A Study On Shareholder Exit Mechanism For Limited Corporations

The Corporate Law amended on October 27, 2005 has clearly defined the appraisal right and the judicial dissolution right, which has played a positive role in protecting the rights and interests of shareholders. Still, the Law is inadequate in providing shareholders enough remedies and this has to some degrees withheld the economic growth of our country.This paper, based on comparative and economic analysis, studies the necessity of a shareholder exit mechanism and of establishing a shareholder exit mechanism for limited corporations. After the paper compares the different arrangements of Chinese and foreign shareholder exit mechanisms, analyses the inadequate aspects of the Chinese mechanism, and at the same time, takes into account the fact that the amendment of the existing corporate law has presented chances for building a shareholder exit mechanism, the author puts forward a shareholder exit mechanism for Chinese limited corporations.Apart from foreword and conclusion, the paper falls into five chapters. The first chapter analyses the principle in the shareholder exit mechanism for limited corporations. The second chapter discusses the shareholder exit mechanism in other countries and regions. In the last chapter, the author talks about establishing a shareholder exit mechanism for Chinese limited corporations.Chapter One: Review of the shareholder exit mechanism for limited corporations. This chapter examines four issues: general information about shareholder exit, reasons for shareholder exit, shareholder exit mechanism and the influence of shareholder exit on interested groups. The chapter first classifies the concept of"shareholder exit"according to different standards, and then expressly explains why shareholders exit, and then further analyses how shareholders exit and how the exit affects interested groups. All this aims to lay a foundation for the following chapters about establishing a shareholder exit mechanism.Chapter Two: To draw comparisons shareholder exit mechanism in other countries and regions. Using a comparative method, this chapter probes into the shareholder exit mechanism in Germany, the Great Britain, the United States and Japan, offering a reference to the establishment of shareholder exit mechanism for limited corporations in China.Chapter Three: Shareholder exit mechanism for Chinese limited liability companies. This chapter is divided into two parts. The first part analyses the opportunities the amendment of the company law has presented to the establishment of a Chinese shareholder exit mechanism. The opportunities include: first, it defines the appraisal right of dissenters; second, it improves the equity transfer system; third, it introduces the judicial dissolution system; fourth, regulations on one-person company clears some obstacles for the establishment of shareholder exit mechanism. The second part of the chapter discusses the loopholes of China's shareholder exit mechanism, which are manifested in the systems of equity transfer, appraisal right and judicial dissolution.Chapter Four: Establishing a shareholder exit mechanism for Chinese limited companies. In modern society, all countries are strengthening their protection on shareholders, based on the capital majority rule and the material law or procedure law. This has become an important trend in modern company laws. In addition, protecting the legal rights of shareholders is of great economic significance. The amendment of the new company law has led to major adjustments on the protection of shareholders and provides a legal foundation for the protection. The inadequacy of the current law and the limited ways of exit, however, is yet to provide a"suitable"channel of exit for shareholders. Therefore, this chapter studies how to establish a Chinese shareholder exit mechanism and its necessity from six perspectives.First, the shareholder exit mechanism in the articles of association. The amended corporate law includes the direct suiting system for violation of the articles of association. With the legal authorization, shareholders, especially minority shareholders in limited companies, should make promises as detailed as possible in the shareholder exit mechanism when preparing the articles of association. The promises include: (1) conditions for shareholder exit in the articles of association; (2) exact ways of shareholder exit; (3) how to determine the shareholder exit prices and how they are paid.Second, improves the shareholders'equity transfer system. Given the inadequacy of our equity transfer system, three aspects should be modified: (1) internal equity transfer system; (2) shareholder priority right system; (3) limiting the scope of recipients of external equity transfer.Third, capital decrease is one way of shareholder exit. On the condition that a company continues to exist, decrease of capital should be regarded as a way of shareholder exit. This is explained in three aspects: (1) feasibility of capital decrease as an exit; (2) capital decrease in the articles of association; (3) obstacles to capital decrease. Fourth, improves the appraisal right system. Targeting the problems in the amendment of the company law, suggestions are made on the appraisal right system from two perspectives: conditions and procedures.Fifth, establishes a shareholder exit mechanism in direct shareholder suiting. (1) overview; (2) foundations; (3) related issues.Sixth, improves the judicial dissolution system. Studies are made around the three aspects of the judicial dissolution system and suggestions are raised on: (1) conditions; (2) prepositive procedures: (3) the sued legal person in the judicial dissolution.