Reverse Application Of Disregard Of The Corporate Entity

The corporate system plays an important role in our economic and socialdevelopment. However, with the diversity of economic activities, all sorts of abuse ofcorporate entity appeared to wrongfully take over company property or to evadedebates. The Corporate Law has established the system of disregard of the corporateentity which regulates the abuse of corporate entity to a certain degree. However, withthe development of economy, the abuse of corporate entity is becoming complex anddiversified. The traditional system of disregard of the corporate entity has itslimitations which cannot perfectly protect the interests of the shareholders’ creditor.Therefore, the reverse application of the system of disregard of the corporate entityemerged, which is not established in Chinese law. To make up the shortages oftraditional application, it is necessary to research the reverse application of the systemof disregard of the corporate entity to improve our system of disregard of thecorporate entity.To begin with this paper will provide a brief introduction on the reverseapplication of the system of disregard of the corporate entity and the relevantregulations in our country. Then the author will argue the necessary to reverse applythe system of disregard of the corporate entity in reference to cases and experience of“reverse piercing corporate veil” of the United States. It is followed by the analysis ofsome basic problems to reverse apply the system of disregard of the corporate entity, such as the regulation, the application conditions, the corporate responsibility and theburden of proof. After a statement of the basic problems, this paper illustrates how toreverse apply the system of disregard of the corporate entity in the specific situation injuridical practice, including one-person limited liability company, parent andsubsidiary companies and sister company. At last, this paper puts forward somesuggestions on legislative proposals to improve the problem.The body can be divided into four chapters, and the structure of the paper is asfollows:Chapter I introduces the definition of reverse application of the system ofdisregard of the corporate entity and the relationship with tradition application. Andthen it summarizes the domestic scholars’ views on the reverse application. This paperconcludes that there are no relevant regulations established the reverse application ofthe system of disregard of the corporate entity, and it shall be stipulated in China.Chapter II illustrates the necessary of reverse apply the system of disregard ofthe corporate entity. From the view of legal principle, it has its institutional value andcan compensate the shortage of traditional application. From the view of judicialpractice, there are cases which need to be reverse applied the system of disregard ofthe corporate entity, and some judge has reverse applied it.Chapter III analyzes some basic problems of reverse application of the system ofdisregard of the corporate entity. As a civil law country, we should provide theregulations about reverse application of the system of disregard of the corporate entity.And then this section illustrates the application conditions in five aspects anddiscusses the company’s joint liability and the burden of proof.Chapter IV analyzes how to reverse apply the system of disregard of thecorporate entity in some specific situations in legal practice, including one-personlimited liability company, parent and subsidiary companies and sister company. Itoffers some suggestions based on the foreign successful experience and Chinesejudicatory practice.