The Validity Of Companies’ Guaranty

Companies’ guaranty is the promise of the company that is collateral to the principal obligation and that binds the guarantor(the company)to performance in the event of nonperformance by the principal obligor.For the effect of such guaranty makes use of the company’s own property,with no returns usually,the companies’ guaranty always be used for illegally taking away the registered capital,or eroding the independent status of legal person.The first chapter of this Thesis is to describe the problem discussed.Art 16 of Company Law of the People’s Republic of China(2005 Amendment)only regulate the procedure of companies’ guaranty without a word about the legal consequence of violate such regulation.This leads to disputation for years.This chapter collates the regulations,the theories on Companies’ guaranty.It try to conclude the mainstream of Issues and Judgement in this field and find out the value of such research.The second chapter discuss the effect of Companies’ guaranty.The essay discuss it from the effect of the contract and the effect to the companies.It also discuss from Agency in Excess of Authority and Apparent authority.In the case of Agency in Excess of Authority,the essay will specificate the condition when the agency is the legal representative,the directors and CEO separately.The third chapter discuss Risk Allocation in such field.First,it focus on whether realize the right of guarantee between the guarantee(the company)and the creditor.Then,it explains how to remedy the case of invalid Companies’ guaranty between the principal and the agent.The forth chapter is the conclusion.It point out that in the case of Companies’ guaranty,the judge should balance the value of efficiency and equity.He will try to cut down transaction costs while trying to achieve the purpose of Art 16.For the review obligation of the third party(the creditor),the standard shouldn’t be set too loose.The review of the Memorandum and Articles is the logical premise of Art 16 and will make damage to the Corporate governance without review it.In the third party’s obligation to review,the substance will surely overweigh the form.