The Research Of The Withdrawing Mechanism For Shareholders In Limited Liability Companies

With the development of the market economy, more and more investors chose to enter the market via setting up companies so as to integrate resources and avoid investment risks.According to The Company Law of P.R.C, a company is a Limited Liability Company or a Company limited by shares, which are the only two existing ways of to establish the company in China. But as the establishment, monitoring, operating of a Company limited by shares is complicated, most of the investors are reluctant to choose this kind of company. On the other hand, with a low threshold of establishment, a variable developing ways, loose monitoring procedure and stockholder risk control system, the Limited Liability Company are regarded as the best company type to set up for small and medium investors.Although the Limited Liability Company has many advantages over other company types, it is still in a dilemma over the regulation. According to the current company law, the stockholders of the Limited Liability Company would always face a problem that easy to invest and hard to withdraw, especially for the minority shareholders. They are always oppressed by major shareholders and they can neither get deserved profit nor to easily withdraw the funding.In my opinion, there are 3 reasons that lead to the current situation.First of all, although the close and mutual trust relationship of individuals and the aggregation of capital are the most important features of Limited Liability Company, it's still mainly about capital. In this case, it needs to follow the three doctrine of capital that are the doctrine of capital determination, the doctrine of capital maintenance and the doctrine of unchanging capital. For those shareholders, it means that once money invested, you can't withdraw it randomly.Secondly, most limited liability companies follow the policy of making decision according to the amount of the investment. Though this rule can help to enhance the efficiency of making decision to some extent, it is always used by the major shareholders to deprive the minority shareholders of their decision rights and take control of the company. In some cases, this rule will also lead to an invasion of the minority shareholders'interest.Lastly, as the stock of the Limited Liability Company can't be sold and bought in market freely as that of a Company limited by shares, shareholders undertake a lot of risk. Since the stock rights can't be transferred to others freely, the minority shareholders can neither get profits nor abort the company. In this way, they would end with being oppressed by the major shareholders continuously and undergone investment losses.To protect the interest of the minority and avoid those situations, the Company Law of P.R.C revised in 2005 adds the equity buy-back regulation. According to Article 75, the shareholders of the company can request the company to buy back their equity at a reasonable price under certain circumstance so as to quit the company. This regulation satisfies the some minority shareholders'requirement of quitting the company, which is beneficial to the minority to some extent. But there still exists some defects. Firstly, the harsh requirements and the narrow range make the number of the helped small. Also, the overall regulation is rough and need to be further clarified and refined so as to increase the operability. Lastly, while guaranteeing the quit of the shareholder, it failed to protect the interest of other creditors. So this rule needs to be supported by other related regulations.With the paradox between the theory of shareholder's withdrawing system and the capitalized system of the Limited Liability Company, this thesis will focus on analyzing the necessity and feasibility of shareholder's withdrawing system, specially the regulation of equity buy-back that is in-between the equity transfer and judicial dissolution system.The structure of this thesis is as below:Introduce the concept and meaning of Limited Liability Company shareholder's withdrawing system.Analyze the difficulties of the shareholder's withdrawing both in theory and practically.Find the solution of the dilemma—the equity buy-back; and analyze its advantage.Analyze the current status of the equity buy-back regulation, to find its defect and offer some advice to solve the problem.