On Director's Loyalty Duty

An important characteristic of the modern corporation law is the separation of enterprise ownership and enterprise operation, as a result, the focus on the shareholder conference shifts to the focus on the board of directors. With this historic reality, the common directors cannot directly participate in the real operation and management of the corporation, while the limits of operation rights of the board of directors expand increasingly. Rights and duty are closely associated. As rights expand, if the corresponding duty is not strengthened, rights may be abused. So, the operator of corporation should be encouraged to develop their talents fully to bring more profits for the corporation and more rewards for shareholders, at the same time, it is natural to moderately strengthen the legal duty for the corporation and shareholders by operators, especially directors, to avoid and reduce the conduct of rights abuse by operators. The corporation laws in many countries have regulations on director's duty, so our country is no exception. However, it should be admitted that the regulations on director's duty and responsibility are need to be improved in Corporation Law.Starting from the director's loyalty duty stipulated in the current laws, comparing with the stipulation of the developed countries, the writer appraises the stipulation of our country and proposes responding advise.The article can be divided into three parts:Part one introduces the meaning, the theory foundation and the content of director's loyal duty. Director's loyalty duty is a kind of moral duty, rising from the trust relationship between director and corporation. Director has suchduties: honesty, care and industry. To understand the director's loyal duty, we should make the legal relationship of corporation and director clear. On ihe relationship of corporation and director, in English-American Legal System, there are the theory of agent and the theory of trust; in Continental Legal System, the theory of appointment and the theory of agent are the theory foundation. The opinion of the article is not in contradiction. So directors should be entrusted to double legal status. Director's loyalty duty includes: prohibiting usurping the opportunity of corporation; prohibiting managing the same business; prohibiting self-dealing.Part two introduces the director's duty stipulated in the current laws and analyses the defects. To the director's duty of prohibiting usurping the opportunity of corporation, there are following defects: there is no concret standard to define the opportunity of corporation; there is no approval organ and responding process; there is no stipulation of the legal results. The stipulation of prohibiting managing the same business is too strict. The behavior of managing the same business is unavoidable. If we can use it in a correct way, it will benefit not only the corporation but also the national economy. So it is should not be forbidden completely. And there are also questions about the scope of the subject, the period, the scope and the concrete legal results. The stipulation of prohibiting self-dealing is too hard and lack of elasticity. It is a common thing in the developed countries that director's duty of prohibiting self-dealing is open in a limited scope. But in our country it is completely prohibited, just like: the rule of approving process is not perfect; the scope of the subject of the deal is too narrow; the scope of the content of the deal is not clearly defined; the prescription of the exposure duty is also not...