Analysis Of The Quasi-Fiduciary Duty Of Activist Shareholders

The fiduciary duty of controlling shareholdershas been established by some western countries, like the United States, referring that the controlling shareholders in closely‐held companies shall bear the same fiduciary duty as the directors and managers. However, the actual relationship between shareholder and the company is definitely not fiduciary relationship. Therefore, no fiduciary duty shall be borne by the shareholders. Instead of the fiduciary theory, it is the prohibition of abuse of rights principle and duty of good faith principle and agency cost principle serve as the legal foundation to limit the shareholder while exercising their rights. The limits brought by these two principles can be deemed as quasi‐fiduciary duty of shareholders.In addition, the shareholder fiduciary duty applies only to controlling shareholders while quasi fiduciary duty shall apply to activist shareholders. As the development of shareholder activism and conflict of interests between shareholders, activist minority shareholder plays a more and more important role in corporate governance. Therefore, they shall be subject to some limits while exercise their rights as well.In China, the Company Law does not clearly stipulate the duty of good faith principle. The prohibition of abuse of rights principle is stipulated in the law while no responsibilities are involved. This paper introduces relevant laws and regulations in China, analyses the legislative defects, which includes low legal hierarchy, narrow applicable scope and the lack of liability provisions, thus putting forward the consummative proposals.The main body of this paper is constituted by five chapters as follows:Chapter 1. The basic theory of quasi‐fiduciary duty of shareholders. This chapter introduces how the fiduciary duty comes into being and its development, as well as its application in the field of corporate law. Then this chapter introduces relevant laws in the United States, the United Kingdom and Germany. Finally it put forwards the idea of quasi‐fiduciary duty of shareholders and elaborates its theoretical basis, which shall be the prohibition of abuse of rights principle,duty of good faith principle and the agency cost principle.Chapter 2. The applicable subject of quasi‐fiduciary duty. This chapter firstly introduces the applicable subject of fiduciary duty in existing laws in other countries, which is the controlling shareholders, and then summarizes the reasons why non‐controlling shareholders have been neglected. On the basis of this introduction, it defines the applicable subject of quasi‐fiduciary duty, which shall be the activist shareholders, and states the reasons.Chapter 3. The objects and content of quasi‐fiduciary duty of activist shareholders. This chapter states that the activist shareholders shall take quasi‐fiduciary duty for the company, other shareholders and creditors and states the reasons. In addition, this chapter elaborates controlling shareholders’ fiduciary duty, which includes duty of care and duty of loyalty. Thus bringing forward the content of quasi‐fiduciary duty of activist shareholders both from the subject and objective perspective.Chapter 4. The conduct of the breach of fiduciary duty and its civil liability. This chapter analyses the main manifestation and its effects in practice, which includes connected transactions, freeze‐out, fraud, abuse of controlling right, abuse of veto right, etc. Then states how other countries, like US, Germany and Japan, regulate these misconducts. It also analyses the nature of the liability, constitutive requirements of liability and forms of liability.Chapter 5. The contemplation of how to consummate the relevant regulations of the quasi‐fiduciary duty of activist shareholders in China. This chapter interprets the status quo of the laws and regulations with respect to the quasi‐fiduciary duty of activist shareholders in China, pointing out the legislative defects,which includes low legal hierarchy, narrow applicable scope and the lack of liability provisions,. On the basis of the experience of foreign countries and actual situation in China, this chapter brings forward consummative proposals, including the pre‐prevention mechanism and post‐assistance mechanism.