Study On The Excuse Of Demand Rule In The Shareholder’s Derivative Suits

Shareholder’s derivative suit means that when the third party causes direct harm to the corporation and indirect harm to the shareholders, the shareholders can bring an action in his own name on behalf of the corporation against the third party. Derivative suits as an efficient tool to protecting the shareholder’s interests play an important role in maintaining the shareholder’s rights and keeping the coiporation in order. However, if there is no limit on it, it will lead to the abuse of litigation, which surely has negative impacts on the corporation’s normal track. Hence, the demand rule comes into being as the derivative action’s pre-procedure.The demand rule is a procedure that before bringing an action directly against the third party, the shareholder should make a demand to the authorities of corporation asking them to sue the third party first. Only when the authorities refuse or not reply in a certain time, the shareholder has the right to bring the derivative action. The demand rule keeps the balance between maintaining the judgment rule and protecting the rights of shareholders. But if this rule is applied mechanically, the function of derivative suits will be constrained and also cause too much burden on the minority shareholders. Therefore, under some conditions, an excuse of the demand rule is in dire need to protect the interests of both corporation and shareholder’s.During an overall survey among the developed countries, most of them have codes or precedents related to the demand rule, and our country also regulates it in article152of Companies Law of Republic of China. But as to the excuse of demand rule, our corporate law only has one condition, under emergency situations, failure to take legal proceedings immediately r esults in irreparable damage to the interests of the company. This part of article is so ambiguous that different courts may have different judgments on the similar cases. Therefore, this dissertation concentrates on improving the article152to offer a clear guidance, which based on the survey of American models of demand rule with the comparative and functional approach. This paper contains following chapters:Chapter one focuses on the analysis of basic theories of derivative suits and demand rule. This part helps to make it clear that what is the relationship between the derivative suits and demand rule, and what are the reasons and aims to set up this rule. All these knowledge can lay a good theoretical foundation for the latter parts, which study on the conditions of excuse of demand rule.Chapter two is the study of American models of excusing demand rule. USA is one of the most developed countries with an advanced corporation law, and learning its excuse of demand rule can do great benefits. The excuse of demand rule in America is not unified, so this part’s emphasis is on the analysis of its different models including demand futile and universal demand. What’s more, this paper also catches up its recent evaluation of UK’s model.Chapter three writes about the defects of the excuse of demand rule in art.152of our corporation law. The main content involves:Firstly, our model is similar to the universal demand, and this article is not the product of reasonable localization of law. Secondly, this model is not fit for our national situation and world trend to increase the protection of shareholders’rights. At last, the emergency situations are too ambiguous without specific regulates, in the result, when interpreting this article different judges may have made different judgments, causing confusions in the field of judiciary.Chapter four dwells on the reconstruction of Chinese demand rule’s excuse based on national conditions of our country. At first, we should make use of the combination of legislation and judiciary interpretation to reconstruct our demand excuses. Second, the reconstruction is introducing demand futility narrowly. Third, we could learn from American judging standard of demand futility in the case law to establish our own model. At last, we should also formulate the matched rules to help this model operate well.