Study Of Parent-subsidiary Company Of The Rules And Regulations

Taking the objective reality of the operational model of parent/subsidiary companies which is an economic phenomenon existing universally in many countries as the premise for exposition, this article has carried out fairly deep-going research on how to strengthen the adjustment of the relationship between parent/subsidiary companies. The focal point is an effort to resolve the question of protecting the interests of subsidiary companies and their obligees and minority shareholders and the question of reciprocal holding of shares by parent/subsidiary companies. Taking into account of the deficiencies in the Company Law in China in this respect and drawing on the legal systems of Western countries on the adjustment of the relationship between parent/subsidiary companies, it puts forward relevant proposals in legislation in the light of the specific conditions in China.Four segments are discussed in this article.The first segment is about the legal definition of parent/subsidiary companies. This issue is divided into three parts. Firstly, by examining the three kinds of criteria for definition and the concept of parent/subsidiary companies in legislation for overseas companies, it identifies a kind of criteria for definition and a definition of parent/subsidiary companies that should be adopted in the Company Law in China. Secondly, it analyzes the legal characteristics of the relationship between parent/subsidiary companies(1) Parent/subsidiary companies are independent judicial entities in law; (2) The relationship between parent/subsidiary is one between control and being controlled. Thirdly, by making an analysis and comparison between parent/subsidiary companies and the relevant concepts of head company and branch company, holding company and controlling company, it has strengthened out the relationship between parent/subsidiary companies and those concepts.The second segment involves the great functional values of parent/subsidiary companies and the necessity to adjust the parent/subsidiary companies. Firstly, it fully affirms the functional value of the operational model of parent/subsidiary companies, it at least has four values: make the parent to form the scale effect, to break the tariff walls and non-tariff walls of the host countries, to disperse the management risk and to limit extent of responsibility. Every coin has tow sides, so does the parent/subsidiary company. We must analyze the questions of the parent/subsidiary rationally. So thereafter we analyze the necessity of the parent/subsidiary adjustment.The third segment continues closely with the above segment. In this part, we bring forward the basic methods to adjust the parent/subsidiary company. Firstly, in the basic methods part, we analyze that the interests of minority shareholders and the obligees of the subsidiary is easily damaged by the parent company. The reciprocal holding of shares by parent/subsidiary companies will bring a series of ills. Secondly, this article will discuss the protection of the subsidiary's obliges. There are tow methods: one is ex-ante protection, and the other is subsequent protection. Then it carries out an analysis and comparison among three theories on the assumption by parent companies of debts of subsidiary companies, namely, the theory of limited liabilities, the theory of entire liabilities and the theory of direct liabilities. It holds that the theory of direct liabilities should be adopted, which is an exception to the principle of limited liabilities. In this legal context, obviously the parent company should have the charge of the subsidiary company's obligation to protect the subsidiary's obliges.The last segment of this article is about some advice for the adjustment of the parent/subsidiary companies. This part is the conclusion part of this article. In the basis of above analysis, we put forward some advice in legislation and judicial aspects.