Study On External Guarantee In Companies

This essay focuses on the study of the part of domestic legal system thatinvolves in the procedure when companies vouch for outside parties. Law of company,together with all codes and regulations issued by the State-owned Assets Supervisionand Administration Commission (SASAC), China Securities Regulatory Commission(CSRC) and China Banking Regulatory Commission (CBRC) are the bases of thisessay.This essay is composed by6parts, including forewords to conclusion. Theforeword briefly introduces the background of the birth of system that companies usewhen vouching and the risk this system introduces. As the economic form ofcompany grew, the need to vouch for other companies or individuals grew too, tofulfill the needs to expand its business. However, the lawsuits from the vouchee’s debtholder to claim debt from the voucher may come alone with if the vouchee that thecompany vouches for is not able to pay the debt, which would in turn cause thereduce of voucher’s actual capital and the jeopardy to the interest of share holders anddebt holders of the voucher. As an inherent hazard for the market, the act of vouchinghas been regulated through legislation in more and more countries to protect theoperation of the company, the interest of share holder and the interest of debt holder.The second part introduces a real case of lawsuit regarding the vouching for outsideparty. With this case, terms of the Law of Company are dissected for possiblecontroversies during the practical use, the judges’ understanding and in turn, thejudges’ bases of justice during legal process. The third part is the main body of thisessay. It firstly analyzes whether a company shall be given the power to vouch foroutside parties as the integral right. Then, by differentiating inside and outside, itanalyzes the effectiveness of vouching when the voucher violates the code.Conclusions of the fourth part are described in the last section, which are A. It is theright that given to a company to vouch by the Law of company, but a company couldforbid to use it by company code; B. The counter party is responsible pro forma to review the contract of vouching only, while not responsible to review voucher’scompany code and authenticating the decision of vouching. C. When a false decisionof vouching is made without other authorization flaw, this vouching agreement isvalid, the internal decision is possible to be revoked or announced invalid withclaiming the loss from the responsible person. The forth part analyzes the vouchingsystem for exceptive company forms. The coverage of vouching in effective law forthe one-person limited company is limited. The author briefly introduces twodifferent academic ideas of “Rules” and “Flaws”. The idea of “Rules” describe thelaw makers’ intension towards the vouching of one-person limited company fromprospects of “Effective” and “Ineffective”. The idea of “Flaws” holds the idea thatthere are flaws during the legislation. This idea is way too formalism, that ignores therole of legal explanation in the making of law and application of law. The vouchingof public company is regulated by codes issued by SASAC, CSRC and CBRC due tothe public company’s characteristic of massive share holders. The fifth part discussedtypes of vouching world widely from the prospect of comparison of laws, which areTotal Permitted, Permitted with exclusions and Forbidden with exclusions. Thosethree different types respectfully correspond to the vouching systems effective inUnited States, Great Britain and Taiwan of China. Each one of the three has pros andcons; however, the system of Total Permitted effective in the United States is of mostworth for reference as it is more open a system that follows the mainstream ofshifting Share holder centrism to Board centrism. The last part of this essay is theconclusion, which summarized the essay and elaborates the author’s anticipation ofthe vouching system development.Based on information available to the author, this essay analyzed and gaveadvices to the domestic system for vouching with reference of similar systems inforeign countries. Due to the limited information and knowledge of the author, theauthor wishes to hear from the readers of this essay for ideas and correction.