Shallow Analysis On Legal Validity Of Company External Guaranty

The company guaranty, as an important form of guarantees contributes to theprosperity of the market economy by promoting trade and security claims in highlydeveloped market economy. However, company guaranty is a contingent liability forthe company. That is to say, the company has to face the risk of losing companyproperty. What is worse, company guaranty may become the tool of controllingshareholder, which is used to emptied the company’s property, harming theinterests of minority shareholders the company in the environment of imperfectcorporate governance. Of course. Take that the above two pointsconsideration,China’s "Company Law" regulate the behavior of corporate guarantyby article16.However, semantics of the provision is ambiguous and the legislativepurpose is not clear, which caused tremendous controversy on how to identity thevalidity of company external guaranty. Of course, this is the theme of this essay.The first part of this paper starts with the overview of company guarantyinstitution and give an analysis about different institution of company guaranty in theworld and the new, old company law in China. And the paper point that companyguaranty belong to the scope of autonomy. It is should be acknowledged by the lawhat the company has the ability to provide a guaranty for others. Company law in2005also affirm the capacity of company. However, the provision does not specifylegal object, but also legal consequence of making overreaching external guaranty, which caused tremendous controversy on how to identity the validity of companyexternal guaranty.The second part of the paper gives a full specific interpretation and study thelegislative intent when making article16of company law in2005by analyzingmodifying instruction of company law. And the paper point that the decision-makingof company external guaranty shall be approved by the board of directors orshareholders. However, this legislative intent of mandatory provisions is to regulatethe decision-making of company external guaranty, not the behavior of companyexternal guaranty.The third part of this paper mainly study the relationship between thedecision-making of company external guaranty and company external contract. Thepaper point that even if the they are closely related, but because they belong todifferent legal relationships, their legal effect are not consistent with each other.However, according to "Contract Law" Article50， the effectiveness ofdecision-making of company external guaranty has indirect impact on companyexternal guaranty contract to a certain extent. Whether the effectiveness of companyexternal guaranty contract can be influenced by the decision-making of companyexternal guaranty resolution depend on whether the third party has been or should beaware of decision-making of company external guaranty resolution is invalid.Because the third person is not bound by the Articles of Association, the third personhas no obligation to review the Company’s Articles of Association. Due tomandatory provisions in company law in2005, the third person has obligation toexamine whether company have legal decision-making of company externalguaranty resolutionThe final part analyzes the effectiveness of the guarantee contract under variousspecific circumstances.