Shareholders Derivative Action Research

Shareholders Derivative litigation system, known as a geniusinvention of common law countries, originated in the Anglo-Americalegal practice. With a history of more than 100 years, this system hasdeveloped into a mature and effective litigation system adopted in theAnglo-America countries. It is conducive for small and mediumshareholders to effectively safeguard the legitimate rights and interestsof the enterprise from being infringed on by the senior officers orcontrolling shareholders or other third parties and to promote theirenthusiasm and creativity to supervise the operation of the enterprise asan external power through monitoring the conduct of the senior offersand controlling shareholders. Thus, it can improve the management andadministration mechanism of the company.Despite of the important roles the Shareholders DerivativeLitigation system plays, danger still exists for it to be abused. Becausethe independent personality of the company may, to a large extent, beignored by the shareholders as a plaintiff instituting under their ownnames a claim on behalf of their company directly against the seniorofficers or members of the board with the judicial power to peel the veilof the company. And also, this system may negate the principle ofmajority prevailing over the minority when some shareholders mayexercise the litigation rights of the company while the majority of theshareholders are reluctant to do so. These factors may, in a sense,disturb the smooth operation and management of the company.Therefore, a number of preventive measures in both substantive law andprocedure law have been adopted in all countries to curb these negativeeffects of this litigation system.The issue how China should introduce and perfect the shareholderderivative litigation system has always attracted the attentions ofChinese legislators and lawyers from both academic and practical areas.As all expectation, Chinese legislators introduced with great wits and courage the shareholder derivative litigation system to the Chinese landin the revised 2005 Company Law for the first time. But on the otherhand, attention should be called to the issue that this system in China isstill open to be further improved for some potential isolation of itstheory from the practice and some legal loopholes existing.In terms of these issues, this paper introduces and briefly analyzesthe descriptions and precedents on the shareholder derivative litigationsystem in relevant countries and puts forward some suggestiveamendments, which may be helpful to improve this system in China tomake it more manageable, under the guideline of removing, withrestriction of power abuse from the shareholders, the obstacles ofrestricting due shareholder derivative litigation in company legislation inlight of the description in the newly revised Company Law of the PRC.The paper has four parts in addition to the introduction and theconclusion, totals more than 30,000 Chinese characters.The first chapter introduces the elementary theory concernedShareholder Derivative litigation system. First, the author introduces theconcept and the historical development of the Shareholder DerivativeLitigation System. Then he analyzes the theoretical bases, characteristicsand functions of this system. Finally, he explains the difference betweenShareholder Derivative Litigation and direct litigation to offer audiencea much clearer picture of the content and characteristics of this system.The second chapter explores the description of parties involved inthe Shareholder Derivative Litigation System. Thus, it makes clear thesubject of litigation.The third chapter elaborates the right of action in the ShareholderDerivative Litigation System. First, the author introduces the theoreticalbasis of right of action of shareholders in the perspectives of substantivelaw and procedure law respectively. Then, he advocates somepreventive mechanism against power abuse of shareholders. Finally, headvocates some incentive mechanism for due litigation from the perspectives of the rights to share the fruit of a success litigation and theright to claim remedy for litigation expenses respectively.The fourth part discusses the establishment and improvement of theShareholder Derivative Litigation System in China. The author firstintroduces the background of the adoption of this system in China. Then,he elaborates the description of parties involved in shareholderderivative litigation. Thirdly, he introduces the preventive mechanismagainst power abuse in shareholder derivative litigation adopted inChina. Finally, he put forward some suggestion for legislationconcerning shareholder derivative litigation system.