Allocating Fault Ratios for Unauthorized Instrument Execution under Civil Code Principles
PRC Civil Code fault ratios split loss between negligent seal owners and unverified counterparties, capping invalid guarantee liability at fifty percent.
Company Law Article 15
Meaning
Statutory capital investment and third-party guarantee provisions establish structural limits on corporate exposure to external financial liabilities. Under statutory governance rules, company law article 15 restricts a corporate entity from investing in other enterprises or providing guarantees to third parties without express resolution from its board of directors or shareholders. The provision establishes a fundamental boundary governing the authority of corporate officers in Chinese enterprises.
Statutory rules apply to private domestic firms and foreign-invested joint ventures alike.
Corporate Authority
Internal governance requirements mandate that external corporate investments or guarantees must receive formal sanction through formal corporate approvals. When an enterprise provides a security guarantee for a shareholder or actual controller, company law article 15 specifically requires a vote by the general meeting of shareholders, excluding the interested party from voting. Statutory liability limits defined within company charter documents set specific caps on total investment or guarantee amounts.
Agreements signed by a corporate legal representative without requisite resolution violate statutory internal procedures.
Creditor Verification
External commercial counterparties and financial institutions face affirmative duties to review corporate resolution documents prior to executing guarantee agreements. Under company law article 15, courts examine whether lenders and trade partners exercised reasonable prudence by inspecting board resolutions and company articles of association. Failure by a creditor to verify internal authorization results in the guarantee agreement being declared non-binding on the company.
Statutory Defect
Defective guarantees executed without statutory authorization convert enterprise exposure from primary contractual liability to secondary fault-based liability. If a guarantee is invalidated under company law article 15, the enterprise bears civil liability for no more than one half of the debtor’s unpaid debt based on civil fault. Securing binding guarantees requires rigorous document verification at contract execution.