The Protection Of Minority Shareholder’s Right To Dividend In Limited Liability Companies

Shareholding, the shorted form for right of shareholders, is the right shareholders havebased on their identities and positions in the company according to laws. In light oflegislation, regulations concerning shareholding in Corporate Act are prescribed in chaptersrather than centralized which mainly include rights of dividend distribution, of claims fordistribution of residual property, to vote, to know, to claims and etc. Shareholders invest thecompany fundamentally for equity earnings, and the chief manner for the realization ofequity earnings gaining is through dividend distribution which is especially true forminority stockholders who are not involved in the management of the company. Therefore,right to dividend distribution can be regarded as the most central and essential right ofshareholders. Right to dividend distribution as a property right is of the features ofself-benefit right, intrinsic right and individual shareholder’s right, and every one of thesefeatures reveals the significance of dividend distribution right. However, in realitycontrolling shareholders usually take advantage of their voting rights, abuse the principle ofcapital majority rule, and exploit and compress minority shareholders to realize theirunjustified purposes while harming the dividend distribution right of minority shareholders.Where there is a right, there is a remedy; where there is no right, there is no remedy. Thesebehaviors of controlling shareholders not only damage capital profit right of shareholders,but also greatly diminish the enthusiasm of potential investors which is disadvantageous forthe long-term development of the company, hence it is necessary for the law to remedydividend distribution right and to guarantee its realization. This article starts from the basictheories of dividend distribution right of the shareholders, through analyzing typical modesand reasons why dividend distribution right is damaged as well as protection methods andtheir deficiencies of dividend distribution right of the shareholders in limited liabilitycompanies proscribed in current laws of China, also proposes certain ideas for theperfection of dividend distribution right of the shareholders in limited liability companiesbased on advanced laws and experiences from abroad of dividend distribution rightprotection in order to improve the protection of legal rights and interests of minorityshareholders. This article consists of five parts: The first part is related to basic theories of dividend distribution right. Firstly itspecifies the definition and features of dividend distribution right. Dividend distributionright is a right shareholders have based on their qualifications and positions in the companyto ask for their share of distribution of dividends, is self-benefit right, intrinsic right andindividual shareholder’s right. Secondly, it examines the classification and attribute ofdividend distribution right, and explores the relationship between abstract dividenddistribution right and concrete dividend distribution right in general. Lastly it discusses thesubstantive requisites and formal requisites as well as the specific distribution forms ofdividend distribution right; moreover it narrates the necessity of protecting dividenddistribution right of minority shareholders.The second section analyzes typical modes and reasons why dividend distributionrights are damaged. It starts from studying the four typical modes when abstract dividenddistribution rights are damaged, and then it further explores specific manners when concretedividend distribution rights are damaged, that is when the company refuses to distributedividends to shareholders in accordance with decided and declared profit distributionagreement. Lastly, it investigates the reasons why dividend distribution rights of minorityshareholders are damaged.The third part inspects the protection methods and their deficiencies of dividenddistribution right of the shareholders in limited liability companies in China. At first,protection methods can be summarized into passive and active protection methods in whichthe former includes the right of claims for share purchasing and share transfer, while thelatter includes initiating claims for the invalidity and the rescission of the resolution made inshareholder meetings and condemning controlling shareholders for violating their good faithobligations. In addition, it observes judicial judgment difficulties faced by abstract dividenddistribution rights founded on two attitudes towards abstract dividend distribution rightcases in judicial practice which mostly include the difficulties of autonomy, necessity andpractical effects.The fourth section examines comparative laws concerning the protection of thedividend distribution right of shareholders which contains beforehand contractarrangements and subsequent remedies in America, remedies for abstract dividenddistribution right of minority shareholders under the unfair damage rule, shareholderagreement and remedies of claims for liquidation by minority shareholders based on fairness and reason in Britain, and related introduction of protection of dividend distributionright in company laws in Germany.The fifth section relates to the perfection of the protection of dividend distribution rightin limited liability companies in China. For the perfection of abstract dividend distributionright protection, chiefly its six aspects are discussed; for concrete dividend distribution rightprotection, problems such as whether shareholder can demand the company to bear liabilityfor breach of contract in real proceedings, the obligatory right nature of concrete dividenddistribution right, whether this right shall be restricted by limitations and etc. are surveyed.At the end, the integration of the claims of right to know, the claims of rescission of theresolutions made by the shareholder meetings, and the claims of dividend distribution isexplored to demonstrate the practical effects of dividend distribution right protection.