Law and minority shareholders

Besides the mechanism offered to directors to enforce their duties to the company, the law also provides these adequate means and methods to protect the interest of the minority shareholders. According to Reese and Weisbach (2002), minority shareholders refer to these shareholders who have minority stakes in the corporate. And these economists such as Rafael La Porta and Lang Xinping advocated the legal environment to protect the interest of minority shareholders and set the mechanism to restrict the expropriating minority shareholder’s benefits is so crucial to determine the capital size and extent of one country, which indicates more and more countries become to take the interest of minority shareholders into consideration (He, n.d.). That is to say, the law in many countries offers many means to protect the minority shareholders. And in some countries the law may offer the adequate and proper means to protect minority shareholders compared with other countries.

And in the following, we’ll have a country review to analyze the relationship between the law and minority shareholders.

) China

As the legal mechanism for the minority shareholders’ protection is so important for a country’s economy development, in China, the protection of minority shareholders become the important issue of legalization practices (He n.d). Laws and regulatory are carried out to protect the interest of minority shareholders. For example, the Code of Corporate Governance for Listed Companies executed by the Security Regulatory Commission of China in 2001 is aimed to protect the minority shareholders. The major issues including establishment the corporate governance structure to ensure the rights of minority shareholders, enhancement the transparency of decision making in company’s major matters for minority shareholders and so on all show the right and interests of the minority shareholders in China are received a relatively proper concerns and protection. (Schipani & Liu 2007)

But just as many Chinese economic scholars claimed the rhetoric and reality have a large gap. In China, these issues and regulations in the law setup to protect minority shareholders are constrained in the cage of the previous planned economy and influenced by the experiences of state owned enterprises, which lead to the corporate practices of most Chinese companies often owning the superficial outcomes in protection the minority shareholders (He, n.d.).

By and large, in China, we can conclude that the law may offer some protection means for minority shareholders to a certain extent, but it may not work so proper and adequate enough to protect the minority shareholders’ interest and benefits.

) The USA

As we all know, the USA is one of the fast developed countries which attract a large number of people and organization to find business opportunities in that country. With the good development in company system and these related laws and regulations. The law in the USA can be defined relatively proper and adequate set to protect the minority shareholders (Reese & Weisbach 2002).

According to the survey from Reese & Weisbach (2002), we can get the following. At first, the law of the America has assisted the improvement of the number as well as value of equity offered to these minority shareholders. Secondly, even firms in their home countries with the weak protection for the minority shareholders are seemed to issue more equity for the minority shareholders in America while the monitor of the law in America. Thirdly, these firms with strong protection for their minority shareholders are till willing to strengthen the protection degree to the minority shareholders in their American company under the guidance of the law in America. (Song 2000)

The above situation tells us that in America the law such as the common law, company law or other related act are relatively mature and effective which indicates the interest and right of minority shareholders are appropriately and adequately protected compared with other countries such as China.

) European countries

In these European countries, especially these Nordic ones, the legal literature in these countries on the protection issues of minority shareholders are often defined narrowly (Airaksinen 2006).

For example these protections for the minority shareholders include the following. The first is to own the right to require a continuing extended meeting. The second is to require an additional auditor to be employed and work for the special period in the accounting management and bookkeeping aspect. The third is to own the right to require the equity in profit distribution. And there are still some other issues in protecting the interests and benefit of the minority shareholders (Airaksinen 2006).

Although there are some aspects in the laws which are aimed to protect the minority shareholders, they may not or really reach the requirement of protection level of minority shareholders in Nordic countries. As Airaksinen (2006) said, the law in these countries may not act so proper and well to protect the minority shareholders but they at least offer the basic protection for these minority shareholders. Namely, these minority shareholders own the right in the profits, company capital and so on supported by the law.

In a word, although in these Nordic countries, the law may not so good enough to provide perfect protection for the minority shareholders, but it is also relatively ok compared with these developing countries.

Generally speaking, based on the above analysis, we can conclude that whether the law can offer adequate means for protection of minority shareholders depends the situation of different countries, but it at least can offer the minority shareholders some protection to a certain extend.

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