The Effectiveness Of Forceful Purchase Of Shares Through Amendments Of A Company

In the past several years of legal practice in China, several influential cases of forceful purchase of minority shares through amendments of corporate by-laws. Similar cases might happen ever more often because of the development of the private economy and corporate mechanism in China. As a country of civil law system, China uses statutory law but has not fully developed its corporate law system. The forceful purchase of minority shares through amendments of by-laws is one unresolved case among them. Courts' decisions on this type of cases vary and they are different from provincial legislations. Therefore, in the future legislation and legal practices, this issue should be analyzed and properly addressed. In this article, the author tries to discuss ways judges could use in dealing with this type of issues with Law and Economics models, more specifically C&M model.Apart from the introduction and conclusion, this article is divided into three parts. In the first part, the author analyzes the differences between original by-laws and amendments of a corporation, and concluded that although certain shareholder rights can be restricted by original by-laws, they cannot necessarily be restricted by amendments. The author also analyzes the reasons why the "majority rule" and "fundamental rights" theories do not apply to the problem of forceful purchase of shares, and why theories of Law and Economics are applicable here. In the third part the author uses the C&M model to analyze the issue of forceful purchase of minority shareholders through amendments of by-laws. The author starts the analysis by explaining the basic theories of Law and Economics, and the C&M model. Applying the C&M model into the problem, the author concluded that court should allow the forceful purchase, under the condition that company must pay a reasonable price that is decided by the court. In the fourth part the author gives an exact method of calculating the price. There are two methods of calculating the price:fair market value and company share value. The fair market value does not apply here because the loss that potential buyers might suffer and thus attempt to pay lower price does not affect the company as the buyer. The company should at least pay the company share value to the minority shareholder. In addition, the company should also pay minority shareholders' loss from being losing the job and managing position. The date of evaluation should be the date of the law suit being brought up under normal circumstances, with the exception of company's obvious attempt to expel the shareholder, in which the evaluation date should be the starting date of the expelling behavior.