A Study On Litigation Of Forced Dividends Distribution In Limited Liability Companies

Shareholders’ right to claim dividends distribution, as an inherent right of the investors based on shareholder qualification, is not supposed to be deprived or be restricted. However, under the majority rule, the majority shareholders are able to prejudice the minority shareholders’ right to claim dividends distribution in a variety of ways through controlling the board of shareholders and abusing their power to make decision on dividends distribution. There are some measures of protecting and remedy aiming at this problem provided in the Company Law of China, which are all limited. Furthermore, the justiciability of the abstract right to claim dividends distribution is not recognized in China. Therefore, shareholders’ right to claim dividends distribution is not protected well in China, especially minority shareholders in limited liability companies. In my point of view, a more direct protect measure, i.e., litigation of forced dividends distribution, shall be introduced into China.This thesis starts with the basic theories of dividends distribution. Firstly, it is demonstrated that dividends distribution is the investors’ ultimate goal and the right to dividends distribution is the core right of the shareholders and the inherent right as well which is not supposed to be deprived or be restricted. Secondly, the hierarchical structure of dividends distribution is introduced, i.e., the company’s power to make decision on dividends distribution and the shareholders’ right to claim dividends distribution. The power to make decision on dividends distribution is the necessary condition for the abstract right to claim dividends distribution to become concrete right to claim dividends distribution. The theory of abuse of power in France, which is a typical representative of this theory, is introduced briefly through a case. According to this theory, the abuse of power to make decision on dividends distribution will prejudice the shareholders’ right to claim dividends distribution in accordance with.The second chapter analyses specific performances that the minority shareholders’ right to claim dividends distribution is prejudiced in limited liability companies in China, lists the existing protect and remedy measures under Company Law of China, analyses the limitation and deficiency of each measure, and therefore derives the necessity of introducing the litigation of forced dividends distribution. Finally, an introduction is carried out about the controversy among the academic circle and attitude in judicial practice on the litigation of forced dividends distribution. Based on the analysis of certain typical cases, the justiciability of the abstract right to claim dividends distribution is not recognized in judicial practice. The so-called "surplus allocation disputes" is just creditor disputes and is not be able to protect the minority shareholders’ right to claim dividends distribution. However, there are still some cases or case analysis by the judges holding the opposite view.The third chapter makes a detailed presentation, by way of comparative law, on the relevant theories, cases and statutes of the litigation of forced dividends distribution in US and UK, from where the litigation of forced dividends distribution sources, and provides the theoretical basis of the introduction of the system.In US, the litigation of forced dividends distribution is the exception of the business judgment rule, which is further amended by oppression theory and becomes more effective in protecting the shareholders’ right to claim dividends distribution.In UK, the unfair prejudice remedy system is adopted and the theoretical basis for the judicial intervention is the contract theory. Also, the specific rules of these two systems are summarized in this chapter.Based on the third chapter, the forth chapter designs the system of the litigation of forced dividends distribution combining with the actual conditions of China, including the prosecution requirement, the plaintiff and the defendant, the burden of proof and the judgment. Finally, it is emphasized that attention should be paid to the border of judicial intervention to maintain a balance between the judicial intervention and the company autonomy.