Research On Corporate Guaranty

The corporate guaranty is the natural legal capacity of the company, it conforms to legislative intent of the company law to encourage and promote transactions, and eases company`s financing problems, as well as, satisfies the objective needs of the company in participating in the market economy. However, the gratuitousness of external guarantee also determines the probability of risk to damage the interests of the shareholders and the company. Therefore, there are some restrictions on corporate guaranty to balance the interests of different parties. After having seen the serious damage to interests of company and shareholders in related party guarantee,sub-section 3, article 60 of the Company Law 1993 states restriction of corporate guaranty, but its vagueness results in controversy. Though there are specific provisions about corporate guaranty in the Company Law 2005, such as article 16, the lack of legal consequences led to persistent controversy between academics and practice, also hindered application of article 16. Therefore, this essay focuses on the validity of corporate guaranty in which there is a breach of relative provisions in the Company Law.This paper is divided into four chapters. The first chapter starts with legal person`s capacity of right, and demonstrates that it is one of legal capacities to view corporate guaranty as a disposition of its own property. However, because of probability of conflict between benefits of secured party and shareholders, in order to balance benefits, it is necessary to have limitations on corporate guaranty whenrecognize the legal capacity for guarantee.The second chapter begins with legislative intents of the comparative law, and it is clear that legislations related to corporate guaranty should be mainly legislated on prior procedural restrictions. At the same time, through studying longitudinally on legislation evolution about corporate guaranty, it is found that there are many questions about validity of corporate guaranty when it breaches article 16 because of lack of legal consequence.The third chapter is the core part of this paper, which focuses on solving the problem of the legal validity of corporate guaranty when the company violates the internal procedures. It is the focus of controversy, as well as the focus of judicial practice, to analyze nature of article 16 of the Company Law and to make sure the obligations of the third party`s examination, therefore, the writer analyzes the nature of article 16 firstly, and states that it is the administrative provisions of the mandatory provisions, and guaranty can not be invalid because of violation of article 16.Secondly, it is sure for the third party to have obligations to examine guaranty in consideration of publicity of the articles of the company, legal common knowledge, as well as reasonability and legitimacy of the examination obligation of the third party.Furthermore, it is clear that the third party`s examination obligations conform with‘know or should have known’ in article 50 of the Contract Law, so the article 50 of the Contract Law is the provision which should be relied on to decide the validity of corporate guaranty. Finally, the article 50 of the Contract Law states the upper concept of illegal guaranty, however, its effectiveness has not been determined.The writer thinks that the behavior of ultra vires quasi rule of unauthorized agency, because of similarity between an agent and a representative. As a result,the writer thinks that the company’s illegal guaranty has undetermined effect.The fourth part of this paper is a supplementary analysis of the specific issues related to the corporate illegal guaranty. The supplementary analysis mainly includes explanations about lacking or prohibition of articles of association related to corporate guaranty, inconformity of actual resolution authority and chapter set the resolution authority, overrunning corporate guaranty amount and transferring the right todetermine guarantee.