Protecting Shareholder Rights During Reducing Corporation’s Capital

Capital reduction is a means of self-regulation of the corporation in order tocompete in the market. Capital reduction easily causes conflicts of interest betweenshareholders, violates the rights of shareholders. But the provisions of the capitalreduction in the Corporation Law are too principled and simple to operate, it’sdifficult to protect the rights of the shareholders during reducing corporation’s capital.Therefore, this paper studies the protection of the rights of shareholders under theframework of reducing corporation’s capital in order to improve the relevantprovisions of the protection of shareholder rights.The first broadly outline the capital reduction. The chapter discusses three kindsof capital system, we know the specific meaning of capital reduction in the statutorycapital system through studying our corporation law capital system. Afterunderstanding the meaning of capital reduction in the statutory capital system, thischapter will introduce two ways of capital reduction methods by the same proportionand by the proportion of different.The second chapter discusses the legal regulation of inappropriate capitalreduction. First of all, it introduces the inappropriate capital reduction will violate theequal right of shareholder and the rights of preference shareholder. Specifically, theprinciple of equality of shares prone to alienate during the voting on the resolution inthe process of capital reduction to violate the equal rights of shareholders, and theright to vote would been limited or the priority would been infringed in the capitalreduction of the preference shareholders. Second, it introduces the legal provisionsprotecting the rights of shareholders during capital reduction in other countries. Thereare two ways to carry out the principle of shareholder equality during capitalreduction, which are courts scrutiny resolution of the board or the resolution ofshareholders in common law countries and provision the principle of shareholderequality in laws civil law countries. There are two ways to protect rights of preferredshareholders during capital reduction, which are clearly stipulated the rights by thelaw and the articles of association. In addition, the statute countries pay attention tolegal provisions about method of reduce capital, in capital reduction methods focus on legal provisions, which are mainly requiring corporation to reduce capital by the sameproportion and requiring corporation to inform shareholders about capital reductionmethod.The third chapter is about perfecting of the provisions of protecting shareholderrights during reducing corporation’s capital. The first place, it analyzes the situationof the protection of shareholder rights during capital reduction of China CorporationLaw. The law pays attention to implement the principle of equality of shares withoutclearly provision the controlling shareholder’s fiduciary duty during capital reduction,without provision rights of preferred share, without provision the method of capitalreduction. In the second place, according to these limitations, I put forward my viewsto improve China Corporation Law. First, it implements the principle of shareholderequality through clearly defined controlling shareholder voting in the capital reductionhas a fiduciary duty to other shareholders and improve the legal system of the directshareholders defect resolution litigation or invalid. Second, the rights of preferredshare will be provisioned by the articles of association of the corporation which issuespreference shares, but the law gives preference shareholders the right to vote in thecapital reduction process. Third, it requires corporation to adopt methods of capitalreduction by the same proportion which is a principle and the method of capitalreduction by the different proportion is an exception.