Piercing Corporate Veils under Revised PRC Company Law Provisions
Revised PRC Company Law expands debt liability across sister affiliates and forces single shareholders to prove independence or assume full joint liability.
Single Shareholder Burden of Proof
Meaning
Legal presumptions regarding the liability of a sole owner shift the requirement of demonstrating financial independence onto the shareholder instead of the creditor. A single shareholder burden of proof is a statutory rule in one-person limited liability companies that requires the owner to prove that the company property is independent of their own personal property.
Financial Separation
Limited liability protection depends on the owner meeting a specific accounting standard. If the owner cannot satisfy the single shareholder burden of proof, the law assumes that the assets are commingled.
Evidentiary Reversal
Disclosure requirements exist because the sole shareholder has complete control over the financial records and operations of the business. This single shareholder burden of proof protects creditors who would otherwise find it impossible to penetrate the internal accounting of a private entity. The owner must present annual audit reports prepared by a certified public accounting firm to show that the company funds were never used for private purposes.
These documents serve to validate the separation of interests and prevent the arbitrary withdrawal of capital for personal gain.
Litigation Outcome
Judicial decisions depend entirely on the ability of the shareholder to produce credible financial documentation. When a creditor sues a one-person company for unpaid debts and the single shareholder burden of proof is not met, the court will rule that the shareholder is jointly and severally liable for the obligations. This ensures that the simplified structure of a one-person company does not become a tool for defrauding suppliers or lenders.