On The Liability Mechanism In Corporate Governance Of Affiliated Companies

This article analyzes the liability of affiliated companies from the view of"corporate governance", by applying the methods of economics, management, and law sciences. The thesis of this paper is: the key issue of affiliated companies is controlling which is hold by controlling company and its management. Only when the relevant liability system of controlling company and the management pays full respect to the economic realities in corporate governance of affiliated companies, can the unification of justice and efficiency be achieved.1. The author tries to establish the basic theoretical framework of this paper by introducing the notion of"corporate governance"and the interpretation of liability mechanism.2. The legal and economic basis of this paper. The economic basis of the formation of affiliated companies is originated from symbiosis and transaction costs theory. The characteristics of affiliated companies are"independence"and"controlling", which lead to various changes of corporate governance structure and principle in affiliated companies different from that in single company. With the further study of legal and organizational structures, the author reveals the key issue of affiliated companies is controlling rights between companies. Controlling company has the advantage to separate voting rights from cash flow rights by way of share structure in order to seek private profit. Therefore, that"corporate independence"and"corporate control"are the two indispensable principles in corporate governance of affiliated companies, and the core nature of corporate governance of affiliated companies is the diversity of corporate governance under unified control.3. Comparative study of the liability between parent and subsidiary companies. There is no inexorable causal relation between"independence of corporate personality"and"shareholders'limited liability". The principle of limited liability shall still be applicable to affiliated companies under general circumstances, and we shall combine it with the economic reality of corporate governance of affiliated companies. The various legislative and judicial approaches to parent company's liability have their inherent defects, although they have solved many problems resulting from affiliated companies. There still exist many conflicts when using these approaches.4. Comparative study of managerial fiduciary duties in affiliated companies.