Disregard Of Corporate Personality Research

Disregard of Corporate Personality (hereinafter referred to as the "system") refers to, in a specific legal nexus and based on certain fact, a legal system that the corporate shareholders can jointly and severally be liable for the corporate debt in certain circumstances without regard to a corporation's independent corporate personality and limited liability of the shareholders.As a form of legal systems, Disregard of Corporate Personality has already been established in those Anglo-American law (or common-law) and civil-law (or civilian law) countries in whatever names. In England, it is called "lifting the veil of the company"; in the United States, it is described as "piercing the veil of the corporation"; in Germany; it refers to "shareholder's straight responsibility"; in Japan, however, it might be in the name of "perspective theory".The system has following distinctions:1. It is based on the precondition and logic that a corporation has its legal personality and therefore has ability to undertake legal responsibility; 2. It ignores corporate personality in certain specific cases only; 3. Its direct outcome is the breaking of the corporate shareholders'limited liability; 4. The major purpose in establishing the system is to restrict unbalanced interests between shareholder and creditor. These features distinguish the system from other related theories, such as "Disregard of Legal Person Personality", "Dissolution of Corporation", "Disregard of Corporate Legal Status", and "Deep Rock Doctrine" etc. Moreover, the essence of the system can be identified through its system level, technical level, and value orientation level. At the level of system, the system eliminates the limited liability of shareholder; at the legal technical level, the system is categorized as equity; at the level of value orientation, the system represents an "adjusted equality"The foundation of juristic theory for the system in the common law countries and civil-law countries are different. In the common-law countries, the system is based on the legal foundation of maintaining and fulfilling the value of impartiality and integrity, whereas in the civil-law counties, however, it seeks the theoretical basis through principle of honest and trustworthy admired by traditional civil law and principle of restriction on the abuse of power etc.By reviewing the history of limited liability system, the logic and rational of the system in reality and its value can be explored.With respect to the application of the system in the real practice, the scholars from major common-law and civil-law countries have generated certain theories, common-law countries have formed "agency theory", "instrumentality theory", "enterprise integrity theory", and "ego theory" etc; In Germany, scholars have introduced "abuse theory", "norm application theory", and "separation theory" etc; Japan has "broad sense theory", "narrow sense theory", "disregard of small private company theory", and "temporary application theory" etc. In practice, the system was first applied by judiciary, and it has been preserved in the form of case law. Through long term practice and repeat application, some principles and rules for the system have been created in different countries. In general the system has been widely applied in the common-law system, whereas in civil law counties, it has been used in more cautious manner.Although the occasions for applying the system are vary in each country, generally speaking, it can be divided into two major categories:"abuse of corporate legal status" and "skeleton of corporate legal person". The former includes the exhaustion of corporate capital, avoiding contract responsibilities by shareholders in the name of corporation, avoiding legal responsibilities by shareholders through corporation, and failure to comply with corporate procedure etc; the latter involves over-control, co-mingling assets, co-mingling business model, co-mingling business structure. In general the principal elements for the system consist of subject element, conduct element, and element linking to the result.In China, starting in the 1980s of 20th Century, in order to restrict the circumvention of law and fraud resulting from the abuse of corporate format, relevant legal interpretations and public policies have been generated and therefore the system existed in embryo in that time. The symbol would be the implementation of the Company Law in 2005, in which the system has been established by the legislature, and the sprite of which has been expressed in the Article 20 and the Article 64 of the Company Law. At the same time, it was considered as an important breakthrough in China's legal system, and was deemed as an innovation for the area of corporate law in the world. However, as a practical matter, it might be too general to operate.For the purpose of prompting the development of the system in China, author's thoughts in this paper would focus on the legal theory, legislation, and legal application, suggesting that based and draw on the existing achievement in research from common-law and civil-law countries, we should strengthen the communication among different theories, conduct further studies on theory of the system. Under the condition of maintaining the sprits of the law, some relevant provision of the company law can be interpreted broadly by "judicial interpretation". Until certain conditions are satisfied, certain relevant provisions in company law, bankruptcy law, and civil procedural law can be amended. At the judiciary level, the suggestions would be:1. establishing and implementing the idea and principle of cautious application; 2. heightening the level of professional standard for the adjudication; 3. unifying the standards of the adjudication for relevant cases.With respect to the legislation (substantive law and procedural law) and adjudication, Author has made following suggestions:on the legislation for substantive law,1. In the general provisions of relevant laws, a principle should be set up, in which the corporate personality and shareholder's limited liability should be preserved as the essence and the system should be served as supplement; 2. By using the combination of summarization and enumeration model, making specific rules for the application of the system to certain specific occasions; 3. The elements for applying the system must be stipulated by the rules; 4. Making accurate description to the persons who have responsibility within the system,5. Following the international trends, expend the scope of application; 6. Strictly restrict those situations that are most likely to abuse the system; 7. Pay attention to auxiliary and sporting laws and regulations and their connections; strengthening the preventive measure on the abuse of the system. At the level of procedural law, the suggestions are:1. raising the level of subject matter jurisdiction on relevant cases; 2. expending the occasions that apply to the Inversion of Burden of Proof; 3. stipulating the scope of litigant in the civil procedural law. At the level of judiciary, the suggestions are that:1. The system should be used only in the litigation period, it cannot be used in enforcement procedure; 2. the scope of judgment should be limited to individual case; 3. Judge cannot be active in rendering the judgment applying the system.