Briefcase on Corporation LawStella

October 12, 2010

Company and its Branch Company

Case Summary

PARTY A：Warren Construction Company PARTY B： Branch Company of PARTY A PARTY C： Yangzi Hotel

Case Summary

PARTY C and PARTY B signed an Accommodation Contract (hereinafter referred to as “the Contract”) on May 21, 2004.

In accordance with the Contract, PARTY C shall provide accommodation service for PARTY B and PARTY B shall pay for the accommodation fee.

PARTY B enjoyed the accommodation service for 2 years. PARTY B owed PARTY C 90,000 RMB accommodation

fee and PARTY B failed to pay. PARTYC sued PARTY B for a breach of the Contract.

Case Summary

Yangzi Hotel（ creditor）

Branch Company（ debtor） Warren Construction Company

Accommodation fee90,000RMB

Lawsuit

Plaintiff： PARTY C Defendant： PARTY B PARTY C claimed that (i) PARTY B is granted a business license; (ii) PARTY B has its own properties; (iii) PARTY B breached the Contract and failed to pe

rform the obligation under the Contract and (iv) PARTY B shall perform his obligation under the

Contract (i.e. PARTY B, as one PARTY of the Contract, shall pay the accommodation fee.)

Lawsuit

PARTY B defended that (i) it is a branch company of PARTY A; (ii) it does not have the legal personality of a

company and (iii) PARTY A shall bear all the civil liabilities

caused by its branch company.

Points in Issue

Which party do you stand for? Can a branch company be a subject of

litigation? Shall company bear the civil liabilities

caused by its Branch Company’s conduct? Discuss the legal relationship between Parent

company (holding company) & Subsidiary Company and Company & its Branch Company.

Legal Issues Concerned

I. Type of Company Parent Company and Subsidiary Company A parent company is a company that owns enough voting

stock in another firm to control management and operations by influencing or electing its board of directors; the second company being deemed as a subsidiary of the parent company.

Company and its Branch Company Whether a company belongs to another company or is go

verned by another one

Legal Issues Concerned

II. Legal Relationship between Company and its Branch Company; Parent Company and Subsidiary Company

Companies may register branch companies. Applications for incorporation of branch companies

shall be submitted to the company registration authorities and a business license shall be issued for successful applications.

A branch company does not possess legal person qualification and its civil liability shall be borne by the company.

Legal Issues Concerned

Compare: Companies may incorporate subsidiaries. A subsidiary possesses legal person

qualification and shall bear civil liability independently in accordance with the law.

A Subsidiary is independent from the parent company.

Legal Issues Concerned

III. Branch Company may become a subject of litigation

Although branch company is not a legal person, in accordance with the article 49 of the Civil Procedure Law of the People‘s Republic of China, it may become a subject of litigation. But the liability shall be borne by the Company.

Article 49 Any citizen, legal person or any other organization may become a party to a civil lawsuit. Legal persons shall be represented by their legal representatives in litigation. Other organizations shall be represented by their principal leading personnel in litigation.

Legal Resource

Company Law of the People’s Republic of China Article 14

Civil Procedure Law of the People‘s Republic of China

Article 49

Thank you !