Piercing the Corporate Veil

An Illustrative Case

In 1992, a metal plate plant, an agriculture machine company and a municipal old age commission established a biotech company (the Company). According to the articles of association, each party was to contribute Rmb100,000 in registered capital. However, because the old age commission failed to pay its registered capital, the actual paid in capital of the Company was Rmb200,000.

In January 1994, the Company borrowed Rmb200,000 from a bank against a joint and several liability guarantee provided by a local technology company (the Guarantor). When the Company failed to pay back the loan in accordance with the terms of the loan agreement, the Guarantor paid the loan amount plus interest to the bank in accordance with the guarantee agreement.