What Is Legal Risk?

Legal risk refers to the risk caused by reasons such as the contract being invalid due to invalidity within the scope of the law, or improper conclusion of the contract. Legal risks mainly occur in over-the-counter transactions, mostly caused by legal lag caused by financial innovation. The creation of some financial instruments began by circumventing the regulation of the law. ^[1]

legal risks

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In a narrow sense, legal risks are mainly concerned

Legal risk manifests itself in the following forms:

Financial contracts cannot be protected by law and cannot be fulfilled or the terms of financial contracts are inadequate;

Laws and regulations cannot keep up with the pace of financial innovation

category

Root cause of risk

High-risk behavior

How to establish and improve the legal risk prevention mechanism must first strengthen the risk awareness. Entrepreneurs must recognize that once legal risks occur, they will have serious consequences for the enterprise, but they are preventable and controllable beforehand;

Second, the work system must be improved. Establishing a sound legal risk prevention mechanism should be organically combined with accelerating the establishment of a modern enterprise system and improving the corporate governance structure, so that legal risk prevention becomes an important part of an enterprise's internal control system;

Third, we must accelerate the establishment of a corporate legal counsel system with the corporate general counsel system as its core. Compared with foreign countries, especially in Europe and the United States, the construction of the legal advisory system of Chinese enterprises still has a large gap. Although there are currently more than 100,000 legal counsels across the country, most corporate legal counsels are in short supply, and some companies do not even have a full-time legal counsel;

Fourth, contract management, intellectual property management, and authorization management must be highlighted. Huang Shuhe said that strengthening contract management is the basic work to prevent legal risks of enterprises, and it is necessary to establish a contract management system that focuses on pre-emption and control during the event and supplemented by post-event recovery.