Related Party Transactions Legal Regulation

The related party transaction becomes a widespread activity of listed companies, and the negative effects are not to be neglected. And it is very important to reinforce the regulation of the related party transaction, to protect our investors' rights, to improve the capital market's efficiency, and to maintain the prosperity and stability of the security market.The related party transaction refers to the activities of transferring resources and obligations between the related parties. With the phenomenon of related party transaction transforming into non-related party transaction, the range of legal definition for related party transaction have been enlarged: certain transactions between non-related party and the listed companies are considered as related party transactions. Opinion of this article is that: the nature of related party transaction determines the legislative choice; therefore, the aim of this article is to carry out an analysis from the economic and legal point of view. Economically speaking, the related party transaction is not pure market transaction, neither inner transaction within enterprise, but something in between — "inner market" activities; this kind of transactions has some advantages like: saving transaction costs, meeting certain needs of intermediate products, maintaining the technique monopole etc. ... From the legal point of view, the related party transaction itself is neither a legal nor a illegal activity, but potentially with strong moral risks. With effects of being related, the related party transaction's price deviates from the market level, causes interests inclination, and eventually translates into unequal exchange activities. No matter to injecting profit into listed company so as to meet with the legal requirements of becoming listed company; or to evade the law and make enormous benefice, so that the listed company out lead interests, the related party transaction reduces autonomous level, increases the risks of the listed company's functioning, damages the interests of small shareholders and the creditors; this will also dysfunction the resources distribution of the security market, disorders the law of "survival of the fittest; finally this causes series of negatives effects like massive loss of national taxes. The non-related party transaction is a result of subjective elements, and also the objective elements, and the latter takes the majority. The objective elements conclude the highly concentrated control power of the enterprise caused by the concentration of share, and the legislation excessively steaks to the conventional company's policy, and looses the exterior control.Well developed countries started pay attention to the related party transaction, and carried out profound analysis, established standardized systems. So, this article gives analysis on the legislation of other countries regarding this phenomenon. On corporationlaw, legislation of other countries experienced the change from totally forbidden to conditional allowance, this change is based the rational knowing of the related party transaction; they established a completed authorization system of the related party transaction, to prevent the interest conflicts, to ensure the equality of related party transaction; clearly defines legal obligations and responsibilities, increases the cost of violation of law, and prevent unequal exchange; this system gives small shareholders and creditors more self protection measures, and applies with special protection; it enforces the management of the company, reduces inner control. On security law, the measures taken conclude stricken conditions of becoming a listed company, to avoid or to reduce the related party transaction; this strickens the information disclosure, eliminate the disequilibria of information; according the different level of importance of related party transaction, it applies a control by category, to ensure the flexibility and rationality; it accentuate independent opinions and independent evaluation, to ensure the transparency of information, and clearly defines the legal obligations of the information disclosure party. In order to solve the problem of taxes loss caused by related party transaction, the taxation law of other countries established a system of price regulation for related party transaction, to reinforce the taxes management.In comparison with developed countries, the legislation of our nation is still far from the international level. There are still many problems in information disclosure, in the protection of small shareholders and creditor's interests, in maintaining the autonomous level of the corporation, therefore the equality of related party transaction can not be efficiently ensured, and this caused the flood of unequal transactions. So, the author suggests, there should be some structural modifications of the corporation law of our nation, at the same time with completing the regulations for a single corporation, take the related companies as the objects of modifications also, and defines the rules of activities between the related companies; to reinforce the protection of small shareholders and creditors' interests, and change their vulnerable position. In security law, our nation should continue to reinforce the information disclosure of related party transaction, complete the rules and legal obligations of information disclosure, so as to ensure the authenticity, completeness, and in-time of the information disclosure. Regarding the taxation law, it should clearly define the application rules in price adjustment, to facilitate the application, to introduce new price adjustment methods, to simplify the procedure of taxation; and reinforce the cooperation and management of taxation.