On The System Of Shareholder's Derivative Suit

Originated in the equity of common law in the 19~th century, shareholder derivative action has evolved into a mature and effective system of its own, which makes the interests both of shareholders and of corporation further related to each other. Furthermore, It helps to stop directors or controlling shareholders from abusing corporate rights, protect the interests of shareholders and also enhance corporate governance. Company law of every country allows eligible shareholders to sue wrongdoers when the company declines to sue them and also designs sound rules for such an action. It can effectively make up for the weakness both of "Majority Rule" and "Board of directors-centered form" in corporate governance and the damages they bring to the company and shareholders.In English equity Courts, traditional "Proper plaintiff Rule" and " Majority Rule" developed from Foss V. Harbottle have been changed by shareholder derivative action .The equity courts in America also take a cautious attitude towards shareholders' right to sue wrongdoers. They respect the business judgement of directors which is reflected in the "Contemporary Ownership Rule" and "Rule of Exhausting Remedies in the company".Short of shareholder derivative action, Chinese company law and related laws are insufficient to provide remedies for shareholders especially minority shareholders. Fortunately, shareholder derivative action is clearly stipulated in revised Chinese company law. However, In order to provide shareholders with adequate and reliable legal protection, many other related systems should be set up. So, It is necessary to give a systematic introduction to shareholder derivative action. Based on national conditions and present situations of laws in China , Related practices in English and American laws should be referred to so as to build up more systematic shareholder derivative action and make it become more practical.