Research On The Judicial Application Of PRC’s Corporate Opportunity Doctrine

In modern times, business world is like a battlefield, where opportunity and time count. Whether we can seize the business opportunity has become an important factor in determining the company’s success. However, with the exchange of modern corporate governance structure from "Shareholders centrism" to "Directors centrism", shareholders’ power is declining, while the power of the directors and senior managers has become increasingly expanded, also the phenomenon of usurping the corporate opportunities for private benefit is growing. Thus common law countries developed the Corporate Opportunity Doctrine by a series of cases to prohibit the company’s usurpation of the corporate opportunities. Civil law countries were also constantly pursue the introduction of this theory, China was no exception. As amended in 2005, the Company Law of the PRC(hereinafter referred to as "Company Law") officially introduced the rule: Article 149, paragraph 1, item 5( now Article 148, paragraph 1, item 5) states: "Without first obtaining the consent of the board of shareholders or the general meeting, no director or senior officer may seek business opportunities for himself or for any other person by taking advantage of his position, or operate on his own behalf or on behalf of any other person any business similar in nature to that of the company."(Company Law revised in 2013 retained this provision 2above.) This provision further improved the directors’ duty of loyalty, which was undeniably a great convergence of modern company law.However, as a distribution mechanism of property rights between the company and the operator, even in the common law countries, the corporate opportunity doctrine is still considered as the most difficult and controversial areas. China as a legal transplant country, how to make the corporate opportunity adopt to the statutory background and local judicial practice is really a big challenge. The corporate opportunity doctrine has abundant connotation,so it is far from sufficient to clarify its specific meaning by merely forty words, such as the legal basis, the judging standard, defenses, and many other aspects. Therefore, it is urgent to solve the above problems and improve its practicality.On this account, the article is intended to perfect the corporate opportunity doctrine to apply for the Chinese judicial perspective, and improve the corporate governance level. This article includes introduction, main body and conclusion these three parts. The structure of the body part is as follows:Chapter One, raises the issue. By a brief introduction and analysis of an identical case, and according to the different judgment results, we can find numerous problems of the corporate opportunity doctrine in Chinese justice.Chapter Two, describes the theoretical basis of the corporate opportunity doctrine. It includes the definition, legal attributes and the legal basis. Although the corporate opportunity doctrine has already existed for a long time, it is still a vague concept. Corporate opportunity doctrine is protected by its special rights owned by the corporate. Moreover, from the economic perspective, the doctrine plays an important role in the reduction of agency costs and improvement of economic efficiency.Chapter Three, focus on the status of judicial application of the corporate opportunity doctrine in China. Through a summary of judicial cases reveals its shortcomings in our judicial application. It includes the unfair distribution of burden of proof, the unified judging standards, the absent of defenses and other aspects.Chapter Four, deep analysis of the application difficulties. Undeniably, the lack of vague legislation is one of causes, but the limitation of judges’ professional skills, psychological fear of difficulty, may act as a "court of public policy" role,it might be another cause. What’ s more, when applying the corporate opportunity doctrine, we often refer to the application of business judgment rule, which needs judicial intervention in corporate governance.Chapter Five, describes the reconstruction of corporate opportunity doctrine, which is also the core of this article. Firstly, as for the main obligations of the corporate opportunity doctrine, it is recommended that the independent directors, controlling shareholders, actual controllers and supervisors shall be included in the scope of the regulation. And the company shall be the rights body naturally, then the limited liability company and joint stock limited company shall be regulated by different rules. Secondly, focusing on the usurping behaviors and defenses. Thirdly, considering the factor of asymmetric information, we recommend that the court may allocate the burden of proof flexibly. Fourth, when the corporate opportunity doctrine conflict with the non-compete rule, we should give priority to applying the non-compete rule.