Research On Legal Protection Of Minority Shareholders’ Rights

This article is based on the highly concentrated equity and inadequate protectionof the interests of investors to research the legal protection of minority shareholders’interests and rights and focuses on balancing the interests of minority shareholdersand controlling shareholders:The first part clearly raises the main concepts of the article: minorityshareholders and controlling shareholders. First, with the equity concentrationgradually replacing dispersed ownership and becoming the norm of the ownershipstructure of many countries, the agency problems transferred from between operatorsand shareholders to controlling shareholders and minority shareholders. Viewing frompatterns of agency problems between managers and owners, the essence of the agencyproblem is: in the case of the separation of ownership the trustee’s occupation on theprincipal. Viewing to the relationship between controlling shareholders and minorityshareholders, the former to the latter’s occupation is a proxy problem. Subsequently,through the enumerating and analyzing chart of economic statistics, we can see thatthe agency problem is more serious in China.This agency problem mainly shown asthat because of the small proportion of equity in the company’s minority shareholdersdecision-making voice is weak and even lose the right to make decision,whilecontrolling shareholders using their equity advantage in the leverage of the capitalmajority mechanism, control and dominate the entire property, including the equity ofminority shareholders. However, driven by the interests the controlling shareholdersis likely to abuse the control rights of the company. Second, I summarized andanalyzed the controlling shareholders’ behavior of abusing control right and that thisis the cause action of the minority shareholders’ interests damaging. These means iscalled Tunneling behavior and support behavior in economics, including relatedtransactions, special financial arrangements as well as controlling shareholders pursuing personal interests to maximize temporarily reversing the intereststransportation to the company. In the end of this part, through the summary of theagency problem between controlling shareholders and minority shareholders, thereason why minority shareholders’ interests has been damaged and means ofcontrolling shareholders occupying minority’s interests has been much more clear.The legal needs to protect minority interests to balance the relationship between thetwo arguments.The second part devoted to seek support from the jurisprudence for theprotection of the legitimate rights and interests of minority shareholders and thebalance between minority shareholders and controlling shareholders. In the companylaw principles, one-share-one-vote principle and majority rule occupies an importantposition. Due to the imbalance equity ratio of minority shareholders and controllingshareholders, the both sides’ position in the company, the degree of participating incorporate governance as well as the degree of benefits is significantly different. Dueto the inherent defects of the capital majority mechanism, it is likely to turn into“majority’s despotic” and the capital majority mechanism can not be taken seriouslyat times. Due to the absolute control of the company’s controlling shareholders，usingcovert means to obtain private benefits of control in the real business of the companyis common. also，it reduces the value of the company. These issues need to berestricted by legal principles. Recognizing the principle of equity equal andprohibition of abusing rights principle as a basic principle of the protection ofminority interests has its’ deep-seated legal value and correcting meaning. These twoprinciples can fill the inherent flaws of one-share-one-vote principle and majority ruleto a certain extent.After the first two parts of the phenomenon and the legal comb, the last part is tofind the path to protect minority interests. I base on the existing legal framework andjudicial cases then refine main method for the protection of minority interests appearsin our legal system respectively as follows: To establish the controlling shareholders’Fiduciary duty, Improving the eliminating and restricting system of stockholders’voting power, The system of cumulative voting, Minority shareholders’ proposal right,Dissenting shareholder’s equity repurchase claim, Right to raise derivative suits, The dissolution of the company claim. Through analyzing these systems and summeringthe inadequacy of current law rationally then propose the improvement andrecommendations on the legal path of protecting minority shareholders’ right.Throughout the writing, I concern to the situation of the imbalance of thecontrolling shareholders’ and minority shareholders’ interests and find out thatprotection the interests of minority shareholders should be based on balancing theinterests of controlling shareholders and minority shareholders. Only this kind ofprotection won’t causes reverse discrimination of controlling shareholders, and willnot deviate from the fundamental value of the Company Law.