Investors Beware: Assessing Shareholder Derivative Litigation in India and China
66 Pages Posted: 5 Feb 2012
Date Written: October 30, 2011
In response to the 2008 financial crisis, the United States government bailed out many business entities in exchange for equity and debt interests in such entities. It also dramatically increased the regulations imposed on businesses. This level of government ownership and intervention in corporations is rare in free-market capitalist systems such as the United States. Government ownership and control, however, are common among historically socialist countries such as India or communist countries such as China. Yet, the United States’ recent actions stand in stark contrast to the trend in India and China, which have both been moving toward more capitalist systems by disentangling government from business enterprises, reducing regulations and government interventions, and allowing free markets to develop. One specific example of such change in India and China is their recent acceptance of the shareholder derivative device, which empowers private investors to bring claims on behalf of a corporation when it has been harmed by outside parties or, more typically, by its own management. The shareholder derivative device is widely recognized among developed countries. This Article compares the nature of corporations and shareholder derivative litigation in the United States, India, and China. It specifically examines why India and China have embraced the shareholder derivative device and analyzes whether it provides real protection for investors in Indian and Chinese corporations. Finally, it considers the lessons that investors, corporations, and the United States should draw from India and China’s recognition of shareholder derivative litigation.
Keywords: shareholder, shareholder derivative
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