The Analysis On The Legal Issues Of The Equity Interest Contribution

As a new kind of capital contribution, equity contribution has raised a lot of controversies in both theoretical and practical area of the Chinese Company Law. Accompanied with the implementation of"Administrative Measures for the Registration of Capital Contributions Made with Equities", the debate about the fit and proper of equity contribution has subsided. However, regarding to questions about the conduction and issues derive from equity contribution, yet the related regulations need to be perfected. This paper, combined with the legal theory of the Chinese Company Law and company practices, is going to discuss the theory and practice of equity contribution.Except the introduction and conclusion, the main body of this paper contains four parts:The first part is"Basic principle of Equity Contribution", which, following the logical relations of this topic, has firstly clarified the definition and nature of equity. Based upon the analysis and evaluation of different theories, this paper agrees that equity should be recognized as a kind of independent right, but the right system of which needs further formulation and perfection. This paper suggests that the right of equity should be divided into two parts:"self-interest right"and"together-interest right", based on which the system of equity rights could be perfected. After clarifying the definition and nature of equity, Part I shall going to analyze the definition and feature of equity contribution. In this paper, equity contribution is treated as an action that the promoters establish a new company or increase the capital of a company by equities they hold. There are two kinds of equity contribution, partly or wholly contribution of the company equity that the promoter holds. Equity contribution comes from or descents from the same entity, with high risk and easy to increase the capital. Meanwhile, this paper has compared equity contribution with sub-investment, share transfer, corporate division, net asset contribution and other ways of contribution to clarify the very features of equity contribution. The second part "Corporate Capital Credit Paradox and the value of equity interest contribution system." In this section, the author as a keynote Capital Credit paradox, in this based on the value system of equity interest contribution. Paradox of capital credit in the company under the premise of the value of equity volatility is only the interests of shareholders to bring unpredictable risks and damage. The creditors of the company, the credit because the company capital is not only the cornerstone of the company and the wind vane, changes in the value of their own should not bring the company's credit crisis.The second part is " The value of equity interest contribution ." In this section, the author focuses on the value of equity investment system on the basis of"Capital Credit paradox". In author's opinion, fluctuations in the value of equity may bring unpredictable risks and damage to interests of shareholders. But for the creditors of the company, the credit was not totally relay on the company's capital, and the capital reduction will not bring credit crisis. Furthermore, author discusses the function and value of Equity Interest Contribution: At first, It can optimize the enterprise's capital. Secondly, it not only reduces the acquisitions and restructuring costs, but also promoted the rapid development of capital markets for the enterprises to create more time and space to develop. Finally, Equity investment can bring good to society, with far-reaching social significance.The third part is"Interpretation issues related of Equity Interest Contribution". The first issue is interlocking shareholding,which have the advantages, such as keeping ownership structure stable, preventing company from hostile takeover, promoting strategic cooperation between companies and Facilitating the financing. However, it also brings many risks including Inflated capital, black-box trading and monopoly. Own shares is the second issue. Own shares should be the important part of the Legal Restrictions on the Equity Interest Contribution. By drawing on other countries experience in dealing with this issue, Legislature should do more work in order to relax the control on Own shares.The fourth part is"the Legal Restrictions on the Equity Interest Contribution". On the basis of the elaboration and analysis in the forgoing three parts, the author puts forward the suggestions for improvement regarding the legal restriction on the equity interest contribution. First of all, the author recommends a further restriction on the conditions to the equity interest contribution. The equity interest to be contributed shall be limited to self-owned and present equity interest, and further restrictions shall be laid on the interlocking shareholding and the proportion of equity interest contributed in the total equity with a purpose of avoidance and minimization of the side effect of the equity interest contribution. Secondly, the author suggests an improvement of institutions of the appraisal of equity interest contributed and the certification of registered capital related thereto. With regard to the appraisal standard, the author is in a view against the one-size-for-all compulsory standard, and suggests that different standards shall be applied in terms of the diverse characteristics of the equity interest contributed. With regard to the state-owned interest equity, a compulsory appraisal shall be undertaken for the protection or loss of state-owned assets; whilst regarding the non-state-owned interest equity, the appraisal shall be determined by an agreement of relevant parties. With respect to the appraisal methodology, the author suggests that, for avoidance of inconsistence of the appraisal results and a consequent untrue contribution, the parties shall first determine a base date and then adopt a uniform appraisal methodology. Furthermore, in order to prevent an unfair treatment of the investor and the company invested due to the fluctuation of the interest equity value, an appraisal adjustment system shall be established in consideration of diverse circumstances of the enterprises. Since there are no provisions on the verification procedures of registered capital, the author puts forward a detailed improvement plan, including the determination of contribution date, a detailed arrangement of the verification procedures thereof. Thirdly, the author suggests an establishment of information disclosure system for the equity interest contribution. The author elaborates on the contents to be disclosed, the form of disclosure and the obligations and responsibilities of disclosure, and additionally, the author proposes a design of the information disclosure system. Lastly, the author suggests an improvement of the accountability system of the contributing parties, including the accountability of the equity right contributor, the guaranty of equity interest defects, and the accountability system of appraisal and verification of registered capital.In short, equity interest contribution is a very complex theoretical and practical problems, this article only the results have been made on the basis of a preliminary discussion, the view put forward is not yet mature, I will take further research to look forward to our equity shares on the system The perfect strategy to make modest.