A Research On The Corporate Regulation Concerning Self-dealing

This paper focuses on a specific kind of potentially asset-diverting behavior on the part ofcorporate insiders, self-dealing transactions. Self-dealing refers to a trade between thecorporation and its insiders (i.e., directors, managers, controlling shareholders) or the thirdpart which is related to the insiders. Based on the analysis of characteristics of self-dealing,it is concluded that self-dealing strongly promotes spoiling the benefits of the corporationand its minority shareholders although it also maintains the advantages of decreasingtransaction cost and expanding business. Therefore, self-dealing should not totally beprohibited but should be strictly regulated.The paper then describes the individual legal tools adopted to regulate self-dealingtransactions (i.e., disclosure, approval or ratification by the board, approval or ratificationby shareholders) in other countries and analyzes the difference of the regulations in thesecountries. The analysis shows that the regulation of self-dealing depends on manyeconomic and social factors, such as the structure of share-holding, the maturity of capitaland manager markets, cultural and judicial traditions as well.Subject to the economic and social factors of our countries, the paper advocates a reformof the applicable regulations with respect to self-dealing in the corporation Act of thePeople's Republic of China. To be specific, our legislature should expand the applicationof self-dealing, improve the procedural regulations dealing with self-dealing, emphasizecorporate insiders' the duty of royalty, and elaborately specify the legal responsibilitiesoccurred once corporate insiders conduct a self-dealing.