On The Judicial Dissolution Relief For Oppressed Shareholders Of Limited Liability Company

In practice, due to the closed nature of limited liability companies, minority shareholders’ investment interests are usually “locked” into the company. On a frequent basis, controlling shareholders take the advantage of the capital majority rule, using the shareholder and board meetings to pass resolutions which do not favor minority shareholders. Faced up with this problem, figuring out the methods of protecting minority shareholders is becoming a real issue in the corporate law context. The judicial dissolution institution for a company, doubtless, means a lot to serve as “the last resort of relief” for oppressed shareholders to protect their interests. Nonetheless, the existing Chinese Corporate Laws and Judicial Interpretations have no such provisions as listing “shareholder oppression” as one of the grounds for a company to be compelled to dissolve with court orders. Thus, oppressed shareholders are not able to recover their investment interests through the method of judicial dissolution.Although China’s limited liability companies are similar in concept to closely-held corporations in United States, the corporate statutes of most states in America, as well as the Model Business Corporate Act, clearly provide minority shareholders with the rights to apply for court orders to dissolve their companies. In the meantime, from the practice of the courts of states in America, a large number of cases have been accumulated and shown diversified standards for defining oppressive conducts. More importantly, when shareholders are trying to bring up the suits for dissolving their companies, they usually do not aim for the real dissolution. Hence, when courts are applying the judicial dissolution institution, the buyout remedy will be alternatively used to grant relief. For all the reasons above, it is worthwhile to learn and borrow ideas from American courts and legislature’s experience in dealing with the judicial dissolution institution.This Article focuses on the study of judicial dissolution institution, draws lessons from American legislation and judicial practice, and conducts an in-depth analysis of the Guidance Case No.10 and oppressive conducts of controlling shareholders with relevant standards set by American courts. Also, this Article is intended to give some suggestion to improve China’s existing judicial dissolution institution.This Article consists of four chapters.Chapter I is about the issue of shareholder oppression raised by this Article. This Chapter starts to discuss on the Guidance Case No. 10, then raises the issue of shareholder oppression that exists in practice. Further, This Chapter analyzes the difference among a group of concepts, which are shareholder oppression, corporate deadlock, and judicial dissolution. Meanwhile, this Chapter proves in theory that judicial dissolution institution is functional and operative in fixing the problem of shareholder oppression. At the end of this Chapter, the core viewpoint of this Article is put forward, that is, oppressed shareholders in a limited liability company should be granted the right to request the court to dissolve their companies, and shareholder oppression should be included as a statutory ground for judicial dissolution.Chapter II is about the manifestations and causes for shareholder oppression. This Chapter elaborates on the topic of manifestations for shareholder oppression, which mainly include non-distribution of dividends, elimination of shareholders from employment, exploitation of corporate earnings, and sealing off corporate information. Further, this Chapter elaborates on the topic of causes for shareholder oppression, giving the argument that the closed nature of limited liability companies, the capital majority rule, incomplete ex ante agreements are all factors contributing to the plight of minority shareholders, that is, when facing the oppressive conducts form controlling shareholders, they are not able to get relief through corporate internal methods.Chapter III is about the analysis of experience in application of the judicial dissolution in United States. This Chapter briefly introduces the historic development of judicial dissolution and concisely discusses on shareholder oppression in America from legislative respects. This Chapter also gives an in-depth analysis of several valuable standards for defining shareholder oppression used by American courts, namely, the reasonable expectation and fiduciary duty standards, as well as their modified versions. At the end of this Chapter, the Author considers the modified reasonable expectation standard as the most reasonable and optimal tool to inspect controlling shareholders’ conducts, after making a thorough comparison and analysis among all the four standards.Chapter IV is about the advice for improving legislation of China’s judicial dissolution institution. First, this Chapter discusses on what the modified reasonable expectation standard should work like in practice when courts try to use it. Second, this Chapter sets forth in detail the buyout remedy from both the theoretical and practical perspective, making the point that it can be used as an alternative method in place of the judicial dissolution under certain circumstances. Third, this Chapter gives some thoughts on the condition precedent that needs to be satisfied by plaintiff shareholder when the judicial dissolution institution is applicable. At the end of this Chapter, some ideas are given to resolve the issue of shareholder oppression raised in Chapter I.The Epilogue part is about the summary of the point of views in this Article. All the viewpoints of this Article are mainly summarized into two aspects. For one thing, courts should apply the modified reasonable expectation standard to decide whether controlling shareholders’ conducts are oppressive. The purpose is to balance the respective interests of companies and minority shareholders. For the other, the legislature of China should improve the existing judicial dissolution institution as soon as possible, thereby providing a plausible alternative to seek remedies for oppressed shareholders in limited liability companies.