Some may think that, with the diversity of today’s corporation culture, it may be too difficult to reach a consensus on the model to balance the interests of shareholders. I do not think that is the case, given the successful practices in other countries and the progresses we have made. The scholars have also established a firm foundation of principles so reforms can remain real and not radical. This is not to suggest that the task of treating the majority shareholders and minority shareholders equally will be easy. However, hard jobs can get done.
【注释】* Graduate Student, Class 0503, East China University of Politics and Law. I would like to thank Linlin Pan for her encouragement.
See Junhai Liu, The Protection of Shareholders’ Rights in Joint-stock Companies (the first edition), Law Press, 1997, P.30. This principle means a company can not provide unequal or unreasonable treatments toward different shareholders. Every shareholder should respect others’ rights. It is on this basis that he can achieve his interests with freedom. The doctrine of shareholders’ equality is different from the doctrine of equity capital’s equality, which simply means the character and quantity of stocks determine how many rights the shareholders possess.
The shareholders who have the majority voting rights have the power to pass or veto the resolutions of a shareholders’ meeting.
Professor Ping Jiang excitedly pointed out, “it is no doubt that the recently amended PRC Company Law is the most advanced one in the 21th century… It will attract worldwide attention. And it will lead the reform of company laws in 21th century, especially in the field of legislative spirits”, see “On the amendment of the PRC Company Law”, a forum about “Rule of Law in China”,http://www.ccelaws.com/ .I must confess that I can not be so optimistic.
It is my argument based upon qualitative analysis. The recently amended CCL achieves an outstanding breakthrough.
It is my argument based upon quantitative analysis. Many newly established systems, which aim to safeguard minority shareholders and regulate the rights of majority shareholders to control PRC companies, have some technical problems and material limitations to a great extent. Furthermore, the legislative ignored several absolutely important mechanisms.
Foss v. Harbottle 67 E. R. 189(1843).
See CCL (2005) Article 104.
Junhai Liu, The Protection of Shareholders’ Rights in Joint-stock Companies (the first edition), Law Press, 1997, P.270.
Charles Louis Ontesquieu, De I'''' Esprit des Lois, Commerce Press, 1963, P.154.
Louis Brandies, Other People’s Money, 92 (1914).
See CCL (2005) Article 20.
It will be analyzed in detail infra.
These principles in the civil law can govern people’s actions in the commercial law.
Xundong Zhao, A Comparative Analysis between the New Company Law and the Former, People’s Court Press, 2005, P.62.
R. W. Hamilton, The Law of Corporations, the Fourth Edition, West Publishing Co. 1996, P.378-379.
Someone who is not a shareholder can control a company virtually by investment or agreement. See CCL (2005) 217.
See CCL (2005) Article 21. The interested relationship means a direct or indirect control between the company and controlling owners or directors. It includes all types of relations which can transform company’s interests. See CCL (2005) Article 217.
For instance, the resolution concerning the modification of the articles of incorporation of the corporation, merger, or separation etc must be approved by shareholders who hold more than two-thirds of all voting rights.
See CCL (2005) 217. Therefore, all of majority shareholders are controlling shareholders. See Longsheng Diao, “On the controlling shareholders’ non-completing duties”, Journal of Jurist, Vol.3, 2005, P.127.
Solomon, Corporations: Law and Policy, third edition, West Publishing Co, 1994, P.695.
Yalin Duan, A discussion of the Abusive Rights of the Majority Shareholders, Economy and Management Press, 2001, P.138.
SEC v. Chenery Corp. 318 U.S. 80 (1943).
See CCL (2005) Article 75 and Article 143.
The minority shareholders can initiate a suit against the company within 90 days after the passage of the resolutions of a shareholders’ meeting if they can not reach a agreement on the purchase with the company. See the article 75 of CCL (2005).
Merriam - Webster’s Dictionary of Law, Published under License with Merriam - Webster Incorporated, Spring Land, Mass, 1996, P.122.
See CCL (2005) Article 183.
Peixin Luo, A Contractual Interpretation of the Company Law, Peking University Press, 2004, P.100; Xuanyon Li and Xinrong Guan, “Corporation Deadlock and Judicial Remedy”, the journal of law, Apr. 2004.
This term is proposed by Junhai Liu, in his thesis, “The Mechanism Innovations of the Recently Amended CCL”, www.civillaw.com.cn
Weimin Bao, “Corporation Deadlock in American Company Law”, Journal of Commercial Law Research, Jun. 2005, P.135.
