Protecting the creditors of limited liability companies: a comparative view of the United States and China
This study analyzes the laws relating to creditor protection, governance, and information disclosure in limited liability companies of the United States and China and proposes new ideas for the protection of the rights of creditors of limited liability companies in terms of strengthening the protection of their right to information and providing them with channels to participate in corporate governance. The limited liability company combines the shareholder-friendly limited liability feature of corporations with those of the closed nature of partnerships - the former may be abused by members, and the latter is likely to create more significant information asymmetry between inside and outside the company, which disadvantages the creditors of the limited liability companies. Nonetheless, the existing laws and regulations insufficiently focus on the rights of such creditors. Traditional remedies for LLC creditors are limited in that they do not effectively constrain the behavior of shareholders ex-ante to prevent them from abusing limited liability to the detriment of creditors, nor do they provide adequate ex-post relief to creditors. The law should establish a comprehensive right-to-information system for creditors of limited liability companies, set minimum standards for the disclosure of information by limited liability companies to the public, and provide creditors with tailored and specialized channels to learn about the financial and asset status of companies. Moreover, the law can establish a mechanism for creditors to reasonably participate in corporate governance within the scope of their claimed interests: the creation of positions of creditor directors or creditor supervisors to strengthen creditors' supervision of the company's operating conditions and the establishment of a standing creditors' meeting to establish interaction and communication among creditors, leading to further reduction of information asymmetry.
Creditor protection, limited liability companies, creditors, China, United States, Business Organizations Law, Comparative and Foreign Law, Law, Legal Studies
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