A Review On The Legal Regulation Of The Relationship Between Parent Company And Subsidiary

Ever since the 1960s, bloc companies have become an unresistable economic trend. In the tense commercial competition, many companies established subsidiaries or even sub-branches for the sake of economic profit and they in turn developed into large-scale blocs. With complicated managerial system. Mary blocs have strong economic power and even can compete with a whole nation, such as American Microsoft, started by the most wealthy man Bill Gates, is nearly equal to Britain in ecomomic power and set up subsidiaries all over the world to form a huge manufacturing and marketing system. All these blocs, without any exception, adapt the management structure of parent company and subsidiary in that. In this way business can be dealt with as much as possible within the interior market of the bloc taking least risk to make the most profit.As a new economical phenomenon, they have questioned the legal policy of company. Traditionally, company polices pay respect to independence and limited liability of a company and they strike a balance of right and interest among shareholders and between shareholders and creditors with the company as the center. Yet, in a great bloc, the independence of its subsidiaries is weakened by parent company mainly in these two ways: firstly, while taking general interest of the bloc into consideration, parent company tries to be directly in charge of the management and policy decision through voting, dispatching managers or sighing managerial contracts, and the self-manage power of the subsidiaries are meanwhile weakened; secondly, parent company can make its subsidiaries lose material foundation upon which independence relies through unfair business transferring profits or occupying capital of the subsidiaries. Without being independent, the balance mechanism of interest is broken, and the direct consequence is that the interests of some shareholders and creditors are not guaranteed, which is against the legal spirit of being equal and just.Legislation must do something to solve this problem. As once stated by Marx, "Law is made to record and reflect the requirements of economic activities,whether it is made for polities' sake or for the citizen" While parent company and subsidiary are hi practice in economy, .Law must be made or improved to meet the new demands. It'll be unwise to reject to face or adopt a hostile attitude to them for legislatures.Some countries have already taken active measures to make national laws to solve the problem with America and German as the representatives. In America, parent company and its subsidiaries: unveiling the corporation doctrine, deep-rock doctrine, and the doctrine of enforcing shareholder's duty of being honest. The first two doctrines are adopted to protect the interest of the creditors of subsidiaries, while the last one is for the benefit of the few shareholders. In German, Part lit of stock company law makes specific regulations for the operation of the related companies with parent company and subsidiary as main body. The main contents are as follows: raising the legal surplus accumulation fund, making sure that few shareholders get certain amount of dividend,endowing creditors with the right of direct prosecution and so on. Both the two cases of legislation attach great importance to increase parent companies liability and safeguard the interests of the creditors and share holders to resume the balance of benefit centering around the economic interest of subsidiary.The above mentioned are the main content of this thesis. Moreover, the legislation for the relationship between parent company and subsidiary in our country hasn't yet begun hence the author makes some suggestions in this regard while drawing lessons from the legislatures in developed countries like America and German.