Research On Obligations Of Directors Of The Group Of Companies

This paper is trying to solve the problem of conflict of interests between the group of companies and its subsidiary when the director of the subsidiary executes its duty. The director should fulfill its fiduciary duty in the subsidiary company. The interests of the company should take priority. However, to maximize the interests of the group of companies, directors of subsidiaries are required to work on the interests of the group of companies rather than subsidiaries. The goal of this paper is to find the balance to meet the development needs of the group of companies. The argument will be based on the directors’ obligations for different types of group of companies, the independence of subsidiaries, enterprise theory, and precedents and statutes examples of some countries. The argument will try to build a behavioral criteria for directors. The criteria will help directors to test if the execution is reasonable and to understand what responsibilities should be taken.The first part begins with the analysis of the types of group of companies. It describes the different performance of directors’ obligations in the three types of group of companies: equity-control, protocol-control, and personnel-control.The second part includes three subsections. The first section has analyzed barriers to the application of rules of directors’ duties under the traditional single-company model. It points that based on the concept of independent entities, directors’ duties should be adjusted to fit the economic development of the group of companies. In the second section, the paper has analyzed two different theories namely entity law and enterprise law. The former theory has ignored the development requirements of a group of companies. It holds that directors should not sacrifice the interests of subsidiary company at any time for the group, which is also called the absolute duty of loyalty. The latter one holds that directors should give priority to the interests of the group. The third section has discussed two ways to solve obligations problem: legislation for the separated entities and special legislation for the group of companies. In the end, it analyzes rules in different countries and regions.The third part is a review of the overall legislative rules and the obligations of directors in China. It has analyzed the problems encountered in the group of companies, including obligations under the general provisions of directors, prohibits of self-dealing rules, and associate director avoidance rules.The fourth part presents proposals to improve. First, improve the overall legislation of group of companies based on the separate entity theory and acknowledge the legitimacy of the overall interests of the group of companies as reference to German special legislation mode simultaneously. Secondly, the article suggests to improve specific rules obligations of directors related and establish criteria of directors’ duties for the purpose that preventing misconduct directors while promoting the development of a group of companies.