding; and (iii) offering practical guidance and counsel for navigating these systemic differences.
1. Understand the Client’s Legal Assumptions
First, be curious. This is a good idea even if you will not be working directly on matters concerning the client’s home jurisdiction. A browse of Wikipedia pages on, say, Chinese corporate law is a good starting point. A deep dive with primary or secondary materials later may be necessary to address a particular question. Most statutes—the lifeblood of any civil law system—are available and easily accessible in English translation.
2. Be Culturally and Professionally Sensitive
Second, be courteous. Attorneys should not be abrasive or directly contradict clients without explanation. Denigrating another legal system relative to ours will not go well, particularly with attorneys who are trained in that system. The idea is to highlight and inform clients of the differences, but in a way that is conducive to collaboratively navigating them.
- Use Analogies Thoughtfully, but Beware of False Friends
Third, be careful with analogies. This means providing explanations and ensuring that clients are comfortable with a particular course of action. Analogizing requirements can help, but as our introductory example demonstrated, beware of false friends—not all legal concepts map cleanly. A company seal may be comparable to a signature stamp—but a tax guarantor has no functional equivalent in U.S. law.[17]
- Encourage Early Localization of Advisors
Finally, adapt to avoid lost-in-translation legal moments. To do this, it is important to localize legal advisors early in the process. It may be tempting to rely on existing advisors for reasons of language or personal comfort. This can have drawbacks, however, when advisors are trained in different legal systems and are unfamiliar with conceptual differences in different systems.
Conclusion
Legal-system differences can lead to lost-in-translation moments, even when speaking the same language. Legal concepts rarely map one-to-one across systems. Competent cross-border counsel means anticipating mismatches in legal concepts and guiding clients through them with clarity, cultural fluency, and strategic care. Cross-system fluency ensures clients can move more seamlessly across borders.
[1] See Article 62A of the “Rules for the Implementation of the Law of the People’s Republic of China on the Administration of Tax Collection,” available at: http://www.npc.gov.cn/zgrdw/englishnpc/Law/2007-12/14/content_1384271.htm (last visited September 16, 2025 at 12:16 PM).
[2] John H. Merryman & Rogelio Pérez-Perdomo, The Civil Law Tradition: An Introduction to the Legal Systems of Europe and Latin America (4th ed. 2019).
[3] See PRS Company Law Art. 23; Article L225-143 of the French Commercial Code;
[4] Code de commerce [C. com.] [Commercial Code] art. L. 210-2, L. 224-2 (Fr.), available at: https://www.legifrance.gouv.fr/codes/article_lc/LEGIARTI000006222349 (last visited 09/16/2025 at 11:28 AM).
[5] Ley General de Sociedades Mercantiles [General Law of Commercial Companies], Diario Oficial de la Federación [D.O.F.], Aug. 4, 1934, as amended, art. 6, 89 (Mex.).
[6] PRC Company Law (2024) art. 47; Provisions on Implementing the Registered Capital Registration Administration System under the Company Law of the People’s Republic of China (State Council, China), implementing provisions, effective July 1, 2024; see Huld, Arendse “Registered Capital in China: New Rules for Shareholder Contribution” China Briefing (July 8, 2024), available at: https://www.china-briefing.com/news/registered-capital-in-china-payment-terms-rules-and-transition-period/ (last visited September 16, 2025 at 12:16 PM).
[7] See TEX. BUS. ORGS. CODE ANN. § 21.223(a)(2) (West 2023) (“a holder of shares, an owner of any beneficial interest in shares, or a subscriber for shares of a corporation… is not liable to the corporation or its obligees with respect to… any contractual obligation of the corporation…”).
[8] John H. Merryman & Rogelio Pérez-Perdomo, The Civil Law Tradition: An Introduction to the Legal Systems of Europe and Latin America (4th ed. 2019), supra note 2.
[9] Zhang, Fanny “Company Legal Representatives in China – Risks and Legal Liabilities” China Briefing (05/02/2023) available at: https://www.china-briefing.com/news/company-legal-representatives-in-china-risks-and-legal-liabilities/ (last visited September 16, 2025 at 11:10 AM)
[10] Commercial Act, Act No. 1000, Jan. 20, 1962, amended by Act No. 11005, Aug. 18, 2011 (S. Kor.), art. 209, available at: https://elaw.klri.re.kr/eng_mobile/viewer.do?hseq=54525&key=9&type=sogan& (last visited 09/16/2025 at 12:19 PM). Note that, under Article 395 of the Korean Commercial Act, “[a] company shall be liable to a third party acting in good faith for any act done by a director who has used titles that can be understood as having authority to represent the company…” Id. at art. 395.
[11] National Reform and Development Commission (NDRC) of the People’s Republic of China “Main Functions of the NDRC,” available at: https://en.ndrc.gov.cn/aboutndrc/mainfunctions/. (last visited September 16, 2025 25 at 10:59 AM.
[12] Law on Enterprises No. 59/2020/QH14 (Viet.), as amended by Law No. 76/2025/QH15, arts. 12–13; see ICLG: Corporate Governance Laws & Regulations – Vietnam 2025, ICLG; see also Singh, Sudhanshu “Vietnam’s New Investment Law and Enterprise Law: Key Amendments in 2025” Vietnam Briefing (July 17, 2025), available at: https://www.vietnam-briefing.com/news/vietnams-new-enterprise-law-2025.html/ (last visited September 16, 2025 at 12:30PM).
[13] See, e.g., Article 11 of the Company Law of the People’s Republic of China, available at: http://www.npc.gov.cn/zgrdw/englishnpc/Law/2007-12/12/content_1383787.htm (last visited September 16, 2025 at 11:13 AM).
[14] International Trade Administration “Brazil Country Commercial Guide” (05/20/2025), available at: https://www.trade.gov/country-commercial-guides/brazil-investment-climate-statement (last visited September 16, 2025 at 11:04 am).
[15] TEX. BUS. ORGS. CODE ANN. § 2.001 (West 2023), https://statutes.capitol.texas.gov/Docs/BO/htm/BO.2.htm (last visited Sept. 16, 2025).
[16] See generally Konrad Zweigert & Hein Kötz, An Introduction to Comparative Law (Tony Weir trans., 3d ed. 1998).
[17] Tex. Secretary of State, Filing & Other General FAQs, “How Should My Documents Be Signed? Does the Form of the Signature Matter?”, Texas Secretary of State (SOS) (last visited September 16, 2025 at 12:07 PM), https://www.sos.state.tx.us/corp/filingandothergeneralfaqs.shtml.