Study On Legal Issues Of Shareholder's Representative Action

In the real economic life, the directors and senior managers of the company usually use their power and influence to infringe upon the rights of the small shareholders and the interests of the company, but the internal relief mechanism of the company can not solute this problem in a good way. Therefore the shareholder's representative action shows an important theoretical and practical significance as a powerful weapon to protect the rights of the small shareholders. The shareholder's representative action provides an effective relief way when the company suffers from the violations and refuses to exercise its right to lodge an appeal because of various of reasons. And it makes the majority of shareholders especially small shareholders'rights getting an effective maintenance. The shareholder's representative action plays an important role to make up for deficiencies of corporate governance structure and the lacking of other relief methods and then ensures the normal operation and the smooth development of the company.In order to fill in the legislation gap of the shareholder's representative action, the new China Corporation Law was amended and adopted in the 18th meeting of the Tenth National People's Congress Standing Committee meeting holding on October27th in 2005. It introducd the shareholder's representative action and broke through the general principles of corporation law and the traditional theoretical framework of procedural law. These provided a new effective way for the protection of small shareholders'rights and interests.But it is a pity that we gradually discovered a number of application problems in judicial practice with the passing of time. Since the system is transplanted based on the foreign legislation, some provisions in the Corporation Law are so principle and unrealistic that it is too hard to operate. There are also some omissions in the need for further exploration and research. So this system also faces a problem that how to get a better combination with our country's conditions, which provides a certain amount of space for the scholars to study deeply.This article uses a comparative method and mainly analyzes the comparatively typical and perfect system of shareholder's representative action of foreign countries. The statement points out the deficiencies and omissions of legislation, and also give some policy proposals to futher improve the litigation of our shareholder's representative action based on the useful experience of developed countries in order to make a contribution for the establishment of the system in China. The full text is divided into introduction, body and conclusions .And the body part includes three chapters:The first chapter is the basic theory of the shareholder's representative action. This statement introduces the concept and the characteristics of shareholder's representative action and analyzes the emergence and development of it. And we can find it has very differences with the direct action and the common representative action by comparing these three institutions. The shareholder's representative action refers to a form of action which the shareholder prosecutes in his own name against the infringement for the interests of the corporation when the body refuses or fails to invoke the right which should exercise it. And the compensation gained form the suit belongs to the corporation. It has some features such as subrogation,representativeness,altruism and some other characteristics. This system was established in the common law countries in the early of the 19th century, and now it has been used by most of the countries all over the world after its development of more than 100 years.The second chapter is the entity analysis about the shareholder's representative action. In chapter is divided into four aspects. First, it is about the restrictions of the plaintiff qualifications. The restrictions to the plaintiff qualifications are the shareholder's identity, the time of share holding, the number of share and the fairness of shareholders. Second, it is about the scope of the defendant. It is not appropriate that the scope of the defendant is restricted because the shareholder's representative action has the subrogation. The one who can be prosecuted by the company should also be the defendant of the shareholder's representative action. Third, it is about the position of the corporation. The new China Corporation Law does not clear and definite the corporation's position in the shareholder's representative action. The corporation is defined as a third person with no independent right to request by analyzing some theories and referencing the experience of legislation and practice in other developed countries and regions. Finally, it is about the status of other shareholders. We can reference the current common practice all over the world. That is when the litigation is start the other shareholders should be allowed to participate in the litigation. It could enhance the representation of shareholders, and also be helpful to identify the facts of the cases.The third chapter is the legal procedure system analysis of shareholder's representative action. This chapter mainly introduced some important procedural issues in the entire process of the shareholder's representative action. Including pre-procedure, jurisdiction, litigation guarantees, litigation settlement and compensation for legal costs. The purpose of pre- procedures is to give consideration to both sides of the interests of the companies and shareholders. At the same time it can prevent a few shareholders from abusing their power and against a result of overcharging. Chinese legislation on the pre-procedure has get closed to the world advanced level, so it is very effective to prevent the issue of overcharging. How to regulate the jurisdiction of the shareholder's representative action is the problem to be resolved in judicial practice. In order to facilitate the company or other shareholders to participate in proceedings and in favor of the court to ascertain the facts we should learn from Japanese legislative model which has an exclusive jurisdiction system. We should make the place where the company's main office locates as the exclusive jurisdiction court. Litigation guarantees means the plaintiff shareholder provide certain guarantees to the court, in order to be beneficial to implementation of the compensation liability to the company and defendant. The new China Corporation Law does not have information on the specific terms of security, so it still need some further improve in the practice; Under certain conditions litigation settlement is the way which is more efficient and more effective than court decisions. And it is also a way showing more effectiveness of the litigation. We should allow the plaintiff and the defendant to reconciliate under the premise of setting some certain restrictions. Compensation for the cost of litigation can make the majority of shareholders to supervise the operation more actively. And it can also protect the rights and interests of the company and shareholders more effectively. So we should learn from the American and Japanese legislation and endue the right of compensation for legal costs to the shareholders.The content of the shareholder's representative action is complex. This article seeks to combine the content of the entities and procedures with the situation of the Chinese legislation and judicial practice closely based on the analysis of the basic theory. There is a hope to provide some reference and inspiration to rich and perfect the shareholder's representative action .