Research On The Legal Regulation Of Control Rights Of Holding Companies

This paper makes an in-depth and systematic research of corporate controlling right, having holding corporations as a background. Corporate control right, as a cohesive tie of all corporation participants' rights and interests, is a comprehensive economic right comprising exceedingly abundant content. Controlling right has two sides. On one hand, it can raise the benefits of right holders. On the other hand, it can be misused by right holders and severely damage benefits of the corporation and stakeholders as well as cause imbalanced interests among all corporate stakeholders. This phenomenon becomes very prominent, especially as collectivization and scalization of corporate development going on nowadays. Therefore, rational allocation and rightful exercise of corporate control right play a very important role in modern corporate system. Legislation should put a proper regulation on controlling right of holding corporations to establish a well-structured and efficient mechanism to safeguard rightful exercise of corporate control right and realize value of impartiality and justice.This paper, making synthetic use of law theories and economic theories, explores a basic framework of legislative regulation on corporate controlling right based on an in-depth and systematic research of related issues of corporate controlling right of holding corporations by comparative study, historical analysis, norm analysis and empirical analysis, and aims to promote the development of theory and practice of corporation law. The paper is presented as six chapters, among which the first three chapters provide introduction, analysis and comment of concept categories, theoretical bases, basic principles related to controlling right of holding corporations. This part works as a theoretical fundation for the whole paper and builds a theory base for system construction in the rest of the paper. The last chapters focus on constructing a basic framework of legislative regulation on controlling right of holding corporations, and make a systematic introspection of related regulation system in China as well as propose corresponding measures of improvement.Chapter One discusses basic category of controlling right of holding corporations. Firstly, the chapter points out holding corporations can be defined in aspects of "holding stocks of other corporations" and "owning controlling right of other corporations", by combining the legislative and theoretical discussion on connotation and extension of holding corporations home and abroad. Holding corporations is defined as corporations which hold stocks or have an amount of the capital of voting right over 50% of other corporations, or substantially own controlling right of other corporations based on shareholding relationship. Based on this definition, the difference between a holding corporation and a parent corporation as well as other similar enterprise organization such as corporation group can be drawed. After that, corporate controlling right is fully discussed. The author holds that corporate controlling right is a conclusive right of exercising dominating influence over all recourses of the corporation and enjoying the benefits. Corporate controlling right is a presumptive right instead of a right in plain terms. However, the controlling right should be protected by law for its rationality of existence. Meanwhile, as decentralization of stock ownership and right differentiation within the company, corporate controlling right is showing a tendency of developing in a more and more independent, instrumentalized, systemized way with every passing day.Chapter two emphatically analyses theoretical bases, basic principles of legislative regulation on controlling right of holding corporations. Though there is rationality of corporate controlling right, controllers can easily misuse the controlling right to do harm to the benefit of the corporation and other shareholders because of control premium and amplification effect of private benefits of control. Therefore, there must be regulation of law to adjust this. The author believes the theoretical bases of legislative regulation on controlling right of holding corporations are consisted of Good Faith Principle, Prohibition of Abuse of Rights Principle in civil law and Stakeholder Theory, Principal-Agent Theory in economics. What's more, Efficiency Principle, Fairness Principle and Equilibrium of Interests Principle should also be followed when legislative regulation on controlling right of holding corporation is done.The Third Chapter presents the construction of a basic framework of legislative regulation on controlling right of holding corporations. As core content of this paper, this chapter, taking liability undertaking of holding corporations as a base firstly, makes a summary of legislative regulation mode on controlling right of holding corporations in common law system and civil law system and points out the traditional mode adopted in common law system which centers on "Piercing the Corporate Veil" and its derivative principles and featured as "Acknowledge in Principle, Deny on Exceptions", with a flexible regulation mode formed through case law. Deviate from Anglo-American law system countries, some civil law system countries has developed another legislative regulation mode on controlling right of holding corporations from the angle of corporation group. This mode adopts dual structured legislative technique and stipulates different ways of regulation according to controlling types of holding corporations. Therefore, this mode is called dual mode. The author believes the two above regulation modes come with neither one being superior or inferior to the other one. The key concerning is whether it is in compliance with actual development situation and legal tradition of one country. Considering China's tradition of statutory law, we can establish regulation mode on controlling right of holding corporations mainly based on civil law mode and concurrently take in traditional mode of common law system. Taking full consideration of ways of regulation on controlling right of holding corporations in all countries, the author thinks three aspects should be included when constructing a basic framework of legislative regulation on controlling right of holding corporations. Firstly, making principled regulations on general controlling acts, which means to make holding corporations to take obligation of good faith and put some restrictions on voting right, instrument of contention for controlling right, to constrain misuse of controlling right. Secondly, making specified regulations on typical controlling act, which means make dynamic and flexible regulations based on several typical forms of controlling right of holding corporations by typified research thinking. Thirdly, we should make judicial regulations on holding corporations' misuse of controlling right as well as establish a well-designed remedy mechanism to provide sufficient and thoughtful protections for the infringed.Chapter Four, Chapter Five, and Chapter Six present a specific analysis of the construction of a basic framework of legislative regulation on controlling right of holding corporations. Though arranging jurisprudence basis, sequence and trend, and legislation evolution of faith obligation in proper order, a conclusion that the relation between holding corporations and subsidiary corporations as well as other shareholders is defector relation of fiduciary duty is drawed. Holding corporations, being different from directors, bears the faith obligation, in which loyalty obligation should be primary and duty of care should be secondary. Additionally, principled regulations include restriction of holding corporations' excise of controlling right, which mainly manifested by exclusion of voting right and constraining intercross stock-holding by holding corporations and subsidiary corporations, and secondly by making specified regulation on several typical controlling acts. Combining corporation legislation home and abroad, the author makes an in-depth and systematic research of three typical cases of misusing controlling right including Related Transaction, Squeeze-out-Merger and Corporate Opportunity Doctrine. The author believe China should further improve regulations of Related Transaction and Corporate Opportunity Doctrine as well as introduce Squeeze-out-Merger system to provide sufficient systematic guarantee for constraining holding corporations' misuse of controlling right. Finally, in respect of judicial regulations on holding corporations' misuse of controlling right, various remedies should be provided for other shareholders and creditors of subsidiary corporations. As for subsidiary corporations and other shareholders, they can take direct suit and derivative suit as general remedy, voting right suit as specific remedy and company dissolution suit as final remedy. As for the creditors, the system of Disregarding of Corporate Personality can be further improved based on juridical practice and the Principle of Equitable Subordination and Substantive Consolidation Doctrine can be introduced. With reference of allocation mechanism of burden of proof from Theory of Compensatory Liability and Proper Concern System, we can establish regulations of converted burden of proof so as to reduce burden of proof on creditors of subsidiary corporations.