A Legal Study On Protecting The Shareholders' Rights In Sales Of Substantial Assets

Along with economic development, sales of substantial assets as a kind of distribution of resource, become a manner to adjust the industrial structure and to expand the company. But the sales of substantial assets often bring the significant changes to company and the shareholders. Basing on those, this article will discuss the protection of shareholders'interests in the sales of substantial assets.The first part discussed what is the substantial assets sales, and the impact on the shareholders. First, described the meaning of substantial assets in the in the context of the sale, and indicate the two-dimensional of the quality and the quantity model. Quality emphasizes the ratio of assets. Quantity emphasizes the actual profitability of the assets. The sale of substantial assets emphasizes the assets'great operation value and the impact on the interests of the shareholders. And most of legislation linked the sale of substantial assets with the shareholders'voting right. Second, through analyzing the price and the type of the sale of the substantial assets, we know that when the price is cash, only the equity of the transaction impacts the shareholders. When the price is stock, another impact on shareholders is the change of the dividend claims and the control of the company's assets. When the company dissolved caused of the sale, all the rights of the shareholder is over. Though the company is not dissolved, the initial investment preferences and risk perception of the shareholders are changed. Last, it located in identifying the character of the substantial assets sales. It is the ownership-claim transaction and the major changes of the company. That is why in most of country, the decision-making power belongs to shareholders.The second part mainly discussed the basic theory that why to protect shareholders in the substantial assets sales, and how to protect them. First, there are two aspects in the shareholders'protect. One is tall the shareholders'protect, the other is the protect of the minority shareholders. First of all, it's the basic theory of the shareholders'protect. Agency cost theory is a method to analyze the conflict .The conflict between directors and shareholders is the reason why decision-making rights belong to shareholders. Another reason is the impact of the sale. The conflict between controlling shareholders and minority shareholders is one reason why to protect the minority shareholders in the substantial assets sales. Another reason is the majority voting. The theory of expectant right provides a generalized reason for the minority shareholders who have the right of withdrawal within the substantial assets sales. That is, the major shareholders play an important role in the sale of substantial assets, whether close company or public company, which inflicts the expectant right of the minority shareholders who have the contrary opinion. Subsequently, this part elaborates that entrusting the power of make decision on the sale of substantial assets to shareholders meeting is in favor of the whole interests of all shareholders. Firstly, beginning with the conflict of interests, this part will analyze the negative effect for the protection of shareholders'right when entrusting the power of making decision on the sale of substantial assets to board of directors, together with the superiority to entrust the power to board of shareholders directly, then lay numerous of illustrations of legislation about the decisions of shareholders meeting. Secondly, we will analyze the possibility that the power of making decision on the sale of substantial assets is to be evaded, as well as the legislation. the possibility of evasion: at the beginning, it is a better way to establish subsidiary company by using the substantial assets as the first fund, then sell the substantial assets by the subsidiary company, in order to evade the power of making decisions belonging to the board of holding company's shareholders. Legislation: crossing the voting power system, which requires the shareholders of holding company be able to implement the voting power directly, when the subsidiary company is in possession of the whole or substantially the whole of holding company's capital. Finally, by reason of the majority rule which is used by shareholders meeting is easy to result in"the tyranny of capital", it is a great issue for the protection of minority shareholders. Firstly, when controlling shareholders and minority shareholders presence simultaneously, the duty of fiduciary which is required for the controlling shareholders'activities and the liability when the duty is breached will be largely reduce the possibility that controlling shareholders do harm to corporate and minority shareholders in the sale of substantial assets. the compensation for the breach of duty is not only a remedy for minority shareholders, but also a warning and deterrence for controlling shareholders. Secondly, this part provides an approach of retreating for minority shareholders who object the sale of substantial assets, in other words, the buy back rights of shares for dissenting shareholders. There are two objections for minority shareholders who have the contrary opinion, One is that the sale is inconsistent with their expectation, including the investment preferences and the knowledge of risk. The other is that it is unfair for them to sale the substantial assets, which may be regarded as the frustration of minority shareholders' expectation. Because the minority shareholders may have had expected that they would be treated fairly, there is no reason to compel the objective shareholders to stay in company, and to inflict some change of the right of expectation compelling. In the meanwhile, the effect of the sale of substantial assets is fundamentally for shareholders, so there is no reason to compel the objective shareholders to stay in corporate.The third part mainly put a sound proposal to the protection of the shareholder interests with substantial assets transaction in the legislative situation .First, our Company Law only discusses substantial assets transaction in the Listed Companies and this action may lead to the ambiguity. At the same time, there is no discussion about other kinds of companies except the following phrases as "transfer of the main property", "transfer of major assets"."Approach of Major asset restructuring of listed companies"( hereinafter referred to"management approach") do a specific definition of asset sales in the major listed companies and their subsidiaries .This is worthwhile ,so"Company Law"should be promoted for reference. Second, the right to vote rules in the "Company Law" is still blank, while it appears in the"management approach", but "management approach" only constraints or controls the listed companies and their holding companies, which resulted in discrimination legislation and unfair legislation. Therefore, the "Company Law" should adopt this rule. Third, the regulations on the fiduciary shareholders` controlling duties are too abstractly, which causes the inconvenience, so the "Company Law" should try their best to make this rule apply to the practice. Finally, the major asset sale against the shareholders of the share repurchase claim exists only in a limited liability company. Although the shareholders transfer their shares relatively free in the Co., Ltd., but when there is no one to buy or the price is very low, it adds extra barriers to the shareholders who want to exit. Therefore, the legislation should give shareholders such right as the buy back rights of shares for dissenting shareholders.