Study On Legal Regulations Concerning Related-party Transaction Of Listed Corporation

A number of listed companies rise rapidly with the help of related-partytransactions. But related-party transactions have also caused the collapse of somecompanies. At present, equity structure is not quite reasonable, and information isasymmetric. Besides, listed companies are in the absence of effective internal restraintand external supervision mechanism. So as to improve the value of the company, toprevent the decline in performance, to evade taxes, to prevent stock from risk warning,to break through the restrictions of the bank loans, and to cash or to offset the debt,listed companies use related-party transactions to maximize benefits. As a neutralconcept of economics, related-party transaction is conducive to promoting the scaleoperation, reducing transaction costs and forming a collaborative development andgroup effect. Besides, related-party transaction helps to improve the marketcompetitiveness of listed companies, to maximize the economic benefits, and toachieve strategic objectives. On the other hand, unfair related-party transaction maybe used to damage the interests of minority shareholders of listed companies andcorporate creditors. So that the legal value of fairness is damaged, and the interests oflisted companies, the minority shareholders and creditors are damaged. Normalmarket competition order, especially the order of the securities market is destructed.The state’s tax revenue suffers losses. So the related-party transaction should beregulated properly by law, in order to promote the development of social economy.There are too many unfair related-party transactions, and the regulation ofrelated-party transaction is often circumvented. Defects on China’s current legalsystem concerning the provisions of the related-party transaction of listed companiesinclude: legal regulations are dispersive; there are no clear definition of related partyand related-party transaction; provisions are too formalized and complicated; there aresome defects on prior approval system, suffrage-avoiding system and information disclosure system; there are some defects on creditors and minority shareholdersprotection system.Unfair related-party transactions overflow, which is not conducive to a steadyand rapid development of the market economy. Therefore, it is necessary to improvethe legal system of related-party transaction under the principles of conditionalauthorization and restriction, combination of prior method and afterwards relief, andbalance of equity and efficiency. In this case, prior approval system, suffrage-avoidingsystem and information disclosure system should be improved. In order to protect thelegitimate rights and interests of creditors and minority shareholders, the authorproposes introducing and improving abroad "Principle of Piercing the Corporate Veil"and "Deep Rock Doctrine, improving the system of direct shareholder litigation andshareholder derivative litigation system. Besides, it is necessary to establish aneffective contract revocation system and a legal liability system of unfair related-partytransaction. Meanwhile, attention should be paid to the supervisory role of the internalsupervision and balance system, intermediary organizations, government and industryself-regulatory organizations, so that both internal governance and external oversightplay their roles.