The Duty Of Loyalty Of Controlling Shareholders

In the traditional company law field,the duty of loyalty always bore by the directors and the managers. The shareholders bear no duties except the duty to pay what they promised to give the company as their investment. But controlling shareholders have strong powers of controlling and commanding to corporation matters which the minorities can not have forever and sometimes they can even control directors and managers. And they may abuse their control power to pursue their own benefits which perhaps opposite to the interests of corporation and minority shareholders. Nowadays the controlling shareholders begin to abuse their power more seriously,as the equality rule develops from formalism to substantive and people begin to realize the defects of the majority rule,the scholars of the company law think that the undertakers of the duty of loyalty should conclude the controlling shareholders. Up to now,the duty of loyalty of the shareholders have already appeared in many countries' company law.Controlling shareholders should owe corporation and minority shareholders the duty of loyalty. They have to treat minority shareholders fairly,and can't benefit themselves at the expense of the interests of corporation and minority shareholders. Controlling shareholders' oppression on minorities,unfair self-dealings, freeze-outs, insider-trading,usurping corporation opportunities and improper sale of their control for premium are held to violate their duties of loyalty to the corporation and minority shareholders. These behaviors are not only against the companies and the interests of small shareholders, but also endanger the development of the market economy and social stability.It is a hot topic of company law to effectively restrict controlling shareholders' abuse of control power and protect corporation and minority shareholders' rights and interests. Judging from successful experience of company laws in countries adopting the two genealogies of law,legal mechanism should focus on: prescribing the duty of loyalty for controlling shareholders so that the duty will constrain their behaviors once they are in the position of forcing an impact; stipulating that controlling shareholders assume responsibility of compensation for damage caused by their abuse of control power; establishing and perfecting legal protection mechanism for minority shareholders which includes cumulative voting, system of classificatory shareholders' meeting, voting restriction system and system of dissentient shareholders' right of application for stock repurchase. Since these systems show concept of modern company law that all shareholders are equal and entitle litigious right to shareholders, they remedy and protect shareholders' rights and interests from damage.China's new "Company Law" stipulate the concept of controlling shareholders and some mechanisms to prevent its right abused. These provisions will undoubtedly play a important role in the regulation of controlling shareholders and the protection of corporation and minorities .but it still have some defects such as no mention of the controlling shareholder's duty of loyalty, the specific content of the duty and relief measures are not perfect. China should learn from advanced legislative experiences and achievements of other countries in legislation and explicitly stipulated that controlling shareholders should undertake the duty of loyalty to corporation and minority shareholders , and supplemented it by the relevant support mechanisms, improve the operational rules, thus will protect the corporation and minority shareholders ' rights and interests more effectively. So some concrete legislation proposals are put up in order to perfect the corporation law system of our country.