Controlling Shareholders Of Listed Companies Merge To Minority Shareholders Shun Obligations

The majority rule has exerted great influence on this principle. Under the operation of majority rule, majority shareholders and minority shareholders which are under the control of majority shareholders turn into controlling shareholders and controlled shareholders and minority shareholders become outside investors of the company. In order to prevent majority shareholders from abusing their controlling power to the detriment of minority shareholders, many countries put the controlling shareholders under the fiduciary duty to the company and the minority shareholders. There are many ways for controlling shareholders to squeeze minority shareholders out and merger is one of them. By offering minority shareholders an additional protection, controlling shareholders' fiduciary duty, especially their duty of loyalty, plays a crucial role in merger transactions. Although the newly amended PRC Company Law provides minority shareholders with appraisal right, right to initiating a derivative action and so on, it says nothing about the fiduciary duty of controlling shareholders. This article examines majority shareholders' fiduciary duty owed to minority shareholders in merger transactions and makes suggestions on legislation regarding the duty of controlling shareholders.