Studies On Some Law Issues Of Share Rights Transfer In Limited Liability Corporation

The problem of the transfer of stock rights in the limited liabilitycompany (LLC) is a hot and difficult problem in the judicial practice.Because the shareholders of a LLC can't draw their distribution back fromthe company for the restriction of the independence principle of legal entity,nor can they find a public marketing to transfer their share rights. The onlything they can do is to transfer them to a transferee. But it is a risk-takingtransaction for the transferee because of the closeness of the limited liabilitycompany. Meanwhile, the transfer also involves other shareholders' interests,because the LLC is based on privately personal attribution. So it is a verynecessary concerning to design a king mechanism for transfer which cantake into account simultaneously the legitimate rights of the transferor, thetransferee, and other shareholders.The transfer of stock rights includes two circumstances: one istransferred between shareholders;the other one is transferred to a personother than shareholders. In the former, the problem arising out of it is veryhot and difficult. So-called one-person corporation, in a word, is acorporation where one person possesses all the contribution includinginitially designed one and later transformed one. The current company lawhas legitimated the former one, while the latter is ignored. How to definethe latter one, can it continues to exist? As regard foreign legislation, it islegal when a company become one-person corporation by the reason ofstock transfer or donation and need not to be dissolved. In light of domesticlegitimization, since we have made it possible for us to initiate one-personcorporation, we have create very good circumstance for one-personcorporation that is later transformed to be. Furthermore, if we do notrecognize the legality of transformed one, in substance, it makes the transferuseless, for the transformed one-person corporation must meet dissolutionby the reason of only one shareholder. That means the shares transferred atlast make different sense compared with others and goes against the basicprinciple of corporation law, "the same share the same right".Recognizing the legality of transformed one-person corporation cansatisfy the demand of shareholders, but it is very easy to make corporation alegal tool to escape debt, weakening the protection of creditor. Therefore,though it is the trend of world legalizations to recognize one-personcorporation, we should restrict it to achieve the "win –win" results betweenshareholders and creditor.When the shareholders transfer shares to the people other thanshareholders, the preemptive rights of others are the key point. How topartially enjoy preemptive rights and protect the preemptive rights incompulsory auction procedure is more difficult and hot.Concerned with the problem of enjoy preemptive rights partially, thereare two viewpoints: one is that shareholders can do that, the other is thatthey can't. Our current corporation law adopts the first one. But enjoyingpreemptive rights partially cause the loss of the interests of the transferee,how to protect the transferee? Our current corporation law does not give ananswer. I think if shareholders enjoying preemptive rights concernscontrolling power (compared with shareholders other than transferee), theshareholders who enjoy preemptive rights should compensate the transferor;if not, there is no need for that.There are preemptive rights in our current corporation law, article 73reads: courts should notice corporation and all the shareholders when theytransfer shares in accordance with forcible execution legislations, othershareholders can enjoy preemptive rights in the same condition. Othershareholders will lose the rights if they do not enjoy the rights within 20days after the notice. But the problem is when shareholders should makesure they enjoy preemptive rights and how to enjoy preemptive rights. Inpractice, some courts ask shareholders to make decision whether to enjoypreemptive rights before compulsory auction procedure or to enjoypreemptive rights at the price set by the courts, which is inappropriate.Article 72 reads: other shareholders have preemptive rights in the samecondition with the consent of other shareholders. The same condition,especially the price of it, is the premise whether shareholders enjoypreemptive rights. The premise depends not on the shareholders who enjoythe preemptive rights and the transferor or the courts, but the transferor andthe transferee other than shareholders. Therefore, if the shareholders want toenjoy preemptive rights, only when "the same condition" is set by auction,realization or in other means, can those shareholders make their finaldecision whether to enjoy the rights and inform the concerned parties.In practice, the minority shareholders have to be confronted with thedilemma that they want to transfer stock rights in a short time by the reasonof long-time illness, severe economic difficulty, and immigrating abroad butcan not find transferee, whether shareholders or not. That is very bad tominority shareholders. But whether to buy the shares to be transferred doesnot affect the function of the company and the interests of othershareholders, for majority rules in LLC and central management system areadopted. So other shareholders always keep a low profile, which means todeprive the shareholders of transfer rights in other forms. How to protectminority shareholders? The items concerning appraisal rights for dissentshareholders and judicial dissolution do not include that case. There seemto be need to expend the room to apply them.Those cases are more difficult to handle: the inheritance of theshareholders' status, how to take the transfer of stock rights without theconsent of other shareholders and the effect on legality when contributingcapital defectively and the transfer of stock rights without registration.As far whether the status of shareholders can be inherited, there aretwo viewpoints in academic circle: the one, it can except that there isrestriction in the article of corporation;it can't except as otherwise specifiedby the article of corporation. The inherence of status of shareholders is theinherence of property, so the inherence rights are should not be restrictedexcept as otherwise specified by law. The inheritance of shares isunconditional, but it not equal to the inheritance of shareholders' status. Thestock rights in substance are a kind of status, one kind of personal rights.The personal rights disappear when shareholders die. So the status ofshareholders can't certainly be inherited as property rights.Article 72 in current corporation law reads: When a shareholdertransfers its capital contribution to a person other than a shareholder, theconsent of more than half of all shareholders shall be required. Thus, how todefine the legality of transfer of shares without the consent of more thanhalf of all shareholders, there are different viewpoints in judicial circle. Itend to deny the legality because it goes against the peremptory norm incompany law to transfer shares to a person other than shareholders withoutthe consent of more than half of all shareholders.To contribute capital is the prima duty of shareholders. But it is verycommon to breach the duty of that in practice, which often courses thedisputes between shareholders or others and the corporation. Does defectivecontribution of shareholders affect the legality of the transfer? I think thedefective rights do not mean illegal. That the contribution is not on due time,though defective, does not mean it lose transferability. The transferor'sstatus restricts the transferee's and the rights of transferee are not superior tothe one of transferor, for the transferor's status is defective, so is thetransferee's.What is the effective condition of transfer? Can transferee get thestatus of shareholders and enjoy the rights of shareholders only when thetransfer is registered. If so, the contract of transfer should be recognized asperformed and the transfer takes effect too. Thus, the transfer of shares hasbeen finished in the private law sense. But at the request of industry andcommercial administration, corporation must to register in industry andcommerce administrative bureau. So far, we must analyze the sense ofindustry and commerce registration. That just can confront the third partybut can't affect the acceptance of shares. Therefore, the transfer does nottake effect if not registered in corporation, while it takes effect withoutindustry and commerce registration.