On The New "company Law" The Interests Of Minority Shareholders Protection Mechanisms

With the development of society and economy, the principle of the decision by majority as the premise and foundation of company system has been alienated, which causes the consequence that those major shareholders elevate their wills as the company will based on their advantageous position in decision. Without proper restraint, they impair the legal benefits of other shareholders, esp. small ones by way of relationship trading, appropriation of company fund, the abuse of surety with company at stake, the manipulation of the allocation of profit, etc. This brings about the imbalance of benefits between company and shareholders, as well as between major shareholders and small ones, destroying the inner democratic management of the company and disappointing the expectation to make profit of the small shareholders. To address the problem of the undue protection for the benefits of small shareholders deriving from the natural defects of the principle of decision by majority, Company Law of the PRC (hereafter addressed as Company Law) adopted at the 18th Session of the Standing Committee of the Tenth National People's Congress on the 27th Oct. 2005 established the systems of the right of shareholders to call in the shareholders'meeting, the right of shareholders'to raise a proposal, mechanisms of the cumulation of votes, mechanisms of the challenge in voting, right of the dissenting shareholders to buy dissented shares, the judicial relief of the rights of shareholders, etc. Efforts have been made to classify all these systems into four mechanisms, namely mechanisms for the guarantee of the participation of small shareholders in the decision-making process of the affairs of company, mechanisms for small shareholders'right to know, mechanisms for the withdrawal of the stock of small shareholders and mechanisms for the judicial remedy for small shareholders. Attention has also been directed to the analysis and discussion of the basic theory of these mechanisms and the defects in their practical operation. It is also hoped that the judicial explanation of the Company Law be given by the Supreme Court of China in order to set specific standard for the protection and ensurence of the rights of small shareholders as well as for the hearing of cases related to companies by courts of all classes.