Fiduciary Duty Of Controlling Shareholder And Right Protection Of Medium And Small Shareholders In Acquisition Of Listed Company

Intangible property market is the senior market form of enterprise property right transactions, acquisition of listed companies which in the form of share trading is the operation mode of this market form. The transfer of corporate control through acquisition of listed companies has become very common market behavior in the market today. During the acquisition of listed companies, acquirer, the target company shareholders and directors all make the effort to obtain a greater share for themselves in significant changes of interests. However, among the stakeholders, the medium and small shareholders of listed companies are no doubt the weakest. In the trend of"strong managers and weak owners", rights protection of shareholders is particularly important. However, on shareholder rights are protected overall, controlling shareholders with strong control transfer control shares irresponsibly, new controlling shareholders plunder the resources of listed companies and against the interests of medium and small shareholders. Thus, pay special attention to the rights of medium and small shareholders is no doubt important. This paper aims to explore self-serving behavior of controlling shareholder during the acquisition of listed companies and contrast out of the weak position of medium and small shareholders as a result, highlight the lack of controlling shareholder's fiduciary duty rules and the importance to clear the rule in law, which is the foundation of the corporate and securities law system and fundamental solution to problem of the protection of medium and small shareholders. This paper is divided into three parts as follows:The first part is"Interests Conflict in the Acquisition of Listed Company". Three issues, namely"The basic theory of acquisition of listed companies","Self-interest behavior of controlling shareholders during acquisition"and"Medium and small shareholders'acquired status". First, the distinction between"acquisition of listed company"and other concepts, which are mixed so often like"merger","asset restructuring"and so on because of similarity. Acquisition of listed company is a significant transaction on stock market,which to the target company's security holders constitutes a major investment decision. Although the company acquisition easily turn into economic monopoly, may reduce market competition, it is still a normal market behavior. At this stage in China's economic development, the appropriate attitude to acquisition of listed company should be encouraged rather than restricted. Including the recent acquisition of China Eastern Airlines acquired Shanghai Airlines and Ping An stake in Shenzhen Development Bank, etc., a series of acquisitions in recent years, have shown the overwhelming tendency. In the acquisition market,controlling shareholders via their strong control to conduct selfish acquisition,such as through the acquisition subject to hype,buying"black mouth"to mislead the public, insider trading, irresponsibly transferring of control shares,new controlling shareholder resale the company after acquisition, use"buy low and sell high"strategy for the interest conveyance from listed company. Medium and small shareholders have inadequate access to such information and can't make correct analysis before such complex situation. Their rights are ignored as a result of a small amount of shares and are powerless when they suffer losses. Medium and small shareholders are generalized as part of vulnerable groups in society. Maintaining the interests of such a large group concerns a whole economic development, social stability and harmony.The second part is"Problem in Right Protection of Medium and Small Shareholders". It consists of two questions:"Rights protection of shareholders in acquisition"and"Deficiency of controlling shareholder's fiduciary duty caused predicament of medium and small shareholders". Corporate governance structure changed from shareholders general meeting core to directorate core. Listed company represents the separation of ownership and management, the biggest feature is that the original provider of company capital has no direct rights on company control and management. It is necessary to control the boycott of acquisition for private benefits by management. But the management is controlled by controlling shareholder in most Asian countries. In China, controlling shareholder's fiduciary duty is not clearly expressed in the level of law. There are few content refer to acquisition in Chinese"company law"and"securities law". But court of justice should apply"company law"and"securities law"while hearing the acquisition case. Regulations issued by the Securities supervision commission only for guidance. Deficiency of controlling shareholder's fiduciary duty caused the interests of medium and small shareholders in imminent danger, which make the protection of medium and small shareholders not strong enough.The third part is"Legal Regulation of Controlling Shareholder's Fiduciary Duty". It consists of two questions:"Principal-agent relation based on confidence"and"Theoretical analysis on legal regulation of controlling shareholder's fiduciary duty". Thousands of people buy the stock of listed companies, which make the fund-raiser have adequate capital to fulfill their own aim, implying faith of medium and small shareholders to company, controlling shareholder and management of company which supposed as spokesman of controlling shareholder. Principal-agent relation in company refers more to controlling shareholder and medium and small shareholders, rather than shareholders and management. As soon as controlling shareholders control the power, they always try to obtain profit for themselves by plundering interests of other shareholders. In modern company, principal-agent relation conflict consists in big shareholders controlling company and external medium and small shareholders. It is indeed have a principal-agent relation between controlling shareholders and medium and small shareholders who have no power to attend in the management. Medium and small shareholders have common faith on controlling shareholders, for the repaid, controlling shareholders have to take fiduciary duty. It is the expansion of director's fiduciary duty, because the controlling shareholders have the right to choose directors. The fiduciary duty of controlling shareholders consists of"duty of care"and"duty of loyalty", it is established by Supreme Court of America in 1919, case of Southern Pacific Co. v. Bogert .It is apply in acquisition in 1940, case of Insuranshares Corp. v. Northern Fisdal Corp. It is originate from the fiduciary duty in trust relationship, at the same time it is the requirement of"prohibited abuse of rights", it is also balance to the disadvantage of majority rule. Based on the justice of law, rights always go along with obligations, emphasizing only one side will lose the harmonious of nature. The transform from controlling shareholders only take the capital obligation to ask the controlling shareholders undertake the fiduciary duty, it is based on the objective facts of unequal contest between two parties, on the premise of admitting the difference, endow the rights and at the same time charge duty, use some methods to limit the rights owner to prohibit the abuse of rights. Make it in a balance lever between rights and obligations to protect the weak and reach equality and justice, and the final goal of law.