Minority Shareholders To Protect The Legal System, Privatization Of Listed Companies

It's eventually known to the Chinese capital market with the term "going private" until the China Petroleum,Sinopec and China Aluminum take these transactions from 2005."Going Private" is a transaction in which the public company or its affiliates acquire all the outstanding shares resulting in the company to be a private company because the share proportion is no longer complying with the listing standard any more.In going private transactions,the one side is the controlling shareholders and the managements which control the company,and the other side is the minority shareholders in the controlled position which is more likely to need protection than in other transactions.However,in our country,there are neither adequate studies nor legal system on how to protect minority shareholders in going private transactions at present.That is why this article focus on the protecting minority shareholders in going private transactions.Except the introduction and the conclusion,this main part of this article contains four chapters as following:The first chapter explains what is "going private",in which it emphasizes that the going private is a kind of transformation of share proportion and company form,which in nature differs from the term "privatization" in the context of transformation of ownership right and economy system.It also analyses the motive and the forms of going private transactions.The second chapter is about the legal system and minority protection about going private transactions of US.There are two levels of the US law on going private:the Federal laws and the state laws.In order to protect the minority shareholders,the SEC's 13e-3 rule required additional information to be disclosed to demonstrate the fairness of the transactions.At the state level,the Delaware's common law uses two standards in reviewing the going private transactions:the entire fairness standard in the long-form merger,but not the entire fairness standard in the two-step going private method,which not only evokes a lot of arguments but also develops the protection level of the minority shareholders in going private case-bycase.The discussion on the legal system and cases of going private of China is in the third chapter.From the present cases,we know that there are special motives of going private in China,but there are basically the same methods of going private,the merger and the tender offer,as in US. Whereas,the legal environment is disadvantageous to the minority shareholders:the controlling shareholders manipulated the process of going private,but the present law lacks of the provisions of protecting the minority shareholders.So,in the fourth chapter,it's suggested that the key point to protect the minority shareholders is to setup a series of relatively uniform and open rules,based on the present legal environment,acquiring the mature rules already accepted by the legal authorities of other countries,which may include:(a)controlling shareholders shall bear fiduciary duties on the minority shareholders;(b)independent directors must have the full right of taking an arm's length negotiation with controlling shareholders;(c) the transaction will not be effective unless the majority of the minority shareholders approve it,and(d)adequate information on the fairness of the transactions shall be disclosed.