Viewpoint... Compliance recommendations to avoid corporate personality denial after the implementation of the new Company Law.
Published:
2024-06-20
This paper will provide useful guidance for corporate governance and help companies to take effective risk prevention measures on the basis of following the legal personality denial system, so as to achieve compliance and sound governance. By continuously optimizing the governance structure and improving the level of governance, the company can better cope with various risks and challenges and achieve sustainable development.
On December 29, 2023, the seventh meeting of the Standing Committee of the 14th National People's Congress voted to pass the newly revised "the People's Republic of China Company Law". The new law will come into effect on July 1, 2024. The highlight of the new "Company Law" is to confirm the "horizontal personality denial system", improve the existing legal personality denial system in our country, and provide a legal basis for horizontal personality denial. This paper will provide useful guidance for corporate governance and help companies to take effective risk prevention measures on the basis of following the legal personality denial system, so as to achieve compliance and sound governance. By continuously optimizing the governance structure and improving the level of governance, the company can better cope with various risks and challenges and achieve sustainable development.
The meaning and basic types of the denial of 1. legal personality.
The system of denial of legal personality, also known as "piercing the corporate veil", refers to a legal system in which, in order to prevent the abuse of the independent personality of the legal person and protect the interests of the creditors of the company, it denies the independent personality of the legal person and the limited liability of its members on the basis of specific facts in the specific legal relationship, and orders the members of the legal person or other relevant subjects to be directly responsible for the creditors of the public interest of the legal person. From a broad perspective, the denial of legal personality covers the denial of vertical legal personality and the denial of horizontal legal personality. Vertical legal personality denial, that is, the denial of the company's independent personality and the limited liability of shareholders, forcing the shareholders of the company to bear joint and several liability for the company's debts. The so-called horizontal legal personality denial refers to the denial of the independent legal personality of two or more related companies controlled by the same actual controller, and requires these companies to be jointly and severally liable for each other's debts.
The development and reform of the system of horizontal legal person personality denial in 2..
The third paragraph of Article 20 of the "Company Law": "If the shareholders of a company abuse the independent status of the company as a legal person and the limited liability of shareholders to evade debts and seriously harm the interests of the company's creditors, they shall bear joint and several liability for the company's debts." As the only legal provision that clearly stipulates the system of denial of legal personality, its content is more principled and its expression is more abstract. There have been different views in the academic and practical circles on whether this provision applies to the system of horizontal legal personality denial.
In judicial practice, because of the special governance structure and the limitation of limited liability, the related company is more likely to have the situation of mixed personality of legal person in theory, that is, horizontal personality denial. However, when the people's courts at all levels apply the rules of denial of legal personality, their conditions and judgment standards have not been completely unified, and further coordination and standardization are urgently needed.
In order to meet the needs of judicial practice, China's horizontal legal personality denial system has undergone a gradual development and improvement of the process. Initially, the judicial decision confirmed the denial of horizontal legal personality through the form of jurisprudence. Subsequently, the judicial documents provide guidance on the applicable conditions and adjudication standards of the denial of horizontal legal personality. Finally, in the newly revised Company Law, the second paragraph of Article 23: "Where a shareholder of a company abuses the independent status of a company as a legal person and the limited liability of shareholders to evade debts and seriously harms the interests of the company's creditors, he shall be jointly and severally liable for the debts of the company. Where a shareholder uses two or more companies under his control to commit the acts specified in the preceding paragraph, each company shall be jointly and severally liable for the debts of any one." The system of horizontal legal personality denial is clearly defined, which provides a clear legal basis for the application of the system.
Compliance advice 3. avoiding the identification of mixed personalities in corporate governance
In corporate governance, it is essential to ensure the independence of the company and prevent shareholders and related parties from being jointly and severally liable for the company's debts. Here are some suggestions designed to help companies compartmentalize compliance in terms of finances, people, business and location to avoid the risk of personality mix-ups:
Specification of (I) financial records
1. Maintain a standardized financial bookkeeping process and keep all original financial documents properly.
Conduct regular financial audits and prepare detailed audit reports to enhance transparency and compliance.
Compliance Regulation of (II) Related Transactions
1, the shareholders and the company and between the company's related transactions to carry out strict compliance audit.
2, in accordance with the articles of association and internal regulations, establish the review and approval process of related transactions, and ensure the fairness of transactions.
Separation of (III) staff and business
1, to ensure the independence of enterprise management and employees, to avoid sharing the same personnel between different enterprises.
2. Ensure that each enterprise operates independently according to its business scope and geographical characteristics, and maintain clear business boundaries.
Distinction of (IV) office locations
Avoid different companies working in the same place to achieve effective isolation of physical space.
2. Use separate company names in external business to clearly distinguish between different entities.
Regulation of (V) funds management
1. Clarify the rules and procedures for the collection of funds in the articles of association.
2. Develop a detailed fund management strategy to ensure compliance with the collection, deployment and use of funds.
Day-to-day supervision of the use of (VI) funds
1, reduce the superior company's excessive intervention in the use of subsidiary funds, to ensure the subsidiary's financial autonomy.
2. When depositing and borrowing funds between affiliated enterprises, they should follow market standards and implement paid services.
Through these measures, enterprises can achieve effective compliance division in the governance structure, reduce the risk of joint and several liability due to the mix of personalities, and also help to improve the overall management quality and market reputation of enterprises.
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