| Article 16 is one of disputed issues in Chinese Company Law, and it is regarded as a norm about the conduct of corporate guarantee or investment in theory and practice. According to this view, whether the conduct of corporate guarantee or investment violating Article 16 is effective or not depends on the nature of this norm, that is, whether it is a compulsory norm or not. But this explanation is not in accord with the legislative purpose of Article 16. In fact, Article 16 concerns to the inner decision-making procedure of a company about the affair of corporate guarantee or investment, rather than the conduct of guarantee or investment between a company and a third party. Accordingly, Article 16 is just the basis on which the effectiveness of the decision of the shareholders’ meeting or the board of directors with respect to the affair of guarantee or investment should be decided. The decision that has violated item 1 of Article 16 is voidable due to its violation of the association of the company, and the decision that has violated item 2 of Article 16 is invalid because its violation of the company law.The conduct of corporate guarantee or investment which violates the inner decision-making procedure provided by Article 16 is the act ultra vires in its nature. Its effectiveness should be determined according to Article 50 of the Contract Law. The fact of violating the provision of Article 16 may become an important basis on which whether the third party is bona fide or not should be judged. When the decision of the shareholders’ meeting or the board of directors is revoked or confirmed to be invalid, the conduct of corporate guarantee or investment will still be effective except that the third party knows or ought to know the fact of extra vires. |
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