Controlling Shareholder Participation In Corporate Governance, Legal Issues

As the basis of the property right of corporate governance, the stock equity structure determines who controls the corporate as well as the structure and function of the corporate governance. In the corporate of ownership concentration, the controlling shareholder, playing an important role in the corporate governance, holds the control power. However, such unbalanced power allocation will exert some negative influence, resulting in low efficiency, etc.The characteristic of the equity structure of our country presents highly concentrated. The failure of the controlling shareholders to properly supervise and manage the corporate leads to the distortion of the structure of corporate governance and the serious injury of the rights of minority shareholders as well. Nevertheless, here the author would emphasis that the causes of the problems do not lie in the highly concentrated equity structure, but in the status issue of the controlling shareholder and the deficient legal system.In this thesis, the author tries to demonstrate the vital status of the controlling shareholder in the corporate with concentrated ownership, through the elaboration on the relationship among structure of equity, the corporate governance and the performance of corporate. Concerning the problems in our country, the author points out, three preconditions should be followed if the controlling shareholder participates in the corporate governance: Firstly, making all kinds of stocks traded Secondly, reducing the state-owned shares. Thirdly, following the rule that the shareholder's right is the one to supervise the managements. Then the author aims to establish a restriction mechanism to regulate the controlling shareholders' behavior. This paper consists of five parts:Part One: The Definition of Controlling Shareholders. The controlling shareholder is a type of dominant shareholders based on majority ownership. There are different criteria to define a controlling shareholder in different countries. In China the quantity criteria and the substance criteria are combined to be applied as for the definition.Part Two: The role of the Controlling Shareholders in the Corporate Governance. The author holds that the equity structure doesn't directly influence on the corporate performance while it influence the corporate performance in directly through the influence on the corporate governance. Therefore, the equity structure, itself, does not have the advantage and disadvantage. The controlling shareholders play the most important role in the corporate with concentrated ownership. How to regulate their behavior is the key in corporate governance.Part Three: The Problems Arising Out of the Controlling Shareholders' Participation in Corporate Governance. In this part, the author pinpoints partial problems in our country, and points out that these problems are rooted in the unreasonable and deficient legal systemPart Four: The Preconditions for the Controlling Shareholders to Participate in Corporate Governance.Part Five: The Restriction Mechanism of the Controlling Shareholders. Based on the analysis of measures to regulate the controlling shareholders' behavior, The author tries to establish a corresponding restriction mechanism. This system consists of four parts: to balance the power, to limit controlling shareholders' rights, to impose the duty on the one who executes the power, and to give the aggrieved party the remedy. The author concludes that only if all the aforesaid measures are operated together in harmony, can the controlling shareholders' behavior be regulated effectively.