The Study On Directors' Duty Of Loyalty

The new trend of administration framework development in modern corporations appears as the gradually dwindling of the rights of general meeting, the increasingly expanding of the rights of directorate as well as the eventually replacement of " General - meetingism" by " Directoratism. " As the framework of stock ownership has been dispersed day by day and the corporation's business operation has become more and more specialized and complicated; the shareholder's influence and control in the company have become smaller and smaller while the influence of the corporation directors and directorate will expand increasingly. As a result, strengthening the director obligation is an important approach to protect the interest of shareholders, especially the small and medium ones, and to set up a practical and favorable corporation administration framework. It will inevitably violate the benefits of the large mass of investors, especially the small and medium investors, damaging their investment initiative and confidence, if it is not accentuating the fidelity obligation and the care obligation of the board of directors of corporation; In the meantime, it would not be able to play the necessary role for the scientific management structure of the corporation designed in accordance with the laws, if it is not accentuating the fidelity obligation and the care obligation of board of directors of corporation. However, the previous China Corporation Law of our country did not make detailed stipulations with respect to the as described above, resulting in the lawmaking holes, the new China Corporation Law (the one revised in October 27th, 2005) values very much the obligation system of the board of directors, establishing a special chapter (Chapter 6) stipulating" Qualifications and obligations of the board of director, monitors and senior managers of company" particularly, and increasing some obligation stipulations of board of directors, but it is still imperfect. It is required to improve the stipulations concerning the obligations for board of directors in the laws of our country.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.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 such duties: honesty, care and industry. To understand the director's loyal duty, we should make the legal relationship of corporation and director clear. On the 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. S dealing is one of the coral contents of the director's duty of loyalty. The author has demonstrated the concept,classification,components and features of self dealing in light of the knowledge of ethics,economics and relevant laws and put forward some ideas to better the related stipulations in our country's corporation law on the basis of studying the valuable legislative experience of foreign countries.Secondly, there are should not trade contests with company for directors. Directors should not contest with their company for their own profits or the third person's in the corporate business area. When we cognize trade contest, such factors as time, terrain and manner should been taken into account. But regulations for trade contests of directors vary from absolute inhibitory to relative inhibitory in many countries. According to the doctrine of relative inhibitory, generally, there are should not trade contests with company for directors. On the other hand, corporate law endows corporate organs with authority to approve of directors' trade contests by fair procedure. That is to say, it requires that directors involved should report to his corporate organ, and that only directors and shareholders who are not involved have rights to vote with legal duty of attention. This can protect profits of the company, the shareholders and the creditors.Part, directors should not usurp corporate opportunities. Trade opportunities are very important for company. What is corporate opportunities? How to judge? In America corporate law, there are three standards used, such as profit or exception, business area and fairness. Court usually will judge by business area standard mixed with fairness standard. Not all trade opportunities can't be used by directors. Those that company give up, transfer and have no ability to use can been used by directors. But it requires fair to company.Part three proposes the advices on perfecting the director's loyalty duty. To the duty of prohibiting usurping the opportunity of corporation, the article defines the scope, considers the exception of usurping the opportunity of corporation and stipulates the legal results. To the duty of prohibiting managing the same business, the article defines the content, proposes to change absolute prohibition into relative prohibition, broadens the scope of the subject and time and provides the responding resolution. To the duly of prohibiting self-dealing, the article defines the bound, set up the authority organ, provides the process of exposure and broadens the scope of the subject.To sum up, directors should bear duty of loyalty to their company. But in fact, Corporate Law is private law. So It should respect the interest autonomy of parties. Generally, Corporate Law should forbid self-dealing, trade contesting and usurping corporate opportunities. On the other hand, Corporate Law endows corporate organs with authority to approve of directors' trade contests by fair procedure which includes directors' report and fair approval.