See CCL (1993) Article 32, Article 101, and Article 110. These three articles are too blurry to be put into practice. The shareholders of course have the substantive right to inspect their companies, but they lack the procedural protections.
A fiscal report can be forged easily by a technical measure. But now the shareholders can monitor the company more comprehensively by check the accounting books and other original warrants. It will have a significant impact on the protection of the minority shareholders’ rights from abuses of majority shareholders’ controlling powers.
See CCL (2005) Article 34. Other articles provide that many books and records, such as audit reports, shareholder lists, debenture counterfoils etc, ought to be purchased in the joint-stock company. The shareholders can put forward suggestions and inquiries about the management of the company.
The shareholders can initiate a suit for requiring the company to provide accounting books for being checked out. See CCL (2005) Article 34. A shareholder wants to inspect with his purpose to get access to trade secrets which he can sell to a competitor of the company. This is a typical example of “improper purposes”. What about other situations which is not so clear? How to distribute the burden of proof? Moreover, can shareholders designate proxies to check the accounting books? The recently amended CCL does not clarify.
Maybe the worst situation is the minority shareholders in good faith can not fully participate while the ones with the ugly purpose can make use of CCL’ s limitations to clean up.
See “Guidelines of the Establishment of the Mechanism of Independent Directors in Listed Companies”.
Donald C. Clarke, “independent directors and corporation governance in China”, released on http://www.civillaw.com.cn/weizhang/default.asp?id=19096
By the way, the mechanism of independent directors can not be fully discussed in this short thesis. I can merely provide a framework of the difficulties in theory.
CCL Article 106 The mechanism of cumulative voting can be carried out to vote directors and supervisors on an election of a shareholders’ meeting according to the articles of incorporation of the corporation or the resolutions of the shareholders’ meeting. The mechanism of cumulative voting means a method whereby each shareholder can multiply the number of shares owned by the number of directorships being voted on.
See Junhai Liu, “Don’t make a shareholders’ meeting a majority shareholders’ meeting”, first released on the column, “selected articles”, www.iolaw.org.cn.
No just representing minds of majority shareholders.
CCL (2005) Article 106 is permissive but not compulsive.
Qinzhi Cui, “thinking about the power of a shareholders’ meeting and shareholders’ voting rights”,http://www.civillaw.com.cn/weizhang/default.asp?id=23542.
The shareholders’ meeting must be held under this situation. Article 43 of CCL (1993) merely provides that the shareholders’ meeting can be divided into the regular meeting and the temporary meeting. Any shareholder who owns more than 25 percent of all stocks ... can suggest convening a temporary meeting.
See CCL (2005) Article 103.The board of directors ought to inform other shareholders of minority shareholders’ drafts and submit them to the holders’ meeting.
Germany provides any shareholder who owns more than 5 percent of all stocks has this right. It is 10 percent in America, France Holland and 3 percent in Japan. See Haiyan Jan, “A Comparative Research on the protection of minority shareholders’ rights and interests”, Journal of Hunan Tax College, Vol.2, No.2, Mar. 1999, P.53.
See CCL (2005) Article 107; CCL (1993) Article 108.
Robert C. Clark, Corporate Law, Commerce Press, 1999.
Article 125 of CCL (2005) provides that the board meeting can be held if more than half of the unaffiliated directors are in attendance. More than half of them can pass the resolutions. The proceedings must be submitted to the shareholders meeting if the number of unaffiliated directors is less than 3.
The article 125 of CCL (2005) is, in the point of my view, a perfect provision.
The securities market is the best mirror of the situations of protection of shareholders’ rights in the last decades. The cases such as “Hong Guang Industry”, “the recombination of Zhen Bai Wen”, and “Zhong Ke Innovation” reflect a series of deep institutional issues both about the company law and the securities law. Therefore, a lot of minority shareholders lose their confidences. The words, “the sigh of century”, appropriately describe their true feelings. “Why Am I Always in pain?”, Securities in China, Feb.6, 2001, page 14.
See CCL (2005) Article 16. More than half of the unaffiliated ones can pass the resolution.
Xundong Zhao, the mechanism of the new company law, law press, 2006, P.181.
Nevertheless, only the major related-party transactions can be put into practice. Otherwise, the company can not afford the cost of this mechanism.
See article 150 and article 152 of CCL (2005).
This requirement is called “demand on the board”, which can be excused when it is so urgent and it will cause a irredeemable loss.
For example, see CCL (2005) Article 34 and Article 75.
] Baoshu Wang and Ji Yang, “On Duties of Controlling Shareholders in Joint-stock Company”, Journal of Law, Feb. 2002, P.60-68.

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