On The Legal Relations Between Mother Company And Branch Company

Mother-branch company is a special form of company organization, which causes problems different from those of single companies and requires special regulation by law. However, our Company Law is insufficient on this respect because of the fact that it does not have specific definition concerning mother-branch company, it lacks systemic system for legal regulation and its articles for the regulation of mother-branch company are scattered and unsystematic. It is held in this paper that the legal regulation of mother-branch company should be centered upon the protection of the rights and interests of some shareholders and creditors of branch companies and the standard running of mother and branch companies. Its core is the regulation of mother-branch company. This paper is devoted to the discussion of relevant legal problems from the perspective of company regulation of mother-branch company. The structure of this paper is as follows:Chapter one dwells on the definition, legal status and present state of affairs of mother-branch company. Mother-branch company refers to the relationship in which one company owns the stocks of another company to the degree that it can exert substantial control of the latter. There are three legal characteristics in mother-branch company relation: the mother company and the branch company have their own legal personality respectively; mother company controls the branch company and their only tie is via stock control. The scale of our mother-branch company develops very fast but it still has some defects. The reasons are that our mother-branch company are furthered and developed mainly by our government and market has not played its due role in this process and the rights of the shareholders and the contract have not fulfilled their proper functions. Our present legislations concerning the relationship between mother and branch companies are far from actual practice and the basis legal relations between mother and branch companies are not delimited.Chapter two focuses on the typology of the regulation modes of mother-branch company. With the investigation of the main modes of mother-branch company regulation of western countries, efforts have been made towards the summing up of three important types of regulation modes: the first type is outside supervision mode typical in America and Britain. This type has as its feature high relevancy between mother and branch companies and its stock structure is basically vertical and the management is relatively centralized. The second type is inner regulation mode typical in Japan. The relevancy between mother and branch companies is upon a medium level and the regulation structure is mutual holding of stocks. The management is relatively loose. The third type is family supervision mode typical in Korea. The relevancy between mother and branch companies is rather low and the stockholding structure is mainly vertical. The management is relatively centralized like the first type.Chapter three is mainly about the role company regulation plays in the legal regulation of mother-branch company and the risks involved. The key to the legal regulation of mother-branch company lies in the construction of normative mechanisms of mother-branch company regulation, thus ensuring the status and rights of the minor shareholders and creditors of branch companies and the sufficient redress in case of damage upon their rights and interests. This requires the strict following of the regulation principles in company regulation, the employment of outside and inner regulation mechanisms and the establishment of sound legal relations between mother and branch companies. All these can contribute to the realization of the regulative goals of mother-branch company.The risks in the regulation of mother-branch company lie in the improper control of the mother company over the branch company, detrimental to the interests of the branch company and other interest parties. The specific forms include improper control and affiliated transaction.The defects concerning the regulation of mother-branch company in our laws present themselves in two respects: first, the imperfect protection of the interests and rights of the creditors of branch company. Sound institutions have not been designed for the participation of creditors in the regulation of relevant company and some judicial redress systems have not been put forward. Second, deficiency in the protection of small shareholders of branch company.Chapter four centers on the discussion of the protection of relevant interest parties. The discussion of the protection of the interests of creditors and small shareholders of branch company is our main focus. The protection of the rights and interests of small shareholders in branch company lies in the effective functioning of their right to vote, their claim for the distribution of bonus stock, rights to change control stock or to buy company stock with cash, and their self-protection. The litigation system is mainly about the multilevel derivative lawsuit in the redress and protection of small shareholders. The main means for the protection of creditors of branch company include the grant to them rights to participate into the management and regulation of the company and judicial redress. With the above analysis as a basis, the conclusion of this paper is as follows: mother-branch company is an important form of company organization of modern companies and it plays a significant role in our market economy. However, the characteristics and features of mother-branch company determines the inherent defects of this relation. We should give due protection to the small shareholders and creditors of branch company and to standardize the running of mother-branch company. With the protection of the interests and rights of small shareholders and creditors, we should not underestimate the institutional value of mother-branch company, either. The duties and responsibilities shouldered by mother company should be reasonable and practical. This requires us to make clear what is principle and what is exception if the adjustment of the relationship between mother and branch companies. The fundamental principles of Company Law should be the basic guide line in our tackling of the legal relationship between mother and branch companies. Even in the cases of full capital branch company, we should not readily deny the application of the fundamental principles of our Company Law. Otherwise, the relationship between mother and branch companies will become chaotic and the goal of legal regulation will be missed.