Research On Piercing Corporate Veil In China

This paper is a research on the principle of piercing corporate veil establishedby Company Law of PRC revised in2005, in the perspective of one of the mostdebatable argument, the piercing corporate veil among affiliated company andreverse piercing, analyzing the statistics of the relevant cases in recent years.The first chapter briefly introduces the domestic and international situation ofthe piercing corporate veil among affiliated company and reverse piercing, in theview of legislation and theoretical definition, including the concept of affiliatedcompany, the definition and applying condition of reverse piercing. The affiliatedcompany consists of sister-company, and controlling corporate and subsidiary whichis composed of the one with equity relationship and the one without equityrelationship. Due to the20th of Company Law of PRC can be directly applied on theparent-company-and-subsidiary-like affiliated company with equity relationship, inthis paper, we only focus on sister-company and controlling corporate andsubsidiary without equity relationship. Reverse piercing refers to pierce corporateveil when shareholder transfers property to the corporator freely to avoid debt,leading the company takes the responsibility for the creditor within the limit ofassigned property. A considerable controversy exists among academics that whetherapplying piercing corporate veil to discriminate personality confusion and reverse isappropriate.The second chapter investigates several relevant cases collected from thelibrary of the Law Info China up to December31st,2013, with SPSS, including30cases of the piercing corporate veil among affiliated company and6cases of reversepiercing. Firstly, we deliberate data in the dimensionality of piercing rate, timedistribution, region distribution and court rank, as well as the piercing in the first andsecond instance and their reflection to piercing rate. The piercing rates of the twokind cases are46.7%and50%respectively. While the total number of cases shows atrend of rising year by year, the piercing rate changes insignificantly on the time distribution, and no obvious regularity is shown on the regional distribution.However, more than half of all the cases investigated do undergoes a secondinstance, and the possibility of piercing the corporate independent veil in the secondinstance is lower than it is in the first instance. Secondly, the type of the companyand the number of their shareholders are classified. Sister-company accounts for thevast majority of the companies involved, controlling corporate and subsidiarywithout equity relationship takes the second place.52.17%of the cases are naturalperson controlling shareholder companies, and most of them are kinsfolk controllingshareholder companies, including companies established or controlled by husbandand wife, or by parents and children, or by more than two relatives. Theinvestigation also shows that the shareholder numbers of the companies involved inare generally not too much, and the fewer the number of shareholders is, the higherratio of piercing corporate veil would be. Thirdly, the paper provides a statisticalanalysis on the foundation of right to demand for delivery and reason for piercingand reverse. On the basis of the right to demand, the vast majority of the sample iscontractual obligation, the rest are tort obligation and the labor contract obligationboth of which have pierced the company veil, reflecting on the strength of benefitprotection of the involuntary creditors. The sentence reason of piercing corporateveil among affiliated company is equivalent to affiliates personality confusion, andreasons of reverse piercing are lack of evidence and no legislation, which suggeststhe difficulty of proof, the confounding of standard and the lack of legal provisions.The third chapter summarizes the preceding parts and applicably proposesadvices of the piercing corporate veil among affiliated company and reverse. Webelieve that piercing corporate veil among affiliated company should be brought intothe definition of the principle of piercing the corporate and standardize theapplicable important document and piercing reason with judicial interpretation or theSupreme People’s Court Guiding Cases, due to the reality that they have beenfrequently occurred in juridical practice, in order to offering legislative basis andprotecting the legal rights of creditors. Though there has been controversy aboutreverse piercing corporate veil, which does also exists in its seminary, the U.S.A, itis still reasonable to pierce the corporate veil reversely, but with cautiously applied and all quarters benefits properly balanced, in order to safeguard fairness and justicein certain circumstances, like taxation area.