| In the People’s Republic of China legal system concerning Company Law, there have been significant continued development and amendments over the past ten years. During this time, the phrases Socialist Rule of Law, and Socialist Legal System with Chinese Characteristics have emerged to become commonplace in China. Also during this time, many scholars have analyzed and commented on China’s legal system, and fewer have considered the Chinese Characteristics within the Law. While approaching this topic, a current topic of importance has been identified regarding the needs of one group within companies in China particularly at risk within the "new normal" of the Chinese economy:the minority shareholders in private companies. Therefore, mapping out a discussion on the topic of this group, identified as the most vulnerable to exploitation by the majority shareholders and management, the oppression of minority shareholders rights and the rule of law with Chinese characteristics requires terms being defined and some fundamental questions answered. Limiting the discussion for the sake of accuracy and clarity, a focus on corporate governance and the interactions between the court, the law, the managers and directors of private companies and the minority reveals the needs that the Chinese law must address to restore balance amongst all the company’s shareholders.Protecting the rights of minority shareholders is a hot topic in China, and other jurisdictions globally. As majority rates define the powers of the majority in general meetings, protection of the rights of the minority has become more easily ignored. In this legal environment, the 2013 Revised Company Law of the PRC and efforts by the Supreme People’s Court have brought the dilemma in the law with this issue to a crossroads, of sorts. The legal powers of a Chinese company are according to rights defined in the articles of association and bylaws, but now the entire PRC Company Law is relevant for protecting the rights of minority shareholders in regard to structure, operations, control and transparency. Controlling shareholders are required by law not to abuse the rights of shareholders, unfair related-party ("affiliation") transactions are strictly prohibited (Art.21), and the minority shareholder is provided specific basic rights according to the law.At the discussion core is the "principal-agent problems" and the application of a kind of Business Judgment Rule, a legal standard in US Law for several decades. What progress has been made since the amendments, knowing that the minority in private companies is especially vulnerable to oppression of their rights? This question point at the effectiveness of the Company Law to allow the minority a voice, either in the boardroom or in the courtroom. Just as the legal profession has the challenge of controling abuses and corruption on behalf of the company shareholders, how best to execute control has brought legal scholars together, and the agency dilemma is at the core of this issue. In China, the theory in corporate governance is of shareholder primacy, that shareholder’s interests have first priority over all others, however the reality in practice has been quite different.Minority shareholders rights oppression from conflicts of interest is introduced into corporate governance associated with agency, so problems created by agency need to be addressed by the law before they become control fraud, minority discount, etc. How corporate governance reached this point involves the influence of the DGCL and business judgment rule. As a part of China’s legal reform, however, a shifting trend in favor of shareholder’s voice and transparency is taking place. How are Chinese Characteristics within the Law relevant to this issue? Since 2010, commentary on key legal issues have been made available by the SPC and carry some authority for lower courts on the specific legal issues, becoming a de facto precedent system.Then, does the law require shareholder primacy? In spite of the progress in the legal reforms, however, a would be investor or entrepreneur must be aware of the changes and trends in the law, as well as the court’s threshold for accepting oppression claims. Thus, a review of the Chinese court’s claims threshold is informative, however the standard, in practice, is found to fall short of shareholder primacy. More often, violations of fiduciary duty are avoided. Which leads to another important question:what lessons are to be learned in terms of the law’s development, going forward? Though the Company Law has strengthened minority shareholder’s rights, and more rights oppression cases are being accepted by Chinese courts, establishing a more accountable and transparent judiciary has taken a prominent position in China’s legal discourse.The SPC has identified five specific areas of concern amongst several problems facing the minority shareholders in private companies throughout China and is actively addressing them by promotion of judicial interpretations "open for comments." These are significantly progressive steps, and reflect a shifting trend in the judiciary toward more transparency. Plainly, having a skilful judiciary capable of bringing equity to shareholders in companies where oppression has taken place is of great importance, for legal, economic, and societal reasons.Just as a chapter on the rule of law with Chinese characteristics is being written, and will play a vital role in China especially from an entrepreneurs’perspective, a revival of individualism/ entrepreneurism mixed with promotion of the "comprehensive advancement of Socialist Rule of Law" is realizing a "new normal." Entrepreneurs who operate in an environment of equality is a high ideal, and the wave of small business owners and private businesses in planning or early stages is growing rapidly. The keys to meeting the potential of this opportunity will be skilful professionals trained to perform at the highest standard, from those in the judiciary embracing the issues faced by shareholders, to the business people who know their way around corporate governance, etc., e.g.— Internal controls specifically designed in the articles of association to counter fraud are one form of protection from rights oppression. But, this measure requires well written legal documents in play within the system of corporate governance.A future with Chinese corporations Deng Theory and Socialist Rule of Law is a high ideal. Understanding the facts as they exist in China will go a long way to fostering understanding and cooperation in order to seize future opportunities. Even western professionals have seen. "A socialist approach is the recommended solution:ethics and social forces must be restraints on fraud and abuse, and regulatory, even presidential, leadership is important.What can the west learn from the PRC Company Law? Certainly there must be an ability of western scholars to recognize that in a such a huge and complex nation as China there are positives to be taken from the Law they may improve circumstances in practice in US Law. However, economic, philosophical, and political constraints often cloud the question causing an increase of mistrust and misunderstanding. Yet, at the same time, it goes without saying the both systems have as an overarching ideal the peace and stability of the people.The phrase "Socialist Legal System" has a negative connotation by eliciting thoughts of a cold war era mindset. However, reframing the same phrase into a legal system for corporate social responsibility (CSR) and suddenly there’s a massive wave of opinions and heated debate on either side of the Pacific Ocean, and the sides drawn in that discussion are somewhat surprising in this context. |
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