Research On The Shareholder's Derivative Action

The launching of Article 152 of China's newly amended Corporation Law establishes Shareholders' Derivative Action, which guarantees the interests of both companies and shareholders. Although this regulation is applicable, it fails to address some particular features of shareholders' derivative action.This paper reviews the concept and jurisprudence basis of Shareholder's Derivative Action and compares it with direct action. The argument that it is legitimate for shareholders to have the derivative action provides a sound jurisprudence basis for Shareholders' Derivative Action and the adoption of "General Theory of Parties" lays a theoretical foundation for its procedure. Special features of Shareholders' derivative action are found in terms of rights, origin, purposes of the person with the rights, the beneficiary of the verdict, the extended issues as well as rules and limits for its procedure.Although originated from Anglo-American law system, Shareholders' Derivative Action is based on the Continental Law System. A comparison of shareholders' derivative action in countries like UK, France, Germany and Japan offers sensible suggestion for such a law in China. From the comparison both the differences and similarities are found between all these countries. The American Shareholders' Derivative Action stresses that to become a plaintiff a shareholder must "hold shares during the lawsuit" and stand for the interests of the company; shareholders as plaintiffs must try their best to carry out internal remedy in the company before the lawsuit; the courts will supervise the contents of the suit mediation and reasons for cessation. Correspondingly in UK, the shareholder as the plaintiff must apply for the permission of the suit within a reasonable deadline after filing the suit and make sure the three key elements: "irrevocable" mistakes of the shareholders' derivative action, the control of the company by the tortfeasor and no objection from the "proper independent organizations". Germany features a permission procedure before the suit and second application procedure while Japan makes specific regulation on the written statement of no suit, the filing of suit in a merged and restructured company and conditions for a second settlement.Before the rolling out of new article in the Company Law, related regulations, only available in local judicature, are lacking in legislation. Even in judicature, the filing of the case is subject to change. After the review of the legal practice and judicature practice and an analysis of the key cases in China, we are in a position to interpret Article 152 in the new version of Company Law.In light of the fact that there is no related regulation on the special occurrences in shareholders' derivative action and based on practices of the legislation and judicature, we make a series of suggestions for perfecting the Action in question on the changing shares of the shareholders before and after the suit, the position and involvement of the company, the participation of other shareholders, the mediation of the suit, the duty of notification and dual derivative action.