Analysis Of The Soft Paternalism Function Of Default Rules In Corporate Law

The contract theory emerged from Delaware in1980s has influenced the corporate law system of many countries. The contractarian argue that corporations are formed by a series of free contracts, so any corporate governance rules should be decided by the company itself and finally corporate law is a default law which is meant to the fill contract gaps. Contract theory reminds us that corporate law needs to respect private ordering, give the parties full freedom of choice and put away the mandatory constraints. However, due to limited cognitive ability, information asymmetry, the existence of market failures and some other factors, total freedom without any guidance would probably cause unfair results like majority shareholder oppression. Therefore we are faced with an urgent problem of freedom&fairness coordination in the context of private ordering.To solve the problem, this article proposes a concept of default rules soft paternalism function under the contract theory. In fact, corporate law can not only fill the parties’ contract gaps, but also play a significant guiding role. By setting the optimal defaults we can easily achieve the balance between freedom and fairness. According to the U.S. legislative and judicial practice, we then turn to analyzes how to make optimal default rules, hoping to achieve the soft paternalism function so as to provide effective legislation guidance for a better company governance structure and furthermore to protect the interests of investors and promote the stable development of the social economy.In the first chapter, we start with a detailed description of the contract theory and come to the conclusion that the corporate law trend is more freedom and less regulation. However pure contractual freedom can never fully protect the interests of shareholders, so we need the method of soft paternalism. In the next chapter, we explain the reason why default rules can be so sticky that the parties would probably just follow either than opt out. Then according to the U.S. practice, we introduce substantial and procedural parts of a default rule in the third chapter, moreover we also discuss several routes that can be taken to achieve the soft paternalism function. Finally in the last chapter, after analysis about the status quo of China’s legislation and the shareholder oppression problem, we put forward some legislative suggestions so that the default rules soft paternalism function can be achieved in China.