| Group companies, as a legal entity that dominates and is crucial to businessconglomerates, arise out of scale economy and business cooperation. By holding subsidiaries,they usually have the power to directly engage in or greatly influence affairs of theirsubsidiaries. It could bring damages to the interest of subsidiaries’shareholders and creditors,as related party transactions would constantly be happening between parent companies andsubsidiaries. However serious a problem related party transaction appears to be, it is rooted inunsound corporate governance. To solve this problem, effective and comprehensivesupervision is needed. Therefore, the key issue in prevention of unfair related partytransactions is how we could confine currently limitless power of group companies, as well ashow we could build up a relatively healthy relationship between parent companies andsubsidiaries.Focusing on group companies’control over subsidies, this article elaborates the naturalconnection between group companies and the phenomenon of related party transactions,analyzes current situation of this phenomenon in China, and explains its jurisprudential basisand value. By referring to corresponding legislations in countries like Britain, U.S, Germany,and France, it tries to find out the way that could lead to optimization of Chinese groupcompanies’corporate governance, regulation of control power exercise by group companies,and prevention of unfair related party transactions as well. This article intends to figure out ameans, by which interest of small or medium shareholders and creditors of subsidiaries couldbe well protected, and to provide institutional guarantee for keeping Chinese companiescompetitive worldwide. |
