On Shareholders' Representative Action System

Looking at the world of corporate governance practice, the legal forms of enterprises experienced an evolution from classical firms to modern corporations, and the power construction of enterprises experienced an evolution from the consolidation of ownership and control to their separation. These changes resulted in the phenomenon of insider control of corporate governance in the world. These two aspects of the phenomenon manifested in the following:On the one hand, shareholders either because they do not possess the capacity and experience to operate the enterprise, either because there was not enough time and energy, thus need professional management staff to take power. Then shareholders played a weakening role in the corporate business and are isolated from the day-to-day management. Accompanied by the right expansion of the directors and managers, directors and managers hold "no property rights", and they have had a de facto control over the corporate decision. On the other hand, a company formed by numerous shareholders investment is a capital venture; therefore it must respect the principle of capital majority rule. On the basis of this rule, the mean of the companies are actually the mean of the majority shareholder holding most capital. When the capital majority rule is abused, a .shareholder who contributes more capital can use the rule to infringe on the interests of the minority shareholders and the corporation in conspiracy with the insiders under their control. The phenomenon is called legal insider control.When the directors and managers of companies with tremendous power, they shall faithfully perform their duties and maintain the interests of the company. For the controlling shareholder, they have controlled over the corporate decision making by "the capital majority rule". When exercising his rights, the controlling shareholder should take into account the interests of the minority and the company. As for the suit against directors, managers and controlling shareholders, their theoretical basis is the fiduciary duty which directors, managers and controlling shareholders must assume responsibility for the company. Thus they shall be liable for compensation, if they cause damage to the company.