Difficulties And Solutions Of Judicial Application Of The Shareholders' Dividend Rights System In Limited Liability Companies

The dividend distribution rights of shareholders in limited liability companies,also known as the "right to request for distribution of surplus",can be divided into the"right to request for abstract distribution of surplus" and the "right to request for specific distribution of surplus" in nature.In the Company Law of China,it has been advocating only the "specific right to request the distribution of surplus" and holding the principle of "prudent interference of the judicial system in corporate autonomy"that "abstract right to request the distribution of surplus" is not guaranteed.In recent two years,the Company Law Judicial Interpretations(IV)and the Company Law Judicial Interpretations(V)have been promulgated successively in China,which stipulate the progressive significance of the rights to request for distribution of surplus of abstract companies may be guaranteed in the event of "abuse of shareholder's rights",and stipulate a "one-year reasonable period" for performance by companies in the event of passing of a resolution on dividend distribution by a shareholders' meeting.The progress of these two legislations,more perfect protection of the shareholder's right to dividends legislative protection,filling the legislative gap for many years.However,with a detailed and comprehensive understanding of China's current legal system to protect the right to dividends shareholders,it is still found that the current legislation and practice there are some shortcomings.For example,the "abuse of shareholder's rights" in the proviso on the protection of the right to request for surplus distribution is not clearly listed and pointed out in Article 15 of the Judicial Interpretation(V)of the Company Law.Is there any difference between"abuse of shareholder's rights" and "abuse of shareholder's rights" in Article 20 of the Company Law?The author then points out that the direct protection of abstract shareholders' dividend rights in corporate surplus distribution disputes is very likely to overlap with the "disputes over the liability for damage to the company's interests"and the "disputes over the liability for damage to shareholders' interests".If this is not distinguished,will it lead to the overhead line of the judicial protection channel for"disputes over the liability for damage to the company's interests" and "disputes over the liability for damage to shareholders' interests"?These problems will lead to the current and future judicial application unified.Furthermore,Article 166 of the Company Law is comparatively harsh with regard to the statutory requirements for a company to form the right of claim by its surplus distributors and may easily get into the trouble of being utilized by major shareholders to achieve illegal purposes.The plan for dividends distribution may be made only after the statutory reserve and discretionary reserve are withdrawn in accordance with the law.Although the legislative intent is to safeguard the company's capital maintenance principles and protect the interests of creditors through withdrawal of statutory provident fund,the company's future development and operations are protected through withdrawal of discretionary provident fund.Finally,taking into account the issue of shareholders' right to dividend,the precondition of dividend is very easy to allow the majority shareholders holding the majority capital to infringe the minority shareholders' right to dividend distribution.For example,the scope of drawing 10%-50%of the legal accumulation fund is within a certain range,but there is no clear amount.The actual controlling shareholder of a company may draw 10%of the minimum registered capital as the amount drawn from the legal accumulation fund,or draw 50%of the upper limit registered capital as the specific amount drawn from the legal accumulation fund.A range of 10%-50%is a relatively large range,will give the actual controlling shareholder too much discretion.At present,China's implementation of the registered capital subscription system,the company in order to enhance external commercial reputation,facilitate business transactions,will choose a larger amount of registered capital,after the installment.Satisfying 10%-50%of the subscribed registered capital or generating too much capital increase of the company.What is more frightening is that there is no cap on the discretionary reserve fund,and the actual controlling shareholder of the Company may make allocations to the discretionary reserve fund based on its free willAt the same time,the author also analyzes the other ways of protecting the shareholder's dividend distribution rights,such as the withdrawal mechanism of share buyback and the action of cancellation of shareholder's meeting resolution.Article 74 of the Company Law has set up strict conditions and procedures for equity repurchase claim system.For example,the Company is required to have made profits for five consecutive years and have undistributed profits,a condition that would easily be avoided by the controlling shareholder by means of nominal profits distribution so that minority shareholders are not able to exit the Company through the equity repurchase channel and the minority shareholders can face a dilemma.Second,what is a reasonable equity repurchase price?Since the existing laws have no explicit provisions,assessment is often needed injudicial practice,and whether or not an assessment can be conducted depends on the surrender of books and other basic financial materials by the actual controlling