The Controlling Shareholders Of Related Party Transactions Legal Regulation

With the increasing requirement of cooperation of modern economy, the number of connected transaction is growing year by year in China. Connected transaction exists between a company and a particularly related subject. In essence, it is a kind of conflict transaction, in which in appearance the status of these parties is equal but actually not. Connected transaction is a double-edged sword, on one hand, it can save transaction costs, and bring benefits to related parties, but at the same time it is very likely to damage the interests of company, the minority shareholders and the creditors. Therefore, we have to regulate the bad effect of connected transaction.According to the different identities of connected dealers, connected transaction can be divided into self-dealing of directors and self-dealing of controlling shareholders. As for our present circumstance, self-dealing of controlling shareholders should be under the key regulation. Most of China's listed companies transited from state-owned enterprises. It is out of question that the state-owned shares dominate the company. Even in the era when China's securities market has entered into full circulation, state-owned shares are still the controlling shareholders in most listed companies. Therefore they are likely to use their controlling position to conduct connected transaction to damage the interests of listed companies and minority shareholders. In the closed companies, although the corporate governance by directors and senior management as the representative of corporate management can not be ignored, the controlling shareholders are still the most important factor of corporate governance.Therefore, this article study on the regulation on connected transaction of controlling shareholders. Combined with the reality in China, by means of comparative analysis of foreign legislative cases, I will divide the relevant regulations on connected transaction of controlling shareholders into pre-and post-relief mechanisms, clarify them one by one, and build a regulation system for this kind of transaction. The article shall be divided into four parts.The first part is about the basic theory of connected transaction. Firstly, I will clarify connected transaction, related parties, and the scope of such transactions; Secondly, I will introduce the classification of connected transaction, and then analyze the pros and cons of connected transaction, and finally point out the principle of regulation on connected transaction. Through this part, you can have a clear understanding of connected transaction, which is also the theoretical premise for such study and regulation on connected transaction of controlling shareholders.The second part is about the importance of the regulation on connected transaction of controlling shareholders. According to the different identities of connected dealers, connected transaction can be divided into self-dealing of directors and self-dealing of controlling shareholders. In foreign countries, as the shares (capital) are dispersed, connected transaction tends to be concentrated on the transactions between the directors, senior management and their affiliated company. Some scholars in China also believe that the interest-conflict transactions of directors are the most important form of connected transaction2. The part through analysis of the actual situation of shareholding structures of majority companies, it is concluded that the attention should be paid to the regulation on connected transaction of controlling shareholders. In addition, the section also analyzes China's current regulation system on such transactions.The third part is the prior preventive system on connected transaction of controlling shareholders. This part clarifies fiduciary duty of controlling shareholders, the approval system of the general meeting of shareholders, the rule on exclusion of shareholders'voting right, shareholders'right to know and to address questions, and the independent director system, and analyzes the importance of these systems and also the disadvantages of these systems.The fourth part is post-relief mechanism on connected transaction of controlling shareholders. First of all, this section analyzes the application of shareholders'right to appeal and disregard of corporate personality system to the regulation of connected transaction of controlling shareholders, and then it focuses on interpretation of the Deep Rock Doctrine, firstly introducing the origin and the enactment of legislation of Deep Rock Doctrine, and then exploring the application method of such principle.