The Study On The Creditor Protection Mechanism Of One-man Company

The establishment of a company has the constraints of funds and theshareholders’ number when the company system just occurred to protect the interestsof the company’s creditors and relative transaction people. For many investors ofsmall enterprises lack of capital and shareholders that will form a formidable obstacle.So some people began to pull persons who didn’t invest capital into the company tofill the statutory number of shareholders. In fact, the formation of this phenomenoncan’t be prevented by legal means. One-man company emerged under this kind ofenvironment. One-man company provisions were written into the "company law" in2005. One-man company adapts to the requirements of the rapid development ofmarket economics. This helps to encourage investment. The shareholders can enjoythe privilege of the limited liability when the one-man company is founded. Theydon’t have to face the risk of dissipate one’s fortune with a little carelessness as ever.Sometimes individual enterprise can also enjoy preferential of taxes when they appearin the form of company. But one-man company has been in controversial since itappeared. A lot of single shareholders of one-man company fraud creditor, breakcontract, avoid obligation, engage in unfair competitions and other illegal acts.Problems about one-man company can’t be solved only in the traditional theoreticalframework of company law. So we should prevent the harm that may form followingthe trend of the development. We should establish a rigorous one-man companycreditor protection mechanism.One-man company conflicts with the basic theory of traditional company lawbecause of its sole shareholder, such as: First whether one-man company belongs tojuridical association, second whether non juridical association can enjoy the right oflimited liability. The sole shareholder of one-man company enjoys limited liability onthe part of investment. But it will be difficult for the creditors to guard against if theshareholder makes use of the company to implement fraud under the environment ofsingle shareholder, single capital, and the single shareholder of the companymanaging the company. One-man company lacks of power of balance from internal self-constraint, while the external power of balance is not easy to detect the internaldefects. So the control function can’t be formed in time. It also increases thepossibility of violation of the social economic order of one-man company. A singleshareholder will pay more attention to their personal interests in the management ofthe company disregarding of the company ability of debt undertaking. Once the badconsequence appeared, they will be passed on to others to undertake by limitedliability mechanism.Our current "company law" use special sections to regulate one-man company.Most of the provisions of the “company law” on the ordinary companies also apply toone-man company. The following aspects are the damages which are easily caused byone-man company system: First it is difficult to determine the main registration andpublicity subject, provisions of the items which should be registered are unknown, theannouncement of the forms are not unified, approaches to registration andannouncement are not direct and the corresponding civil liability is not stipulated inthe company registration and publicity system. Second the internal governancestructure of one-man company is in imbalance, the phenomena of self-trading whichmay exist are easy to cause the injustice to creditors. Third financial accountingpersonnel are hired by the internal system, so their interests are attached to thecompany, and it’s easy to produce the phenomenon of accounting fraud, the virtuallack of audit supervision units and the audit responsibility also makes audit a mereformality. Forth it is difficult for creditors to exercise the right of claim andsupervision. Fifth one-man company legal person system is unfair to creditors.The interests of the creditors of one-man company can easily be damaged. So Ithink we should establish a set of creditor protection measures mechanism which ismore stringent than the ordinary company. Different from the previous studies on theway of one-man company creditor’s legal protection, the author emphasizes theprotection of the interests of one-man company creditor to the implementation ofspecific measures, such as: First improve the registration publicity system ininformation disclosure, define the subject and form, uniform commercial registersystem and so on. Second introduce the special responsibility of single shareholdersystem to limit the abuse of rights of the shareholder. Third strengthen the internal control and external supervision, prevent discreditable behavior to supervise theone-man company financial. Forth give creditors direct rights to request the directorundertake liability, expand the participation right of the creditors in the companyliquidation system. Fifth adjust the applicable elements of personality denial systemof one-man company.