Mechanism Of Legal Constraints Over The Exercise Of Controlling Authority

Controlling authority of the company as a decision-making power and influence by controller on major matters of the company is the reflection of shareholder ownership in the commercial sphere, also the center of the configuration of the tools and all rights of the shareholders’ interests, in the modern corporate system which has a pivotal position. The study of corporate controlling authority in China mainly focuses on economic research despite of the paucity of legal research. Legal research of controlling authority over listed companies is even rarer. Domestic controlling shareholder in the process of exercising controlling authority of the company against the interests of the other shareholders, creditors and other stakeholders is even the company’s common phenomenon. Preventing the controlling shareholder of the listed company abusing of controlling authority is good in itself a remarkable achievement for the development of China’s capital market, where we can design good mechanism binding coordination of the relations between the controlling shareholder and other stakeholders.Mechanism of legal constraints over the exercise of controlling authority is preliminary forming through theoretical and empirical analysis and comparative study in listed company environment. I put forward some suggestions for improvement basing on the laws and regulations of main line on the Companies Act. This article has many innovations. It defines the method of controlling shareholder and deepens the concept and nature of the controlling authority in richer date. The realistic basic problems on listed companies are the controlling shareholder depriving the interests of minority shareholders. And I suggest from the company’s internal environment and external environment to create a constraint mechanism. The subjects over controlling authority in listed company are complex. The controlling shareholder is the most typical. This article studies to get the general rules and experience from the perspective of the controlling shareholders the controlling authority. Defining the controlling shareholder is of great significance for the study of the controlling authority. The identification generally uses double standards of form and substance. A correct understanding of the concept and nature of controlling authority is useful for defining the scope and constraints over its exercise. Theory of rights shows that the controlling authority can be applied by a controller to acquire the company’s interests of the controlling influence or dominance. There are vested interests, and also protection of the law force. I agree with this view.The exercise to controlling authority by the controlling shareholders of listed companies is of the theoretical and practical difficulties. Controlling authority makes the Majority Rule alienation exclusion become the instrument of controlling shareholders neglecting minority shareholders’right, and Playing with subordinate companies, so that the democratic decision-making mechanism of Shareholders’ meeting losses function, company’s property and Personality is not independent. At the same time, the controlling shareholder as shareholders enjoy the privilege of limited liability, but not give up control of the company’s property rights under the shelter of the principle of limited liability. The controlling shareholder legally is entitled the dominant influence on the company property and operation, random to take up the company’s property. The exercise to controlling authority conflicts the principle of the independence of the corporate personality, the principle of limited liability, the equity principle of equality clashed on the tradition of the Companies Act. Controlling authority also makes the original corporate governance structure of "separation of powers" fall into a passive position,"Board centrism" not be implemented. We need re-examine the structure of corporate governance from the view of the conflict on interests between the controlling shareholder and minority shareholders. The basic problem that Controlling authority in Listed companies in China faces is that the deprivation of the interests of the small and medium investors, the creditors, the company by controlling shareholder, including damage to other stakeholders, the independence of listed companies damage.This article draws the experience of the developed countries to mechanism of legal constraints from the duty of good faith, the company’s internal governance, creditor protection, and external market. Shareholders’meeting of listed companies should improve in China that has many problems. The practice of the board of listed companies is that the controlling shareholders choose Obedient and loyal directors. But the criteria of the directors should be creative. So there must be the presence of outside independent directors. Operation of listed companies can exist without the existence of the debt like any operating entity. The system that the debtor on the major credit continues borrowing without objection and the system of governance on publicly held corporations by banks should be established to prevent the controlling shareholder of listed companies damaging the legitimate interests of the creditors. The listed companies are also applying piercing corporation veil, for example mixed personnel, and mixed main assets, inveracious investment. But some acts which are applicable to piercing corporation veil unreasonably, but giving up certain responsibility to creditors obviously unfairly. I advocate such acts to apply the principle of fairness.The above mentioned is the internal environment. The external market environment is influenced by the macro-level of the market economy. The company is in the market at all times. The controlling shareholder of the company is alsa business risk undertakers. Therefore, the effective external market environment can play a role in the indirect constraint controlling shareholder behavior. External markets are including product markets, capital markets, and the market of controlling authority.This article that is limited by restrictions of the subject and space only elaborate how to exercise controlling authority by the controlling shareholder. How to establish legal constraints over the exercise of controlling authority need further exploration. This article first starts a discussion in order to attract more people’s thinking and deepened.