The liability of the principal company for the obligations of a subsidiary: Сomparing the analysis of the Russian and Chinese legislation

Abstract

The foundation of the modern economy both in China and Russia is the activities of companies. Development of jurisprudence had led to the creation of a legal entity model as a separate and independent subject of relationships. Entrepreneurs in China and Russia establish legal entities and conduct their business in such a way. A large and complex business is organized by the model of a holding. A holding consists of a parent company and a subsidiary company. As legal entity is separate and independent, it is not liable for the subsidiary company’s debts. Today where the holding model is used, there are some problems related to the standardization of work in a subsidiary, obtaining a balance of interests between the parent company, subsidiary company and creditors, and legal liability of the parent company for the subsidiary. This article is devoted to issues associated with the liability of a parent company for a subsidiary company both in China and Russia. Research is based on Chinese and Russian law, and regulations concerning corporate relationships as well as on a summary of court rulings. The article deals with China’s and Russia’s laws and regulations on legal liability such as Chinese and Russian law on companies, other legal acts about the legal status of a parent company and subsidiary company. The author analyses complicated issues regarding holding a parent company responsible for obligations of a subsidiary company according to Chinese and Russian law. Shareholders of a subsidiary company often abuse the independent nature of a company resulting in damages for third parties (for example the company’s creditors). Chinese and Russian law should control abuses and misuses of the law. Conclusions made in this article, from comparative research in Chinese and Russian law regarding the liability of a principal company, can be taken into account by lawmakers within the framework of measures for enhancing legal regulation of the abovementioned problem.