Research On The Mechanism Of Shareholder Exit In Limited Companies

On the basis of legal theories and its reality on the shareholder exit mechanism in a limited company, this article discusses rationality and necessity of the establishment of such a mechanism, which includes two major exit ways: voluntary exit by agreements and legally compulsory exit. This article, by way of induction and demonstration, intends to create a mechanism of shareholder exit and put forward some suggestions on building relevant rules so as to improve the legal systems for China's companies.This article comprises five parts.Part One gives the definition of the exit of a shareholder in limited companies, and points out that the exit of a shareholder is the inevitable result of his entry. It is indicated that the exit of a shareholder in limited companies refers to such a behavior that a shareholder, during the period of the existence of the company, lose all his shares as well as his qualification as a shareholder through one of the two ways of voluntary exit by agreements and legally compulsory exit. In a word, the loss both of his shares and his qualification as shareholder is the main reason for the exit of a shareholder.Part Two explains the legal bases for the exit of a shareholder in a limited company. The following three aspects are discussed for demonstrating necessity of establishing a mechanism of shareholder exit: contract theory, incorporation of acompany, and consistency of the mechanism of shareholder exit and the rule of substantial capital. In line with the rule of contract freedom, the author holds that the voluntary exit by agreements is actually the result of a shareholder's application of his right of termination as one part of a contract with his company. According to the nature of personality of the limited companies, it is pointed out that the legally compulsory exit is one of the ways to regulate and solidify its personal relations for maintaining its incorporation.Part Three studies the necessity to regulate the exit of shareholders in limited companies. In accordance with insufficiency of share circulation in limited companies, it is referred to that the establishment of such an exit mechanism suits the actual need. Again, on the basis of the deficiency of the concerned provisions in Company Law of PRC, the author infers further the necessity to build and improve this exit mechanism.Part Four analyses the ways of exit of shareholders in limited companies, which, in the opinion of the author, includes voluntary exit by agreements and legally compulsory exit. As far as the rules for voluntary exit by agreements, it is held that Term No. 35 of Company Law of PRC on the transfer of shares can be applied. At the same time, the author also points out the deficiency of this provision such as the number of transferees, the consent from more than half of all the shareholders as well as the priority of shareholders. In addition, the author think the compulsory exit should by built also, in which he analyses concerned legal possibilities including the loss of the qualification of a shareholder such as his death, the loss of his civil behavior capability and compulsory execution of shares, the exit of puny shareholders for protecting their rights, and dismissing a shareholder. With regard to the compulsory execution of shares, much attention is attached to the priority in the course of its compulsory execution. On the exit of puny shareholders for protecting their rights, the author puts forward the definitions of holding shareholders and puny shareholders, and also considers that the exit of puny shareholders is the last means to maintain their rights and interests.Part Five is mainly concerned with the administrative and commercialregistration of the exit of shareholders in limited companies. According to the relevant provisions in the actual Stipulations on Companies Registration, the author argue that the exit of a shareholder in a limited company can be effective and can encounter the third person only after it is registered for alteration or for writing off.