A Study On The Legal Effect Of The Transfer Of The Share In The Limited Liability Society

The legal effect on transfer of the share in the limited corporation is an important theoretical and also practical question in the company law.The Chinese Company Law,the third and fourth Judicial Interpretation on the application of Chinese Company Law enacted by the Supreme People's Court,have provided detailed rules governing this issue so as to confront with the increasing disputes regarding the transfer of shares in the limited liability societies.However,these rules are not written or drafted in a systematic way in the respect of the Mode of Share Transfer and consequently its legal effect,and thus do not fundamentally resolve the institutional origin of the increasing disputes over the transfer of shares in commercial practice of China,which is still subject to great legal uncertainty.The contract for the share transfer plays an core role in the practice.The nature of corporation and the nature of share determine the difference between the transfer of share and the transfer of other tangible properties,and thus the contract and registration can not realize the assignment of share,for the reason that the transfer of share does not only involve the transfer of property rights,but also involve the change of the shareholders' identity.Further,the nature of the rules governing the share transfer shall not be authorizable,but also mandatory.So the transfer of share is not really a question of contract,namely the contact itself can not lead to the transfer of share in practice.With the development of Chinese company law practice and financial market,the transfer of share in China becomes increasingly complex,with the introduction of the approval for the transfer of state-owned shares,the repurchase of share,and lending secured by the title of share,the preemptive rights of the other shareholders,and so on.So the ultimate legal effect of the contract is greatly impacted by the government approval,the preemptive rights of the other shareholders and so on.In one word,the contact it self can not come into force once it is concluded.The shareholder's rights are usually implemented against the company,but not to the other shareholders,so it is necessary to leave a space for the company to intervene into the transaction of share transfer,or to establish the central role of company in the transaction,so as to equilibrate the interests among shareholders,company,the buyer and seller,and the potential third parties.It is obligatory to give notice the company by the seller with respect to the share transfer,rather than to the other shareholders in the same company,the approval of the transfer by the company and the new shareholder list for the new mode of share transfer.The central role of the company in the share transfer is reflected in the following aspects:(1)the notice of share transfer by the seller shall be made the company,which is obligated to notify the other shareholders in time;(2)the right to approve the share transfer shall be granted to the company,which exercises it collectively through a decision of the board of shareholders,and during this same period the other shareholders could consider about whether to exercise the preemptive right to acquire the transferred shares;(3)the status of shareholder lists shall be legally strengthened and be treated in a same way like the article of association,and the company shall be responsible to monitor it and make it open just to the shareholders and their representatives,so as to record all the transfer of shares during the lifetime of the company.These new arrangement will improve the transaction efficiency and legal certainty,and thus lay down a robust institutional foundation for resolving the potential disputes over share transfer.In this way,it is possible to reconstruct a new mode for the share transfer and to clarify its legal effect of the transaction in each step,and in consequence to improve the legal certainty of the transaction.In this new mode of share transfer,the change of new shareholder list shall be the determining factor for the effective transfer,through which the buyer could be entitled to exercise its shareholder rights against the company;the registration in the governing authority will make the transfer effective against all the third parties.The central role of company and the shareholder list could help the parties to monitor the share transfer,change of shareholder list,and change of government authority registration,and to clarify the legal effect of the contract.This will fundamentally reduce the possibility of disputes over the share transfer and thus improve the transaction security.