On The Equity-funded Legal System

The Company Law amended in 2005 ("New Company Law") has loosenedthe restrictions of consideration forms of capital contribution onlimited liability companies and companies limited by shares in order tolower down incorporation costs of Chinese companies to cope with theirneeds for competition and development. Except the consideration formsof cash, goods, intellectual property rights and land-use rights thatare specifically prescribed, three legal requirements for capitalcontribution in non-cash considerations are set forth by the New CompanyLaw: (1) valuable in cash;(2) transferable by law;and (3) not prohibitedby other laws and administrative regulations. Whether a non-cashconsideration can be allowed for capital contribution shall beinterpreted and decided by the courts in the future. However, the commonopinion of the Chinese scholars provides that the consideration ofshareholder's equity (including shares and capital contributions)("Share Consideration") is in compliance with said legal requirementsand can be one of the consideration forms for capital contribution. Asa matter of a fact, in China the capital contribution in ShareConsideration has been found during the process of changing organizationto companies and asset restructure by state-owned enterprises andoverseas public offerings. Furthermore, capital contribution in ShareConsideration will inevitably become a useable mechanism available forChinese companies for both of the external purpose of mergers andacquisitions and the internal purpose of corporate restructuring in thenear future.The main purposes of this thesis are to fulfill legal rationalesrelated to Share Consideration from the theoretical aspect, and to makea foundation for designing and planning a legal system of capitalcontribution in Share Consideration in China by researching andutilizing foreign countries' respective laws that are suitable formodernization of China, enhancement of industries convergence andstrengthening of Chinese companies' competitiveness with an attempt tomake available a legal regime and environment of the Company Law thatcan strengthen Chinese companies' competitiveness in domestic andoverseas markets, that can speed up the modernization of China, and thatcan help Chinese enterprises move on the track of becoming the first tierenterprises in the world.