Legal Regulation On Director’s Duty Of Loyalty

Due to economic expansion of countries all over the world and economyglobalization, scale of company is expanding as time goes on, and there are thousandsof shareholders, separation of ownership from management become a necessity,which require a role come up to replace shareholders to manage company, thusdirectors emerge. Director’s position depends on the relation between director andcompany, and regarding such matter, the following different theories were formulatedin academia:“Theory of entrustment”,“Theory of agency”,“Theory of commission”,etc. No matter which theory is based on, director gains the right to manage companyby virtue of his own identity. Because director holds most business secret and realoperation of company, trend on their right expansion become more and more obvious,company management structure consequently transfer from “shareholder-centerdoctrine” to “director-center doctrine”. The continuous expansion of director’s rightincrease their chance on right abuse, which lead to common occurrence of damage oncompany and shareholders’ interests. Such condition makes emergence and long-termexistence of director’s duty of loyalty a necessity.Research on director’s duty of loyalty began relatively late in our country, thuslag and problems exist on legal regulation on director’s duty of loyalty, for instance:incomprehensiveness on responsible subject of director’s duty of loyalty;imperfection on opening and disclosure of information; no stipulation on director’sobligation after his leaving of post; imperfection on company opportunity disciplineand indeterminacy on time limitation when company performs disgorgement, etc.Moreover, most relevant legal regulations rely on Company Law and Civil Law,relevant regulation in administrative law and criminal law are very vulnerable.Research on director’s duty of loyalty in developed countries began earlier,national legal environment is better, the coordinating regulations are relativelycomplete, and the embezzlement of company funds, taking them as guarantee, etc. cangenerally be covered by tort theory in civil law. The company opportunity discipline in USA, completeness of self-dealing subject in France, the definite stipulation oncompany disgorgement in Japan and Germany, etc. are reference for our country. It isfound through research that the transformation process on legal regulation onself-dealing, competitive dealing action in UK and USA is from strict prohibitiondoctrine to relative prohibition doctrine, strict case law limitation and codification.The gradual transformation from the “overriding” discipline to uniformlyprohibit without care on fairness to a loose legislation mode, implement entityfairness with procedure fairness, such developing trend indicate that the developedcountries tried to reach goal of balancing predictability, determinacy and flexibility onbusiness transaction. In other words, the list legislation on director’s duty of loyalty isunscientific and incomplete, because it adopt similar case law when applicable, it isbelong to strict prohibition doctrine, however director’s duty of loyalty is a kind ofmoral obligation, which require to define determine criteria on action of directorviolating duty of loyalty in discipline, with which the goal of comprehensively graspdirector’s duty of loyalty can be achieved, for instance: determine criteria on trustabuse action; determine criteria on seizing invisible interest; determine criteria oncompany agreement or exemption action; determine criteria on company opportunity.Moreover, based on comparison and reference, we can propose detailed measures forcompleting institution of director’s duty of loyalty, such as expanding subject scope ofdirector’s duty of loyalty; completing institution of information opening anddisclosure; adding director’s duty of loyalty after leaving his post; defining timelimitation when company performs disgorgement; completing company opportunitydoctrine; adding claim right of third person damage compensation; expandingresponsible subject of existed charge; adding new charge, etc.