A Probe Into Shareholders' Withdrawal System In The Limited Corporation

Private company in British English (close corporations in American English), the company with limited responsibility, is a type of company with a relatively small scale, a lower-standard amount of capital input and a limited number of shareholders. On the basis of confidence between shareholders of a company with limited responsibility, the company is established with the primitive guarantee of the shareholders'credits and meanwhile, those shareholders hold limited liabilities to the company according to their respective capital input. All of those determine the dual characteristics of the company with the cooperation of person and capital, which on a large extent differs from the public limited company (the share company in American English). Private company is the product of the economic development and the best choice for investors all over the world due to its less capital input and simpler establishing procedures in comparison with public limited company. But private company has its own deficiency, the most distinct of which is, in order to maintain the characteristics of the cooperation of person and ensure the relative stability of the structure of the company, kinds of constraints for shareholders if when they transfer their shares or withdraw from the company. It is reasonable to restrain the transfer of shareholders'shares for the good of the stability of the inner structure of shareholders and the external persons, especially the creditors'benefit. But on the other hand, the inner shareholders'investing benefit cannot be ignored and it is unfair for investors, especially those who lose confidence to the company and even cannot receive returns. Thus we should make an analysis of the way of withdrawing from private company starting from its existing base. From the angle of business, what investors pursue is the priority of efficiency and the maximization of benefit. The legal capital system, the eclectic capital system and the authorized capital system arise in a gradually reasonable way on the part of shareholders, especially the middle and small shareholders. From the angle of the company, the optimal choices for the relative persons concerning benefit include whether there exists re-purchase system or capital-reducing system or not, whether the shareholder's withdrawing system is smooth or not and the authorized capital system. The author believes that the authorized capital system is the base of the existence of the shareholder's withdrawing system, while the other two capital modes strangle this right or guarantee of shareholders, especially the middle and small shareholders, in the cradle in a restricted way. The withdrawal of shareholders of a private company can usually be through the following modes: 1. Transfer of shares including transfer of the whole or part of shares. In another word, it consists of the external and internal transfer of shares. The author believes that the external transfer of shares should be more represented as the authorized principles in the legislation, that is, on the condition of the admittance of the law-making principle, the authorized company through rules or agreements independently decides whether it should be restricted for shareholders to transfer their shares or not and in what way. As to the internal transfer, all of the nations share the opinion about the preferential purchase under the equal conditions including the equal shares, amounts and prices in the legislation. 2. Re-purchase of shares. It is one of the ways of the shareholder's withdrawal from the company that the company re-purchases the shareholders'shares. Re-purchase of shares is built on the acceptability between shareholders and the company, that is, shareholders and the company make a deal of shares of the two parties'accord. But the author holds that it is better for restraint of re-purchase of shares on some extent. 3. Redeeming the shares, a concept introduced from American Company Law. That is, according to the terms on the preferential sharesredeemable or the agreement on redeeming the shares signed on advance in the company rules, the company has the right to make use of the surplus returns on some circumstances or achievements and re-purchase the shares of the external shareholders at a certain fixed price. 4. Shareholders'withdrawal from the company in virtue of the right of dissidence. It is required in the company law that a company buys the shares held by those shareholders who oppose such kind of special deals and it has an obligation of purchasing the shares of small shareholders at a fair price, which is the right of value evaluation and purchase of shares of those shareholders who hold dissidence. The existing value of the right of dissidence lies in the prevention of the failure of the reasonable expectations of some shareholders to balance the benefit between shareholders and reduce the happening of small shareholders'lawsuits which go against the operation of a company. The existence of shareholders'right of dissidence makes an efficient and legal way for shareholders'withdrawal from the company. 5. Shareholders'withdrawal from the company through the announcement of dismission. Such a means is put forward for fear of the compression and the unfair treatment from the big shareholders due to the inability of resistance and withdrawal from the company through selling shares. But it is only carried out under the unsuccessful conditions by other relieving means to realize the final goal of shareholders'withdrawal from the company. 6. Shareholders'withdrawal from the company due to the implement of share rights. When shareholders impawn their shares, by which the creditor's rights guaranteed cannot be acquitted at one time; or when shareholders act as the creditors and their private wealth cannot repay their due debts, their shares will be carried out to acquit the debts. Although the implement of share rights lies in the acquittance of debts, the belongings of share rights change, which results in shareholders'withdrawal from the company. The author believes that it should be admitted that in a limitedperiod the transfer of share rights is implemented freely under the supervisal of the judiciary departments and it should be thought effective if only it could not happen selling shares at an obvious price to damage the interests of creditors as well as frauds. Another key problem appears following the analysis of the premise and the detailed modes of the system of shareholders'withdrawal from the company, that is, how to determine the transfer prices or purchase prices of their shares when shareholders withdraw from the company. The reason is that there is no open market for the transfer of shares in a private company and no open and fair value which can reflect the company's share values and make a reference for shareholders to transfer their shares when their withdrawal. If the share prices are lower, the benefit of those shareholders will be damaged so that they cannot receive the corresponding returns and even cannot take back the costs of investment. If the share prices are higher, the capital of a company will be reduced and the share values and benefit of other shareholders will be damaged. Thus it is important for the shareholders who are willing to withdraw from a company and other members of the company to establish a principle of how to evaluate values when selling a share right. The author thinks when determining the share values of the withdrawing shareholders, it is necessary to pay attention to the negotiation with the parties and the evaluation and price-making with the evaluating institutions on one hand, and on the other hand to concern the pre-promises in the rules and other agreements of the company and the actual amount of the capital taken out by the shareholders who are willing to withdrawal from the company as well as the criteria of time of determining the share prices. In order to make an effective and pressing protection of the system of shareholders'withdrawal, nothing is better than a thought of a legislated withdrawing system. First, it is necessary to investigate the capital invested by...