Company Rules And Regulations Of The Related Party Transactions

With the rapid growth of corporate groups and capital market in China, the special economic phenomenon of correlated trading (or insider trading) has received widespread attention. The economic motivation for such correlated trading activities is related to such needs for convenience in large scale operations, beneficial pricing, and price adjustments as well as for financing of capital; this has decided that the affiliated companies have their independent legal status on the one hand and are also mutually affiliated economically on the other hand; such affiliation has made it possible for the affiliated companies to control and affect the trading process. The unequal governance and subordination relationships caused due to such possibility between the affiliated companies as well as the series of correlated trading transactions thus initiated demonstrate the important value on studying such correlated trading. This paper has used some typical cases to propose and discuss the issue generated due to correlated trading activities of not only protecting the interests of the creditors of the subordinate company but also protecting the interests of both the subordinate company and its minority stockholders; compared and analyzed the means of solutions to this issue based on the advanced legislation experiences from such nations or regions as Germany, Taiwan of China, and USA; and examined the drawbacks in legislation existing in the correlated trading rules and regulations specified in the "Company Law" of China. The Company Law rules and regulations on correlated trading must, when transplanting the legal systems of economically developed countries and regions, adapt to the needs of economic growth in China and respect the traditions and habits of China. On the one hand, China currently is in the rising stage of the socialist market economy, thus is now needing to encourage more investments and carry out capital expenditures; while on the other hand the issue generated due to correlated trading activities of not only protecting the interests of the creditors of the subordinate company but also protecting the interests of both the subordinate company and its minority stockholders is becoming increasingly significant. It is recommended to learn the legislation spirits from Germany and Taiwan of China to stipulate in the form of law a special Affiliated Companies chapter in the Company Law and make some general rules and regulations on such issues as the concept of Affiliated Companies, control and subordinate companies, responsibilities of the control company, and the information disclosure system, etc. It is further recommended to develop Company Law rules and regulations on correlated trading, to seek a balance between the limited liabilities and protecting security of transactions and interests of creditors, and to improve the corporate legal person system.