Research On The Legal Status Of The Company In Shareholder Derivative Lawsuit

The nature of the company is just a tool of Shareholder investments. The shareholders of a company shall be entitled to enjoy the ownership and interest of the company. To design the system of the company, we should always implement the philosophy of shareholder-oriented so as to protect the benefit of the shareholders to maximize from all levels. Shareholder-oriented does not mean that the management of the company should be operated by the Shareholder themselves. The basic principles to operate the modern company are the Separation between the Shareholder and Staff who manage the company. The Shareholders appoint the professionals as the director or manager of the company to operating the business actually. The director or manager must bear loyal and diligent liability for the company, when breach of duty that cause any property loss, the Companies should take all possible measures actively to prevent the expansion of the loss, and claim compensation of the damage which has already happened. If the company do nothing to exercise this right, shareholders,as the ownership of the company, may exercise a filing of a lawsuit for damage claim, When the company refuses to lodge a lawsuit after it receives a request of the shareholders, Shareholders, may have the right to sue on behalf of themselves. The reason why it is referred to as derivative lawsuits is that the right of action exercised by the shareholders comes from the company, not from the shareholders themselves. Shareholders do this on behalf of the company, not on behalf of themselves. In the nature, derivative lawsuits exercised by the shareholders are done for the company. It is similar to the civil law-suit on behalf of creditors. Since the derivative lawsuit instituted by the shareholders is in essence to the interests of all shareholders, therefore it is similar to the procedural law of class actions. The vested interests which won by the lawsuit are belong to the company who enjoys the rights and entity interests of derivative lawsuit. The outcome of the proceedings belongs to the company directly, not to the shareholders. Favorable determination causes statutory obligation that the accused should make the payment to the company. Adverse determination would limit the further prosecution by the company. In addition to the substantive rights, the exercising of the right of the derivative lawsuit also replaces and restricts the right to appeal directly and the right to act the company's debt. As the proceedings of the derivative lawsuit impact on the company's rights and rights of action, based on the principle of due process, one party has the right to impact on the proceedings and the outcome of the suit when the conduct of the proceedings of the suit would inevitably have an impact on the rights of this party. That is to say, the party has the right of participating in the proceedings and to claim or defend the subject of litigation. Then in the derivative lawsuit, the company should have the status of the proceedings is beyond doubt. The problem is what is the legal status of the company involved in derivative lawsuit? Which rights of action to be enjoyed and which Obligations to be committed? Legislation from every country gives the different answers, and even some answers are significant different. There are no provisions given by Company Law of the People's Republic of China to the questions stated above. The court's practice is also inconsistent. It is necessary to carry out the thorough discussion in theory. In this thesis, through the methods of comparative study in chief, it studies the litigants system of derivative lawsuit in the United States, South Korea, Japan and China's Taiwan region. And also, based on China's legislative and judicial practice, it discusses the provisions in the Company Law of the People's Republic of China. On this basis, it proposes amendments for the legal status of the company involved in derivative lawsuit. In addition to the introduction of this thesis, the thesis is divided into five sections, now these are summarized as follows:The first section: Outline of the Shareholder derivative lawsuit. In this section, the author tries to introduce the conception and origin of the shareholder derivative lawsuit, analyzing its characteristics. So that readers may derive the shareholder derivative lawsuit as a whole.The second sections: the plaintiff and defendant in the shareholder derivative lawsuit. In this section, it discusses that how to determine the plaintiff and the defendant in a shareholder derivative lawsuit in the common law or civil law countries. As to qualifications of the plaintiff in the shareholder derivative lawsuit, restrictions are in three aspects: Shareholding time, shareholding ratio by the shareholder of the plaintiff, as well as the fairness of the proceedings. As to qualifications of the defendant in the shareholder derivative lawsuit, they are liberal or strict in the legislation from every country, Such as free legislation style represented by the USA, and limit type represented by Japan.The third sections: status of the company in the Shareholder derivative lawsuit. Whether (or not) and in what capacity should the company be involved in derivative lawsuits, Legislation from every country are widely divergent, and there are no provisions in the Company Law of the People's Republic of China. In this section, the author elaborates in detail the reason that the company's shareholders should participate in the derivative lawsuit. On the basis of comparative analysis of the legislation between it is in civil law country and in common law country, being combined with China's theory and practice in civil litigation, it tries to bring up that science the Purpose of shareholders participating in the derivative lawsuit and the types of cases are always not the same, the style of their participating in its proceedings are always made diffidence. It is needed to research respectively that the company participating in the derivative lawsuit in deferent situation. The company is the Party who has multiple identities. 1. The company is the plaintiff in essence in representative action, Shareholder litigation is on behalf of the company that the court's decision is on the binding to the company. The vested interests which won by the lawsuit are belong to the company who enjoys the entity benefit. 2. The company also could be third party. In the proceedings, if the company considers that there exists something conspire maliciously between the Shareholder and the defendant, which damages to the interests of the company, it may apply to join the lawsuit actively. However, the only reason of the company's Participate in the proceedings is for preventing a negative outcome from the litigation. So it is such a third party which has no independent claim to the object of action. Therefore, when shareholders lodge a representative lawsuit in the court, the company may participate in the proceedings for the following two circumstances:The first circumstance is that the company considers it is proper to lodges such a lawsuit in the court, through which the company may achieve their own rights to the accused, but it is needed to prevent a negative outcome from the litigation.The second circumstance is that the company considers it is not proper to lodges such a lawsuit in the court, the company wishes to participate in the proceedings in order to defense the improper conduct of lawsuit lodged by the shareholder and protect the rights and interests of the company. In those both cases, the form that the company participates in the proceedings of the shareholder representative lawsuit are not the same; in the first circumstance, the company has the status of Co-plaintiff, and in the second circumstance, called the third party which has no independent claim to the object of action.The forth sections: status of the other Shareholders in the Shareholder derivative lawsuit. The rights of appeal exercising by the Shareholders belong to the company. In theory, therefore, all the parties of shareholders in civil litigation shall have equal litigation rights. When a shareholder or shareholders lodge(s) such a lawsuit in the court, other shareholders also have the same rights to sue in the same incident, which can not be deprived. However, for the reason of efficiency considerations, many countries restrict to sue in the same incident after a shareholder or shareholders lodge(s) such a lawsuit in the court. In this section, the author makes the comparative analysis of the major national legislation and proposes the legislation designed of status of the other Shareholders in the lawsuit.The fifth sections: the lack of the provision of Shareholder derivative lawsuit stated in The Company Law of the People's Republic of China; and legislative proposals.Only in Article 152 of the Company Law, there is a provision of Shareholder derivative lawsuit; and its specific content are too principally and abstract, lacking in procedural requirements, with the result that the system's Operability is not strong. In this section, respectively from the theoretical and practical point of view, the author tries to analyze the lack of the provision of such question in our Company Law, and to give the legislative proposals that how to improve our shareholder derivative lawsuit system.