Analysis of the "General Provisions" of the Draft Judicial Interpretation of the Company Law (Mainland China)

The release of the Interpretation of the Supreme People's Court on Several Issues Concerning the Application of the Company Law of the People's Republic of China (Draft for Comments) (hereinafter referred to as the "Draft Judicial Interpretation") signifies a pivotal phase in implementing the new Company Law.  The Draft Judicial Interpretation undoubtedly holds significant importance, as it is poised to replace the existing five judicial interpretations on the Company Law and establish a comprehensive set of new rules, involving not only amendments to the original provisions but also many innovative institutional designs.  Of course, whether these innovative contents will ultimately be included in the formal text is uncertain, and before the formal promulgation of the judicial interpretation, relevant contents may still undergo considerable adjustments.  Among them, the "General Provisions" section (Articles 1-11), as the opening content, is particularly noteworthy.  Overall, the provisions in this section reflect the drafters' clear intent to actively respond to practical issues in judicial practice, strive to fill legal gaps, and promote the unification of adjudication standards, with many clause designs demonstrating significant institutional progress.

I. Key Highlights: Systematic Resolution of Long-Standing Judicial Difficulties

The "General Provisions" section provides clarified and operable solutions for several enduring difficulties in judicial practice.

A. Establishing a Judicial Pathway for the Resignation and Removal of the Legal Representative

Article 1, concerning the resignation and removal of the legal representative, is a significant innovation.  It addresses the practical dilemma of "easy resignation, difficult change of registration" by providing a clear judicial remedy path.  This article specifies that the legal representative may, through litigation, request the company to handle a change of registration or expunge registration information.  Under specific conditions (such as failure to designate a new representative within the period specified by the court), the court may rule to expunge the registration, effectively acknowledging the temporary vacancy of the position, which responds to the practical needs of corporate governance.  Simultaneously, the article clarifies the effective time of resignation (the date the company receives the written resignation notice) and balances resignation freedom with transaction security, stipulating that after resignation, until the change or expungement of registration, the company remains liable for representative acts conducted by the legal representative in the name of the company towards a counterparty in good faith.

B. Expanding the Regulation of Connected Guarantees and Related-Party Transactions

Articles 2 and 3 significantly strengthen the regulation of connected behaviors.  Article 2 expands the scope of connected guarantees to include situations where a company provides guarantees for companies directly or indirectly controlled by its controlling shareholder or actual controller, thereby plugging loopholes that evade strict resolution procedures through complex ownership structures.  Article 3 reinforces the regulation of related-party transactions, stating that if related-party transactions are conducted without statutory reporting or resolution procedures, the company may request confirmation that the transaction "does not take effect against the company," leaving room for subsequent ratification and reflecting a balance between transaction efficiency and fairness.  Most importantly, paragraph 3 explicitly provides that even if related-party transactions have undergone relevant procedures, if they cause losses to the company, the responsible personnel must compensate and cannot defend themselves solely based on procedural compliance, embodying a profound shift from "formal compliance" to "substantive fairness."

C. Systematic Framework for Disregard of Corporate Personality

Articles 4, 5, and 6 systematically construct an operational guide for the disregard of corporate personality ("piercing the corporate veil").  Article 4 clarifies the factors for identifying abusive behaviors such as "excessive control," "commingling of property," and "significantly insufficient capital," enhancing the predictability of legal application.  Article 5 innovatively introduces rules for the "disregard of personality among affiliated companies," meaning that affiliated companies excessively controlled by the same actual controller or with commingled property must bear joint liability for the debts of any one company, expanding the protection scope for creditors.  Article 6 specifies that disregard of personality lawsuits must involve adding co-defendants through trial procedures and cannot directly add shareholders or affiliated companies as parties subject to enforcement in execution proceedings, safeguarding procedural justice.

D. Clarifying Rules for Single-Member Companies

Articles 7 and 8 clarify controversial rules related to single-member companies, effectively promoting the unification of adjudication standards.  Article 7 states that a company with a married couple as shareholders does not apply the special provisions for single-member companies, ending long-standing debates on this issue.  Article 8 establishes the principle that liability for shareholders of single-member companies generally "pierces only one tier," avoiding undue litigation burdens from infinite tracing and stabilizing commercial expectations.

II. Areas for Potential Enhancement: Hints of Potential Risks

Based on the significant progress above, if examined by the standard of pursuing perfection, some clauses still have room for further discussion and optimization in terms of coordination and clarity to achieve better implementation effects.

A. Further Clarification Needed for Certain Concepts and Procedural Details

The definitions of key concepts in some clauses are not clear enough, which may lead to difficulties in application.  For example, Article 4, when identifying "excessive control," considers "the relevant company losing independent will" as one of the factors.  However, "loss of independent will" is itself a result or manifestation of "excessive control," to some extent constituting a circular definition and failing to provide more operable objective criteria.  Similarly, the term "improper benefit transfers" used in the article is not a precise legal concept; "benefit transfers" itself has a broad meaning, coupled with the value judgment of "improper," its specific boundaries—what is "proper" and what is "improper"—are likely to cause disputes in practice.  Likewise, Article 1 does not provide clear guidance on how the "period specified by the people's court" is determined or its relationship with the 30-day period stipulated in the Company Law, which may lead to inconsistent adjudication standards.

B. Strengthening the Connection with the Basic Principles of Company Law

For example, Article 10, concerning the division of powers between the shareholders' meeting and the board meeting, regulates behaviors that are difficult to find a clear mandatory basis for in the specific provisions of the Company Law and fall more within the realm of corporate autonomy.  If the scale and boundaries of such intervention are not properly handled, it may potentially conflict with the Company Law's spirit of strengthening corporate autonomy.

III. Conclusion

The "General Provisions" section is problem-oriented and significantly enhances the operability of company law rules and the consistency of adjudication through innovative designs such as the judicial pathway for the resignation of the legal representative, horizontal disregard of corporate personality, and substantive review of related-party transactions.  Although there is still room for optimization in conceptual precision and the balance between rules and autonomy, its overall framework reflects the judicial interpretation's deep response to practical needs and active exploration of institutional construction.  In the future, by absorbing reasonable suggestions during the comment period, it is expected to become an important support for the implementation of the new Company Law, promoting the development of corporate governance toward greater refinement and stability.