Dissertation > Political, legal > Legal > Chinese law > Economic Law > Corporate law, company law

On the judicial application of our corporate Piercing

Author ZhangXiuFang
Tutor JiangYiChun
School Yantai University
Course Civil and Commercial Law
Keywords Corporate Personality Disregard of Personality Judicial Application
CLC D922.291.91
Type Master's thesis
Year 2010
Downloads 60
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The company has been one of the most powerful economic levers among all kinds of Enterprise Formation after it came into being, which is also of great interest to the development of the market economy in China.The Strong Vitality of company derives from the Independent personality of the company and the limited liabilities of shareholder, which are the central principles of the company law, segregating the company and shareholders into two independent subjects. Once the company is in debt, only the company is to blame for the reason that shareholders bear limited legal liability within the scale of their investment amount, which arouse the enthusiasm and confidence of investors, bringing the development of the business civilization and the fruitful accumulation of society’s wealth.However, the negative effects and limitations, corresponding to the giant contribution to the economic development of the two basic systems of company law, gradually emerged as a result of the limit liability, which is fully used by the shareholders, especially the shareholders who have the controlling interest, in the process of their pursue on the interest maximization infringing the interests of both creditors and the public, company’s outside interests and social public interests of shareholders, challenging and shaking the fundamental social values, such as fairness and justice, and so on.. Encircled within a universal doubt, scholars of various circles, especially the economy and the law, began to make a comprehensive study of the system company for the search of reasons of company problems and the approach of eliminating the negative impact of corporate system. American court took the lead in the formation of the Disregard of Corporate Personality, deeming that although according to the soul of the system of corporation, the corporation and the shareholders are two independent social entities, the shareholders are the owners of the corporation property, and they can command the corporation’s decision and behavior. In order to pursuit the maximization of the benefits, the shareholders are possible to do hoggish things that will do harm to others (just like the behaviors with unlawful aim and lawful form that provided in the civil law) by making using of the limited liability system. If the shareholders, according to the equity principles, abuse the privileges and, the shareholders are asked to undertake the unlimited liability, the court can choose to lift the corporation’s veil, and ask the shareholders to undertake the liability with their total property. After the precedent is accepted, many advanced countries such as England and Germany follow the example of the precedent. Although the civil law system and the common law system have different name for the disregard of the corporation personality, the basic jurisprudence is the same. The shareholders harm the equity and justice of the society by making use of the limited liability and the legal entity system, and that will do harm to the corporation system and the virtuous circle of the society finally.China’s corporation system is in the process of rapid development, and we also face the same difficulties as in the developed countries. Based on the research of the advanced experience, we should learn from the advanced countries and introduce the system of the disregard of the corporation personality.Article 20 of the Company Law of the People’s Republic of China 2005 provides that:ⅰThe shareholders of a company shall exercise their shareholders’rights in compliance with laws, administrative rules and regulations as well as the articles of association of the company, shall not abuse their shareholders’rights to injure the interests of the company or other shareholders, or take advantage of the company’s independent status or the limited liability of shareholders to injure the interests of the company’s creditors.ⅱWhere the abuse of shareholders’rights causes any loss to the company or other shareholders, such abusive shareholder shall be liable for compensation in accordance with the law.ⅲWhere shareholders of a company take advantage of the company’s independent status or the limited liability of shareholders to disregard debts and seriously injures the interests of the company’s creditors, such shareholders shall bear joint and several liability for the debts of the company. It is in reality a form of authorized legislation on the system of the Disregard of Corporate Personality in China, making a far reaching contribution to the prosperous of the company itself and market economy integrated into the global market. Although contributing a lot as put it above, the 2005 Company Law has some shortcomings that the provisions are more or less too general to be concretely practiced that the creditors and public can hardly obtain the judicial remedies once they suffer from the abuse of the system of the Independent personality and limited liability of the company. For the above-mentioned reasons, a specific and definite criterion on application of the system of the disregard of corporate liability is needed on the purpose of implementing a balance between shareholders and creditors, and the public justice of whole society as well.

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