Researches On Abstract Dividend Rights Of LLC’s Shareholder

Viewing from the basic theory of civil law, the shareholder’s abstract right on dividends is not just a function of Right, but constitute a Right by itself; not just pure expectation, but a Right of expectation, having the Real Right effect. Therefore the abstract right on dividends can be protected on the basis of contract law and tort law. From the perspective of legal economics, property right theory and contract theory explain that, not only dividend distribution shall not affect economic output or efficiency, but shall reduce the agency cost, thus to the benefit of commonwealth. The theory of faith obligations and reasonable expectation deriving from common law says, in case the controlling shareholder fails to satisfy the minor shareholders’ reasonable expectation, it constitute a breach of faith obligation, therefore resulting in the compensation responsibility by the controlling shareholder or the company.Infringement upon abstract dividends right of LLC’S shareholders mainly comprises five forms, namely, the company not making profit allocation scheme, no voting on profit distribution plan, resolution not to allocation, only symbolic allocation and excessive extraction of provident fund. The infringement problem is deep rooted in the conflict of interests between the controlling shareholder and minority shareholders. Absence of agreement upon dividend between shareholders, the abuse of majority decision rule of capital, imperfect remedy mechanism and judicial conservatism are the main cause of the problem. There are about six kind of judicial remedies for the abstract right to dividends under the current law system, that is, the liability suit for compensation against the controlling shareholders, sue to revoke or confirm the invalidity of the resolution, transfer of shares, buying back the dissent shareholders’ shares by the company, shareholders’ direct litigation, request for compulsory dissolution, the effects of all these remedies not ideal, sometimes futile.In accordance to the circumstance of infringement on the abstract tight to dividend, aiming at reducing the defects of the current remedies, Chinese company law should draw lessons by relevant theories and experiences from the common law and continental law, establishing a system with multiple dimensions for the protection and remedy of LLC’s shareholder’s abstract dividend right. First of all, more emphasis upon the functions of shareholders’ arrangement on the company’s dividend policy, making terms relevant to dividend clear and specific through the contract or company constitution. At the same time, minority shareholders should participate in management more actively, giving full play to the role of the board of supervisors. Secondly, to consummate the legislation by actively encouraging high level of dividends, comprising of establishing a quasi-mandatory dividend distribution, improving share-buyback mechanism and equity transfer regulations, limiting excessive extraction of optional accumulation fund. The evaluation methods of p equity regarding to the share buyback should be in favor of minority shareholders. At the same time, the tax law should be modified to avoid double taxation. Lastly, setting up compulsory distribution of dividend by litigation mechanism.