Study On The Duty Of Loyalty Of Controlling Shareholders

Controlling shareholders refer to the shareholders who get the ability to control the company. And the self-trade is a business between the controlling shareholders and the company, it belongs to benefit conflict trade and plays an important role in duty of loyalty rule. The article takes the fair-trade in controlling shareholders'self-trade as an object to interpret the controlling shareholders'duty of loyalty. Due to the special status of controlling shareholders, every country has taken proper measures to adjust and regularize the controlling shareholders'self-trade to assure impartiality of it. And the American self-trade rule is more developed than other countries. The current rule for self-trade are procedural fairness rule and substantial fairness rule.The paper is divided into three parts. It first talks about the judging rule of controlling shareholders; then the article specifically interprets the duty of loyalty of controlling shareholders by fair trade duty in controlling shareholders'self-trade through the analyzing the theoretical basis of duty of loyalty of controlling shareholders.The first part gives an introduction to the judging standard and developing trend of the controlling shareholders and the inspiration caused by them. It also shows the author's points of current legislation on judging controlling shareholders in our country. This chapter catalogues the judging standards of controlling shareholders into objective standard, deduced standard and actual standard according to the developing trend and explains respectively. In my view, the premise of studying on the duty of loyalty of controlling shareholders is to find out the company laws with the controlling shareholders as the core; and it is more theoretical and practical to study this problem in China where the relevant law is not well-set. Then itt talks about two enlightens brought to us due to the development of the judging standards of controlling shareholders. At the end of this part, the author comes to the conclusion that the law on controlling shareholders is still less and has not been well-studied in our country.The second part mainly focuses on the origin, law basis and content of the controlling shareholders'duty of loyalty. In the first part of the paper, the major points of the scholars in our country to the law basis of the controlling shareholders'responsibility of taking the duty of loyalty are listed by recounting the emergence of duty of loyalty of controlling shareholders and the fiduciary duty which is represented by American law and the creditor duty which is represented by the Germen law. In my opinion, it is proper to take fiduciary duty as the law basis of duty of loyalty taken from controlling shareholders to non-controlling shareholders. When the controlling shareholders get the factual right of the company due to their advantage of share, they are considered to inherit the character of the company and have a dual-identity of both trustor and trustee, in this way, they can control the share of small shareholders. They also need to perform the duty as a trustee as the governor of the firm. The second part of the thesis first takes the duty of loyalty of the shareholders as the main content; then simply discussed the object of controlling shareholders which is including small share holders, creditors and other benefit-related people in the point view of the author; finally, the paper lists the major existing situations of the duty of loyalty of controlling shareholders and explained each respectively.The third part interpreted the duty of loyalty of controlling shareholders specifically by using the fairness trade duty in self-trade as the example. The chapter first analyzes that the necessity of emphasis fairness trade duty of controlling shareholders in self-trade. One reason lies in the unequal identity and information between controlling shareholders and other shareholders as well as creditors. Besides, the existed unfairness and the abuse risk become the other reason. Then this part lays an emphasis on the introduction of the legislation and cases in Delaware, of which the company law is leading the development of America company law both theoretically and practically. In my opinion, the commercial judging rule and the standard of actual fairness rule chose by courts in Delaware greatly enlightened the legislating and executing the law in our country. Also, the author puts forward that because the trend of"director's outlaw transaction"and the self-trade caused by it become a common phenomenon, it is easy for the controlling shareholders in listed company to abuse their right. So it seems important to legislate a rule to control it. In the end, the author simply introduces the current rules in company law and negotiable securities law in China and raises eight suggestions for controlling shareholders'self-trade with the aim of constructing a consummating fair-trade duty rule. The author suggests use the related penal code to punish the controlling shareholders by consummating the criminal law responsible mechanism and stop the outlaw behaviors.