What Are Affiliated Companies?

An affiliated company is a company composed of two or more shareholders and all shareholders have unlimited liability for the company's debts. If the company fails to operate and the company's assets are not sufficient to pay off the company's debts, all shareholders of the company must use their entire property to pay off the debts owed by the company. It is also called "renhe company" or "joint name company" abroad, because such a company usually uses the name of one or two of its shareholders as the company's name and the shareholder's personal credit, reputation, and status as external credit. Guarantee. ^[1]

Affiliates

An affiliated company is a company composed of two or more shareholders and all shareholders have unlimited liability for the company's debts. If the company fails to operate and the company's assets are not sufficient to pay off the company's debts, all shareholders of the company must use their entire property to pay off the debts owed by the company. It is also called "renhe company" or "joint name company" abroad, because such a company usually uses the name of one or two of its shareholders as the company's name and the shareholder's personal credit, reputation, and status as external credit. Guarantee. ^[1]

Affiliated company refers to a company consortium formed between a company and another company based on specific economic purposes through capital penetration, contractual connection, and other methods. From this we can see that the affiliated company has the following three characteristics: First, the affiliated company is a company consortium formed by a number of individual companies with independent legal personality; second, the affiliated company is adopted

Essential characteristics of affiliated companies: legal equality and de facto inequality of member companies

On the surface, among the affiliated companies, each member company still has its own independent personality and independently bears civil liability. In other words, from the perspective of the existing laws and regulations, the nature of each member company has not undergone any substantial changes. In fact, the legal independence and equality among the member companies of affiliated companies is only formal.

Among the affiliated organizations that have a controlling relationship and a subordinate relationship, although the subordinate company is still an independent legal person in terms of legal personality, since the member companies no longer aim to maximize their own interests, they are more accurate from the group's interests. It is said that it is engaged in operating activities based on the interests of the controlling company. The subordinate company is only a tool to control the company to achieve certain economic goals. Its consciousness and ability are no longer independent and sound due to restrictions. The property is also controlled by the company like its own property. Arbitrary treatment without independence and enrichment, its legal personality independence has degenerated into a pure form. At this time, the economic status of each member company has severely tilted, and it is in a state of de facto inequality, which is a dependency relationship between control and control, domination and domination.

It is because of this legal equality and de facto inequality among members of affiliated companies that we have a basis and premise for studying the liability of affiliated companies. By studying the controlling factors, we can have a deeper and clearer understanding of the inequality among member companies within affiliated companies.

The rise of affiliated companies is a product of China's economic system reform, which is mainly manifested by the development of enterprise groups

The establishment of the corporate responsibility mechanism is based on the economic foundation of a single company, and the economic system has entered the era of affiliated companies. According to Marx's scientific judgment that "the economic foundation determines the superstructure", changes in the economic foundation inevitably require corresponding changes in the legal system as a part of the superstructure.

Legal protection of creditors of affiliates

First, the rules of interest compensation. When the interests of the minority shareholders and creditors of a subsidiary company are harmed by the controlling company's manipulation of the subsidiary company, the subsidiary company has the right to claim real compensation;

second,

From a purely theoretical point of view, the controlling company's control of the subsidiary company is nothing more than two ways: one is to manipulate the operating decisions of the subsidiary company, and the other is to control the finance of the subsidiary company. Moreover, the above two methods are often intertwined and used.

In the first case, due to the manipulation of the controlling company, the subsidiary company lost or almost lost its independent right to operate, and the will of the subsidiary company was no longer independent.

In the second case, the controlling company generally disposes the property of the subordinate company as if it were its own property, and the property of the subordinate company is no longer independent, so that the subordinate company loses the material basis for independent responsibility.

In both cases, the controlling company should owe debts to its subsidiaries

In the late industrial revolution, the emergence of a large number of chain enterprises marked the arrival of the era of economies of scale. Enterprise functions and values are far beyond what a single company can achieve. For the purpose of pursuing specific economic benefits, affiliated companies that connect several independent legal persons through equity or contractual bonds have become a mainstream economic phenomenon in contemporary society. Affiliates have been controversial since their inception. On the one hand, the affiliated company complies with the development trend of the modern market under the economy of scale and has unparalleled group advantages.On the other hand, it challenges the basic theory of company law-the independence of the company's personality and the limited liability of shareholders.It is not fair. Related party transactions and unequal income distribution policies increase the possibility of adverse selection by controlling companies and company managers, and also expose the interests of affiliated companies, minority shareholders and creditors of affiliated companies to greater risks. With the development of business practice, the status of affiliated companies' legislation has become an important yardstick to reflect the degree of corporate legal perfection in various countries. Since the second half of the 19th century, major capitalists have begun to explore the legislation of associated companies. From the end of the 19th century to the beginning of the 20th century, the German Constance Law created a precedent for the special legislation of affiliated companies in civil law countries. For the first time, the concepts of contract Constance, contract Constance, and parallel Constance were introduced. The attribution system and rights distribution rules are systematically stipulated, which has become a legislative paradigm that modern major corporation laws can draw on. In response, in 1890, the State of New Jersey in the United States took the lead in recognizing the legality of affiliated companies. Common law countries, represented by the United States, also began to accept the legal concept of affiliated companies under the promotion and guidance of the modern market. From the perspective of comparative jurisprudence and empirical jurisprudence, this article also adopts a method of economics analysis of law.It first explains the concept category and legislative motivations of affiliated companies, and summarizes the advantages and disadvantages of affiliated company legislation in each major company law country. Core legal issues, namely, the protection of the interests of subordinate companies and their minority shareholders, the protection of creditors of subordinate companies, and the rules of restrictions on cross-shareholding; finally, based on the summary and analysis, reflect on and review the current legislation of related companies in China. It points out the perfection direction of China's affiliated company legislation. This article has always tried to express such a view: The basis of the legal regulation of affiliated companies is the "trust-agent" relationship between the controlling company and its affiliated companies; the core of the legal regulation of affiliated companies is to solve the three major agency problems between the controlling company and its affiliated companies That is, the interests of the controlling company and its subsidiaries, the controlling company and its minority shareholders, the controlling company and the external creditors of the subsidiary; the effective way to resolve the legal issues of the associated company is to establish a balance of interests covering the interests of all parties mechanism.