Study On The "Authorization By Decision" Of Shareholders' Meeting For Board Of Directors

The 2^nd paragraph of Article 142 of Company Law amended in 2018provides two modes of power allocation between shareholders'meeting and board of directors,which can be respectively referred to as“authorization by bylaw”and“authorization by decision”.Due to this amendment,the function of bylaw concerning power allocation is reiterated and the mechanism of authorization by decision is first introduced into Company Law,leading to a series of normative and theoretical questions:What is the connotation of authorization by decision?Does this mechanism have any valuable and special function?Has this mechanism,while playing a special role,caused any problem?How to solve those problems?These questions necessitate the research on authorization by decision.Based on the comparison with authorization by bylaw,authorization by decision can be understood from three aspects:?1?Difference.Authorization by decision means the shareholders'meeting authorizes the board of directors by making a decision that does not involve amending the bylaw,so authorization by decision requires less votes than authorization by bylaw.Besides,time limit can be set in authorization by decision.?2?Similarity.First,the power being authorized is decision-making power instead of enforcement power.Second,the legal basis is default rule.Third,the theoretical range of application is neither limited to stock repurchase,nor to joint stock limited company.?3?Efficiency is not necessarily the difference between the two modes of power allocation.The mechanism of authorization by decision has two special functions:?1?It can be used by the shareholders'meeting to put stronger restriction on the board of directors.On the one hand,time limit can prevent abuse of power by the board,urge the board to exercise power diligently and avoid unduly raising the status of the board.On the other hand,the decision of the board is void if it violates the authorization decision of the shareholders'meeting.?2?It can be used by the legislator to broaden the range of self-governance of certain companies in power allocation.Since the conditions of opting out a default rule are prescribed in altering rule,both of authorization by decision and authorization by bylaw can be included in altering rule and influence its function of controlling the stickiness of a default rule.Considering that the lower the stickiness is,the more companies with available range of self-governance there will be,the legislation of authorization by decision can increase the amount of companies that are actually able to decide the allocation of power without interference,for the reason that from the aspect of vote requirement,it can lower the stickiness compared with authorization by bylaw.However,the legislation of authorization by decision has caused three problems:?1?Whether the authorization decision binds the shareholders'meeting itself is legally unclear,thus challenging the basis of authorization by decision.?2?The actual application of authorization by decision by listed companies according to Article 142 reveals problems of unlawful and sketchy designs.?3?There is a risk of unduly making altering rules due to the limitations set by the two special functions on the theoretical range of application of authorization by decision.Solutions are as follows:?1?Amend Company Law or issue guidance on the making of bylaw,so that decisions of shareholders'meeting violating the authorization decision can be revoked by courts.?2?The CSRC and stock exchanges should strengthen law-enforcement and issue guidance on model application.?3?It is recommendable to increase the types of authorization by decision when necessary,such as that without time-limit requirement and that requiring more votes.