Research On Fiduciary Duty Of Controlling Shareholders In A Dual-Class Shares Structure

Dual-Class Share Structure(DCS)is one kind of Control Enhancing Mechanisms(CEMs)in corporate governance.By holding special voting rights,the company's founders can retain primary control of the company.The conflict of interests and agency cost arises due to the disproportionate allocation of voting rights and cash flow rights.It is generally believed that there are two basic strategies for addressing agency problems.Firstly,which has been well-studied,is to minimize agent's(such as controlling shareholders in DCS)discretionary powers.Scholars suggested that we can take corporate governance strategies such as "Setting up independent directors to enhance independence" and "special information disclosure requirements" to realize the protection of investors' rights.However,the research on fiduciary duty strategy was failed,we can't find any systematic research results.Therefore,this article focus on the fiduciary duty of controlling shareholders in a Dual-Class Shares Structure.Firstly,we will identify the research questions.Secondly,we will establish an analytic framework for these questions.Thirdly,we will use this framework to solve these questions.The first chapter,we starts from the basic theory of fiduciary relationship and fiduciary duty,understanding fiduciary duty in corporate law with hypothetical premises established on it.Then,we conclude the differences of fiduciary duty between a normal structure and a DCS.We find that the fiduciary duty in the traditional company law theory takes "operator control" as the basic model,andbelieves that the directors obtain corporate control through operating rights,therefore,they should undertake fiduciary duties to shareholders with the same interests with uniform standards.In this article,We find that the founder's corporate control actually combines the control power obtained from the "company ownership" level based on the special voting right with the "company management" level management power.As a result,the fiduciary duty rules with management rights as the scope of action cannot evaluate the founders' abuse of company control rights.Facing the problems resulted from founder's Control Enhancing Mechanisms,we should not only focus on the identities such as directors,executives or controlling shareholders,but also focus on the allocation of corporate control.We should require the person,who exercise rights of corporate control,as the same time,enjoying benefits of corporate control,undertaking fiduciary duty.The second chapter,we establish an analytic framework to solve the problems.We based on the perspective of the corporate control structure,establishing two analysis paths centered on the corporate controller,as well as other participants in the corporate.The corporate control structure focus on the corporate controller,which based on the arrangement of the governance structure in corporate law,including all kinds of CEMs.On the one hand,we analysis under the perspective of corporate controller.We examine the source of corporate control,the scope of influence of the control right,and other control right restraint mechanisms,so that we can found the fiduciary and the scope of fiduciary duty.On the other hand,we hold the view that controllers cannot control the corporate without the impacts on corporate authorities,such as board of directors.Therefore,it is important for us to discuss the participation of corporate governance of other person,such as institutional investor and independent director.Then we can further limit the content of the fiduciary duty.Last but not least,we can clarify the possible space for company autonomy,as a prerequisite for judicial intervention.The third chapter,we will use the framework which has been shown in the third chapter.we believe that there is a fourth type of agency cost problem in corporate law,which is the conflicts of interest between the founders and the investors in CEMs suchas DCS,To begin with the perspective of controller.Firstly,founders corporate control come from a special voting right with personal dependence,which essentially belongs to the consideration of the founder's special form of human resource funding.To talk with the content of corporate control,we think that it gathers the main content of the management right,as well as the content of the remaining control rights which were primary given to the corporate owners.Therefore,founders can decide the appointment of corporate directors and supervisors.From the perspective of company organs and other participants,we find that founders make them dominant in many dimensions such as the shareholders' meeting,the board of directors,and the management.Only the selection of independent directors is outside its scope of influence.Among them,the corporate investors' ability to participate in governance has been seriously affected.Therefore,they should be protected by fiduciary duty.The fourth chapter,we focus on the specific content of the fiduciary duty that founders should be taken in a DCS.We point out that the duty of loyalty and the duty of attention is important as well.Firstly,the duty not to fetter discretion,duty of fair dealing and duty of prohibition of competition are the main content.First of all,the control of the special voting rights held by shareholders is not based on the fact of holding,but on the consideration of their special form of human resources investment.As a manifestation of fulfilling the investment obligation,the controlling shareholder can neither abuse the special voting rights nor restrict the exercise scope of the special voting rights at will.Secondly,controlling shareholders are trusted by investors in DCS,therefore,self-trading within a certain range should be a necessary condition for founders' operating of corporate.For self-transactions involving important matters,the "safe harbor rules" in the US corporate law can be used for reference.We hold the view that the special committee of the board of directors is responsible for review instead of shareholders' meeting.Finally,in order to avoid repeated investment in controlling shareholders 'human resources,the obligation to prohibit competition should be undertaken by founders.In addition,we point out that in the case of company mergers and acquisitions,after the founder losing control of the corporate and quit,they should undertake the obligation to prohibit competition within a certainperiod of time,unless it is exempted by a resolution for the general meeting of shareholders.On the other hand,the duty of attention mainly emphasizes the degree of attention required by the controlling shareholder.We believe that a combination of subjective and objective criteria should be adopted for identification.From an objective perspective,it mainly examines the scope of influence of the company's control exercised by the founders under the company's control structure.On the subjective side,the founders are not tolerated by the evaluation of "general business person",and the entrepreneurial characteristics possessed by the founders should be included in the scope of investigation of the duty of care.Lastly,we think that it is necessary to introduce business judgment rules,so that the judicial intervention of the founders' decision-making actions can be appropriately.The fifth chapter,we discuss the procedures that investors can take to claim founders to take the responsibility for breach the fiduciary duty.Firstly,we discuss the form of responsibility.We suggest to establish a unified rule of interest at the level of loyal obligations of controller.Meanwhile,a special committee of the board of directors should be responsible for the decision on whether to exercise the right of inclusion.In terms of judicial remedies,investors can resort to shareholder derivative actions and company resolution lawsuits.Among them,shareholder derivative litigation belongs to a private law enforcement mechanism that pursues the fiduciary duty of the controllers.We believe that it is reasonable to require shareholders who want to prosecute the suit to follow pre-procedures through the committee composed of independent directors.On the other hand,we find that investors do not have sufficient incentives to prosecute a derivative suit.Therefore,it is an effective way to give Investors Service Center with litigation rights.As a result,corporate litigation committee and Investors Service Center will form a new battlefield for the company to derive litigation,then investors in DCS can be protected by judicial mechanism.