Study On The Pre-emptive Rights Of Shareholders

Limited Corporation, as one form of company structure, is distinguished by its unique nature of joint-people and joint-capital, which demands absolute trust between shareholders to protect them from stability. Some countries already released relevant laws on stock transfer of Limited Corporation, such as the Preemptive right of shareholders. In China the 3rd revision of Company Law of Peoples Republic of China, which effected on, Jan.1, 2006, has defined a few principles thereon, however, it did not address specifically on some key issues involved.The thesis gives a full discussion on the theory of the nature, exertion, and redress of preemptive right of shareholders after study of the general principles of the civil law and foreign earlier developed experience, and some from the author's unique viewpoint.The thesis consists of four chapters:The first chapter first goes with a brief introduction of preemptive right which includes two aspects: Definition of preemptive right and its legal characteristics. Theoretically, several viewpoints regarding characteristics of preemptive right exist such as considering it as expectant right, property right, creditor's right or right of formation with attached conditions. This articles points out the dubious side of the first three viewpoints and consequently defines preemptive right as right of formation as it matches with right of formation in terms of connotation, characteristics and application.The second chapter presents system value. Two aspects are mentioned in this chapter one of which is regarding system value of preemptive right. The reason why preemptive right is created for share holders by various nations in lawmaking is to realize the harmonious cooperation among shareholders and maintain a balanced control of a limited company. The other aspect touches upon the range of its application.The third chapter involves execution of preemptive right, which is the core part of this article and is elaborated from four aspects. First of all are the conditions required for shareholders to perform their preemptive right including the initial condition of"a shareholder transfers his share rights to non-shareholder", the substantial condition of"under the same circumstances"and the principal condition of"for-own-interest purchasing practice". The condition of under the same circumstances is thoroughly addressed. Academic dispute about the condition of under the same circumstances mainly concerns whether transferred share right can be performed partly. It is agreed by author that under the transfer approval of the shareholder of his/her partial stock, other shareholders may exert their preemptive right, while if not partial, but of the whole stock under his/her name, the rest of shareholders may not exert their preemptive right of stock allocation. And the interest of the transferor should be considered at first priority under such circumstances, besides the balancing of the interest of the transferor, the transferee and the third party if applicable. In the second section the validity period of shareholder preemptive right is analyzed. The thesis defines the nature of preemptive right to be the right of formation, thus the nature the right of formation decides that the right is limited by scheduled period. Shareholder preemptive right should be exerted within 30 days since the transferable announcement of the company. While if the transferor fails to inform. The Company law stipulates that the scheduled period for preemptive right should be one year since the date that the party is conscious of the transfer contract between transferor and non-shareholders. In the 3rd section the exertion procedure of preemptive right is discussed, the procedure should consist of five aspects. In the forth section the exertion of preemptive right under special circumstances is considered, especially under enforcement occasion. The author's viewpoint is that such exertion should be carried out in accordance with the common practice of stock transfer, the interest of each party should be considered and protected, especially during stock auction.The fourth chapter is about the definition of violation on the pre-emptive right of shareholders and the ways to improve it. Include two points. First is the acknowledgement of such violation, an acknowledgement standard is proposed in this chapter. Second is the validity and legal protection of the preemptive right of shareholders, the author suggests that the legal protection and redress of preemptive right of shareholders should be improved in consideration of each party's interest.