The Related Legal Regulation Of Unfair Connected Transaction Of Chinese Public Companies

Transactional safety, fairness and efficiency are the basic legal orientation and the goals we couldpursue in the market economy. The three of them must be taken into a comprehensive consideration and bebalanced in the specific market economy. It is especially difficult in the legal regulation of the affiliatedenterprise and connected transaction to balance them. It will be more complex and difficult to make themcombine with each other organically and optimally. The connected transaction between the affiliatedperson and enterprise can lower the transaction costs and keep a balance between the supply and demand.To some extent, it can also guarantees the quality and standardization of the products to maximize theprofit of the company in which case the overall market competitiveness of the company will be improvedsignificantly. Besides, the connected transaction between the affiliated person and enterprise achieves thedual optimization between safety and efficiency. The fairness of the results will also be achieved if therelated system is perfect. However, in the current market areas, the connected transaction between theaffiliated enterprises comes an influx of confusion such as the transferring of the profits and the conveyingof the interests by the controlling shareholders or the occupation of the company property by the seniorexecutive, etc. These phenomena, which are all taking advantages of the connected transaction, are calledunfair connected transaction.As is known to all, the connected relationship and connected transaction come along with thedevelopment of stock market in China. There is a natural relationship between the primary developedcapital market and the restructuring enterprise with share form in the core in which condition the publiccompany will rely on the parent company heavily, so the connected transaction appears in large numbers.Because of the imperfect market system in China for more than a decade, there still exit many problems inthe stock profit policies of our public companies and the rules for connected transaction have not formed asystem. As a result, the profit manipulation and interests assimilation is becoming increasingly fierce. Theunfair connected transaction of public companies is quite and the amount is huge which makes its negativeeffects more and more serious. This unfair connected transaction doesn’t benefit all the stakeholders.Evidence shows that the unfair profit manipulation by shareholders seriously harms the interests of minority stockholders and distorts the resource allocation function of capital market. The unfair connectedtransaction of the public company has drawn great attention of the people and the related legal regulationmust be improved. For this reason, the thesis researches the relevant theory and practice of the related legalregulation in the following four parts, hoping to stimulate the development of Chinese capital markethealthily and orderly.The first part is mainly on the definition of the relative concepts of connected transaction. Firstly, todefine what is connected transaction and to clarify the connotation and denotation of it. Secondly, to definethe related party, and to limit the subjects of it to affiliated corporate and affiliated natural person. Finally,to define the unfair connected transaction, and restrict the scope of the connected transaction.The second part principally introduces the background, the reason and the motivation of the unfairconnected transaction in the public companies in China, as well as the existing problems. Since China is inthe midst of the market economy, many of its marketing enterprises are remodeled from the traditionalstate-owned enterprises, which makes their mother-son relationship with the original state-ownedenterprises relate the economic interests. Other reasons that result in the frequence of the unfair connectedtransaction may be the uncompleted restructure, and the unbalanced structure of the stock rights; on theother hand, the public companies take large advantages of the unfair connected transaction transferring thecorporate profits, and sugaring up the business performance of the companies so as to maintain the “shellresources”. Thus, to utilize the unfair connected transaction transferring tax bearing in order to maximizethe interest is another major motivation. Eventually, the more and more de-referencing and inviolability ofit makes the regulation more difficult.In the third part, the author mainly picks up the experiences of how America manages the unfairconnected transaction. America is one of the most developed country in the market economy, and it has onehundred year’s history in administering it. So it has formed a full-order system of legal regulationandsupervision, which we Chinese can take example by.In the fourth part, after researching the backgrounds, reasons and current situations of unfairconnected transaction of Chinese public companies, on the basis of the advanced experience of the America,the author puts forward several suggestions for the related legal regulation.