Controlling Shareholder Fiduciary Duty Study

The fiduciary duty of the controlling shareholder, also known as duty of loyalty, refers that the controlling shareholder who is in a dominant and advantage status, can bear the obligation as addressee to those weak power position companies and other shareholders by influence of their own behavior and their rights to decide other persons' rights and interests. In traditional theory of Corporation Law, the shareholders in principle do not need to carry out other obligations besides fulfill the duty of investment. With the continuous development of market economy, the defects of the vacancy in the field of the controlling shareholder' obligations and responsibilities in traditional theory gradually emerged. The situation that the controlling shareholder abuses its controlling powers and damage the small and medium shareholders occurs unceasingly. With the idea of developing substantive equity instead of formal equity, and the deepening cognition of the "Capital Majority Decision" principle, theorists are in favor of expanding the undertaker of the fiduciary duty to the controlling shareholder. The problem of the constraint to the controlling power owned by the controlling shareholder as well as the protection to the minor shareholders has become an important researching subject in the company administration in worldwide scale. Since the beginning of the 20th century, the fiduciary duty of the controlling shareholder has been confirmed by the theories and legislations of many countries not only in civil law system but also in common law system.In China, many joint-stock companies were remanufactured from the state-owned enterprise and generally have the controlling shareholders. The reasons of the irrational share structures, the imperfect market mechanism, and the inadequate laws or regulations etc, cause the situation that the controlling shareholders breach their duty of loyalty and abuse their controlling power severely. In recent years, the topics of how to prevent the controlling shareholders from abusing their rights and how to protect the right of the minor shareholders have been discussed actively in theorists in China. The concept of the controlling shareholder had been affirmed through the legislation of the Corporation Law in China in 2005, but the fiduciary duty of the controlling shareholder does not clearly stipulated in this law. On the basis of the explaining of the fundamental theory of the fiduciary duty of the controlling shareholders, this paper deems that it is necessary to stipulate explicitly the fiduciary duty of the controlling shareholder in our Corporation Law, and simultaneously proposes how to consummate the relevant regulations of the fiduciary duty of the controlling shareholders in our Corporation Law.Besides the Introduction and the Closing part, the main body of this paper is constituted by five chapters.Chapter 1. The definition of the controlling shareholder. This chapter starts with the standard of the controlling shareholder, explores the domestic and international legislation on the definition of the controlling shareholder, and elaborates how the controlling shareholder exercising the dominative power in the corporation based on the "Capital Majority Decision" principle. Through the re-recognition of the "Capital Majority Decision" principle, this chapter states the necessity of preventing the abuse of "Capital Majority Decision" principle by the controlling shareholder, and sets the stage for elaborating the fiduciary duty of the controlling shareholder in the following part.Chapter 2. The general theory of the fiduciary duty of the controlling shareholder. This chapter elaborates mostly about how the fiduciary duty of the controlling shareholder comes into being and its development. By comparing the laws, this chapter elaborates the rationale of the fiduciary duty of the controlling shareholders both in civil law system and common law system. It also elaborates the theoretical basis of the fiduciary duty of the controlling shareholders in China, and lays a strong theoretical foundation for the following elaboration.Chapter 3. The content of the fiduciary duty of the controlling shareholder.This chapter elaborates separately the duty of care and the duty of honesty to the controlling shareholder, discusses the relationship between the two duties, and brings forward that the duty of care and the duty of honesty are the two aspects of the fiduciary duty, they both supplement mutually, and constitute the connotation of fiduciary duty.Chapter 4. The conduct of the breach of the fiduciary duty by the controlling shareholder and its civil liability. This chapter analyses the main manifestation, the criteria of cognizance, the attributable liability principle and the assumed corresponding responsibility of the controlling shareholder who breaches the fiduciary duty and abuses the controlling power.Chapter 5. The contemplation of how to consummate the relevant regulations of the fiduciary duty of the controlling shareholder in China.This chapter analyses and interprets the status quo of the regulations about he fiduciary duty of the controlling shareholder in China, pointing out the defects of legislation in the fiduciary duty of the controlling shareholder and bringing forward the consummative proposals.