Involuntary Non-Voting Stock Due to War: Reflections and Solutions to Remaining Corporate Governance Issues for the Chinese Civil War

Modern wars have prohibited people from communication with one another for a long time. This separation has actually caused corporate governance problems. As an example, if a significant enough portion of shareholders cannot attend a shareholders’ meeting and vote, not only can no lawful resolutions be made due to mandatory quorum requirements, but those shareholders are easily oppressed by controlling shareholders. How can the law protect the property rights of shareholders who cannot attend such meetings while upholding efficient corporate governance? In this paper, we took the experience of the Chinese Civil War as an example to answer the questions. We did archival work on ad hoc legislation in 1964 and its amendment in 1992 in response to this situation. In addition, we scrutinized the solutions proposed during the legislative process, analysed them from a legal and economics perspective, and offer our own proposal. We found that the 1992 amendment freezes shareholders’ voting rights and deducts their shares when calculating the total number of shares. The involuntary non-voting stock policy deviates from the “one share one vote” principle and causes oppression indirectly; thus, it is obviously not an appropriate measure. We propose that auctioning those shares would be a more efficient and property-right-protective alternative to adopt.