Behavior Defining Of Major Shareholders' Abuse Of The Rights Of Shareholder To Increase Capital And Expand Shares

The increase of the capital and share in a limited liability company generally falls within the scope of autonomy of will of the company. According to the law, with approval of more than two thirds of shareholders present at the meeting, matters relating to increase of the capital and share can be therein decided. The increase of the capital and share is often regarded as an internal affair of autonomy will of the company, so it cannot be intervened by administration of justice. But the Company Law 20 provides a legal basis for judicial intervention. Where major shareholders abuse or misuse their rights, the judicial authorities can investigate the reasonableness of increasing the capital and share. Where major shareholders decide to increase the capital and share with the registered capital which is far less than the value of net assets when the company runs very well, results of diluting equity of minority shareholders may be incurred. For the identification of such acts, issues are involved such as the definition of abusing shareholders' rights, remediation of abusing shareholders' rights and the way to compensate minority shareholders' loss.The case on infringement damages of Dong Li suiting Shanghai ZETA Ltd. is discussed in this paper, on the basis of current legislation, analyzing the major shareholder's behavior of abusing rights. Besides introduction and conclusion part, the paper has five parts.The first part is the introduction and issues of the case.There are three issues of the case: first, whether the capital increase resolution in the case is in violation of Company Law 20; second, whether the defendant's behavior is an abuse of shareholder's rights; third, how to compensate for the losses caused by the increase of the capital and share.The second part, on the basis of current legislation, the legality and rationality of the company capital increase resolution are analyzed and the limits of judicial intervention are explained, in order to lead to the topic about identification of abusing major shareholder's rights. In the meantime, the major shareholders' behaviors of increasing the capital and share are commented on this part and a conclusion is thus reached: The defendant's behavior is in violation of the provisions of Company Law 20, and the major shareholders abuse their rights, which results in the loss of minority shareholders.The third part is mainly about identification of abusing shareholders' rights, which involves two aspects: the principle about prohibition of abuse of rights and shareholder's Credit obligations. This part also contains constituent elements of abusing shareholder's rights and makes subjective and objective analysis of the major shareholders' behaviors, in order to make a conclusion that the major shareholders are in violation of credit obligations of shareholders, and the resolution is not reasonable and obviously injustice. In the meantime, this part also provides two remedial ways: one is filing application for the nullification of the resolutions and the other is filing application for the damages.The forth part, analyzes the compensation subjects and the amount of compensation in the case and makes a conclusion.The fifth part makes a discussion on the verdict according to legal basis and jurisprudence, providing enlightenment to juridical practice: construction of internal compensation system and the introduction of forensic accounting program.