Research On The Transfer Of Defective Shares In Limited Company

The transfer of shares in limited company not only involves the relations between the transferor and transferee, but also involves the relations between the two parties and other shareholders,the company and the third person outside the company. If the shares have some defects, the exercise of the rights may be restricted, and it may impact the final implementation of the funding purposes. Specially in the process of the transfer of shares, the contract may involves multiple relations, the defective shares inevitably have adverse impaction on the related persons. Consummating the transfer of shares system has an active influence not only to limited company but also to the economic development of our country. This text evaluates and considers the present transfer of shares system of our country, which based on seeing about the run status of transfer of shares system and combines the correlative rules of the new Corporation Law, which bring forward own advice to consummate transfer of shares system of limited company.The first part is about the transfer of the defective shares. On the defective shares to be transferred, there are two viewpoints: a ban on the transfer and restrictions on the transfer. The former believes that the transfer of defective shares shall be prohibited, so to ensure that all shareholders to complete financing obligations. The latter believes that after signing the contract, the funds must complement the inadequate funding, or the company or other shareholders can advocate to revoke the contract. On the basis of assessment on the above two points, this article believes that defective shares can be transferred. On the one hand, the phased payment system makes the defective shares to be legal. On the other hand, the property of defective shares provides a possibility for the transfer of defective shares. At the same time, Law allows the company's articles of association to make reasonable restrictions in order to maintain and strengthen its feature and the overall interests.The second part is discussion on the effectiveness of the contract of the defective shares. The existing Corporation Law does not make specific provisions on the effectiveness of the contract of the defective shares. There are several theories in theoretical circles: First, it is void. It believes that fulfilling its tax obligations is the necessary conditions to access the shares. The contract of the defective shares has no legally binding. This article believes that the violation of obligations funded dos not necessarily prevent the identity of the shareholders. Denying the effectiveness of the contract of the defective shares does not meet the actual needs of the development of the company. To those who violate the obligations of the investor, Corporation Law gives the company and other shareholders entirely appropriate means of relief. That means states companies legislation does not absolutely deny the rights of shareholders who violated his funding obligations. By requiring its commitment to the corresponding civil, administrative or criminal responsibility, it maintains the stability of the company's assets. Second, it is effective. It believes that the transfer of the defective shares is effective; the assignee has no right to deny the validity of the contract. This view challenged by scholars generally. It breaches of Contract Law, and will be led to the assignee's unfair. Third, it can be revoked. If the transferor of shares tells the transferee the defect, the equity transfer contract is effective; if the transferor of shares hided the defect, it can be revoked. This article believes that the third theory is reasonable. Equity transaction should fully respect the free will of the parties. If the transferor of shares tells the transferee the defect, and the transferee accept the shares for free will, it dos not violate the concepts of justice of the capital market. If the transferor of shares hided the defect, it can be revoked, so that to safeguard his legitimate rights and interests.The third part is about the distribution of liability between the transferor and transferee from the transfer. Based on analysing the types of responsibility,legislative cases abroad about the distribution of liability and views of domestic scholars about the sharing of liability, this paper presents his views. The first is about sharing responsibility for the company. If the transferor of shares tells the transferee the defect, and the transferee accept the shares for free will, the transferee should assume the additional responsibility of the company; although the transferor of shares does not tell the transferee the defect, the relevant records about the shares are correct, the transferee does not investigate ,the contract is effective, the transferee should assume the additional responsibility of the company; if the transferor of shares does not tell the transferee the defect, and the relevant records about the shares are wrong or there is no relevant records, the transferee can revoke the contract or recognize the validity of the contract. He can advocate for integrity of the rights by registrating the trust of the records. Second, because of the relativity of liability for breach of contracts, the transferor should bear the liability to the other shareholders in the company independently. Finally, it is about the issue of shared responsibility to the company's creditors. If the transferee knows the defect, he should bear the responsibility of the company creditors; if he dos not know the defect, he can revoke the contract, the transferor should bear the responsibility.The fourth part is about the relief ways of goodwill transferee of the defective shares. Judging from the relevant provisions of China's Corporation Law and China's Contract Law, there are four ways to relieve the goodwill transferee of the defective shares: First, the goodwill transferee can advocate change or revocate the contract, and assert the liability for wrongs in conclusion contracts. The scope of compensation should be limited. Second, the transferee can recognize the validity of the contract, and assert the liability for breach of contracts. It should be equivalent to the amount of compensation for the losses caused by default. If the parties of the contract have made agreement on default payment and deposit, the transferee can choose one of them to make up for his losses. In the transfer of defective shares in the contract, the transferor from fraud may have to bear tort liability. Its main performance is money damages. Finally, this paper thinks that the most effective way is to advocate for integrity of the rights by trusting the records and goodwill, both achieved its purpose of the formation of a contract, and safeguarded the equity transaction efficiency.There are still various shortcomings, and this thesis only throw out a minnow to catch a whale in order to develop and enrich the studies on the transfer of defective shares in limited company and guide the practice of Corporation Law better.