Reinvestment Legal System

The latest corporation law loosens the restraints on thereinvestment of a company. The reinvestment act of a company hascertain positive significance on the development of economy. But, italso brings a lot of negative influences to the related parties.This article studies the legal system of company reinvestment infour parts. The first part begins with the legal definition of reinvestment.For the lack of the definition there are mainly two kinds ofunderstandings about reinvestment. Through the analysis of the twonotions legislatively and theoretically, the author reckons that the notionof reinvestment can be cognized as a juristic act. According to the legalregulation, it means that a company invests to other companies. Basedon different standards, reinvestment can be compartmentalized intothree patterns. Then the positive significance and negative influencesare discussed. At the same time, the author points out the foundation ofthe legalization of reinvestment.The second part introduces the legislations on companyreinvestment in different countries around the world, which has turnedfrom unilateral regulation in the early stage to comprehensiveregulation. The legislations have changed from emphasizing the act ofreinvestment in the past to considering how to regulate the relations ofnegative influences. Then we can make a conclusion that our countryshould relax the restriction on reinvestment and make a legislativemodel of reasonable restrictions on the reinvestment.The third part gives the reasons of the reasonable model which ourcountry the new corporation law chooses. The reason why our countryshould not loosen the restriction of reinvestment absolutely is that theestablishment and the development of the model of no restriction toreinvestment are rooted in the rapid economic development and theimportance of commercial credit. But our country's commercial credit system is not consummated now; meanwhile, our country is in short ofthe judicial remedy for the practice of no restriction to reinvestment.Under the current legal environment, adopting the model of reasonablerestriction to reinvestment is propitious to the circulation of domesticand overseas effective capital, to the promotion of multi-anglemanagement of company, to the exertion of capital, and to the rationalconfiguration of social resource. Then it explains the meaning ofrevisions about reinvestment, which follows as: First, it cancelsproportion of reinvestment. Company can invest according to reality.Second, it loosens the restraints on object of reinvestment, includingcompany and enterprise. Third, it stipulates board of stockholder orboard of directors as the policy making body. Forth, stockholders canstipulate extent of authority of the policy making body and proportionof reinvestment in regulation. Fifth, it stipulates limited responsibilityof reinvestment. Then it discusses the legal effect of violatingreinvestment law .Last, it points out the defect of legislative regulationof company reinvestment in China.The fourth part has described the design of the system of theregulation of reinvestment emphatically. The author first puts forwardthat the principles of comprehensive regulation, equality of corporationand company autonomy reinvestment in China. The way of regulationthrough statute laws should be adopted. Fiduciary duty, disclosureinstitution, voting competence on reinvestment should be stipulated.Last, when violations happen to reinvestment the clients first can getrelief through shareholder representative action, and also can getcompensations or damage compensations from controll company or usecreditor relief measure etc...