Creditors Protection When Incorporation Failed

The protection of creditors is a significant aspect in corporation law. Companylaw system is established on the limited liability of shareholders, which is apt toprotect the interests of investors. But the creditors’ profits have always been neglected,especially when company is setting up. The establishment of company is not smooth,failure maybe the result. During the course of establishing the company, businesstrade with the third party is unavoidable. When incorporation failed, company has notacquired the capacity for rights as a legal person. So company in establishment is notable to bear the responsibility. It is important to make sure how to protect the creditorwhen incorporation failed. The resent research of creditor protection is focusing onbusiness after company set up. But when incorporation failed, the creditors’ profitsseem not so important because of their losses are regard as limited. It is not only adestruction of the principle of fairness, but also a hinder of economic order. Thefailure of incorporation has two cases. One type is company unable to set up, the otheris company invalid set up. This essay aims to analyze how to protect the interests ofcreditors when incorporation failed in these two situations and give some suggestions.This essay contains three parts. There are introduction, the main body and theconclusion. The main body divided to three paragraphs. The first paragraph definessome concepts of incorporation failure and creditor protection. The second partanalyze the legal relationship between the person liable to the failed incorporation andthe creditors.The third part discuss the defect of creditors protection whenincorporation failed in Chinese company law system and look forward to give some suggestions.For the theoretical basis is insufficient, the discussing of creditors protectionwhen incorporation failed is not in depth. In addition, the suggestions that the writerpropound are not quite mature for lacking of social practice.