The Alienation Of Capital Majority Rule And Controlling Shareholders’ Duty Of Good Faith

Capital majority rule is a basic principle of the Company Law. Due to the defectsof the principle itself, the controlling shareholder tends to abuse his right to maximizethe pursuit of his interests, and this causes the alienation of the capital majority rule.The alienation of the capital majority rule has many adverse consequences, so it isespecially important to modify the capital majority rule. Given the controllingshareholders the duty of good faith is an effective mechanism modify the capitalmajority rule and it has certain legal principle and practical needs. After analyzing thedifferent practices in different countries and considering the legal tradition andjudicial practices of our country, the writer concludes that we shall apply the duty ofgood faith principle.The paper can be divided into four parts with the first part analyzing theevolution process of the shareholders’ democratic resolution rules. The capitalmajority rule stems from the beginning of unanimous rule and then voter majority rule.As one of the most important democratic resolution rules, the capital majority rule isthe inevitable choice of the company. Shareholders’ democratic resolution rules hasdeveloped from the initial unanimous rule to the current capital majority rule, becausethe capital majority rule is the best way to ensure the democracy and equality betweenthe shareholders.The second part of the paper analyzes the capital majority rule tend to be abusedby the controlling shareholders for its own shortcomings and the nature of pursuinginterests of the controlling shareholders. The abusing by the controlling shareholder has caused the alienation of the capital majority rule and causes capital majority ruledeviating from the original purpose. Therefore, it is particularly necessary to set aboundary for the exercise of the controlling right of the controlling shareholders. Afteranalyzing the current four standards, the writer concludes that the standard of “interestdamage” is the most suitable one.The third part mainly discusses there is certain legal principle and practical needsto ask the controlling shareholders to bear the duty of good faith, and by this way thealienated capital majority rule can be modified to regain its original value. Thecontrolling shareholders’ duty of good faith has developed for a long time andnowadays most countries believe that the controlling shareholder shall bear moreliabilities than other shareholders. But as to why the controlling shareholder shall bearthe duty of good faith, each country has her own opinion.In the fourth part, the writer analyzes our country’s legal provisions concerningthe controlling shareholders’ duty of good faith, the duty of good faith in common lawsystem and the principle of good faith in civil law system, and other elements, andessentially concludes that the principle of good faith is most suitable for our country.