shareholders of a company.Otherwise,even if the court agrees to support the claim of the plaintiffs shareholders on equity repurchase,it is still unable to work out a specific and reasonable repurchase amount,which the judicial judgment may be of no practical significance.Thirdly,the remedies that the aggrieved Shareholders only use equity repurchase will enable the aggrieved Shareholders to unilaterally choose to exit from the Company.Therefore,the aggrieved Shareholders are unable to meet the optimistic future and development of the Company,and are unwilling to exit from the Company.Instead,the aggrieved Shareholders only desire to protect their legitimate rights of distribution of dividends but are unwilling to exit from the Company.But this kind of relief way may also happen to "fulfill" the majority shareholder to use the control dividend means to force away the minority shareholder's ultimate goal,cannot protect the commercial equity.Also,in accordance with Article 22 of the Company Law,the time for instituting an action for revocation of a resolution at the shareholders' meeting is strictly prescribed and the relevant Shareholder shall claim the revocation within 60 days from the date on which the resolution is made;if not,the relevant Shareholder shall have no right,On the positive side,the legislation purports to maintain the stability and publicity of the resolutions of the shareholders'meeting and the board resolutions and shall not produce the effect of revocation of resolutions without authorization.Notwithstanding,such a long period of cacelllation can be meaningless.When the revocable resolution of shareholders' meeting/board of directors has come into force,the plaintiff will file the suit of revocation,even if the judicature is in favor of the plaintiff,but can not satisfy the "consideration of both trial and execution" of judicial practice.In addition,through a large number of open judicial adjudicative documents,the author also found in the trial practice of the "dividend" protection around the court there is a great difference,and not effective and fail to fulfill the effective judgment prescribed by the enforcement of penalty interest.On the basis of an in-depth analysis of the causes of the above problems,the author,by searching a large number of written judgments and documents and through methods such as the case study method,empirical study method,comparative analysis method and standardized analysis method,has put forward his own suggestions on the way out for the right to receive dividends from shareholders:(1)Appeals for the prompt establishment of specific principles with "respecting the internal autonomy of companies as the main principle,taking into account the protection of the interests of minority shareholders,and where necessary,judiciary must intervene in companies in a moderate manner",and for breaking the long-standing mainstream but ambiguous principle of "judicial appropriate intervention principle".(2)Actions of protecting the dividend rights of shareholders according in different situations.According to the double standards of "whether the Company's original intention of not distributing dividends is contrary to business purpose" and "whether the actual controlling shareholder is detrimental to the interest of other shareholders or the Company",the Company is required to offer specific measures to protect the right of shareholders to enjoy dividends.(3)It is advocated to make good use of the Magna Carta of corporation,The administrative authorities shall formulate model clauses for distribution principle other than "the principle of non-capital contribution ratio distribution" in the articles of association of a company from the date of incorporation of the company,standardizing protection rules for provision of dividend rights of shareholders from the outset,and implement bottom line agreement model of the articles of association of the company.The bylaws shall also specify the clear proportion of the statutory common reserve fund and the discretionary common reserve fund.The Company Law also prescribes a reasonable time limit for the payment of dividends in its Articles of Association,which shall not be simply based on the Judicial Interpretations of the Company Law(V).It is advocated that the Articles of Association play an independent role in the internal autonomy of the Company.In view of the different judicial practices,the author calls for legislation to determine the system of "reversed burden of proof of audit materials in companies'distribution disputes over surplus and taking the information of previous years'internal audit or account checking as the financial basis for the distribution of surplus under special circumstances",so as to effectively guarantee the embarrassing situation where judicial decisions cannot be made due to the dominant position of the actual controlling shareholders of companies in a large number of cases in grasping the basic financial materials.And with regard to the chaos of whether the interest of dividends is supported,put forward the specific applicable method of clarifying that "the plaintiff is entitled to the interest of the company's surplus distribution amount for which a resolution on the dividend distribution plan has been made",and gives the overall applicable plan for the problem of penalty interest arising from effective and unperformed legal instruments.Ultimately,it is proposed to establish a system for the protection of shareholders'dividend distribution rights in an all-round way that is consistent with commercial efficiency,fair disputes,effective judicial application.