On The Exercise Of Preemption In Limited Company

The pre-emption of shareholders in Limited Company is an independent right in Civil and Commercial Law system of our country. Accompanied by the development of market economy and Limited Company, It has been gradually improved. Pre-emption breaks the principle of equality of empowerment in Civil Law, expressing itself as a privilege which is held earlier than any others in buying a certain property. Meanwhile, there is considerable progressive meaning and practical value in the right. The pre-emption of shareholders does not only reflect the nature of internal relations in Limited Company., ensures mutual trust between shareholders, but also takes into account the protection of interests of third party in business transactions. Therefore it promotes companies'stable development. Based on the significant practical value of pre-emption of shareholders, the Company Law of China has also adopted this system. But there are many problems, particularly in the regulation on the exercise of pre-emption. Vague regulations make great difficulties in practice. In this way, the author made several personal recommendations, combining advanced legislation of various countries by analysis on the rules, theories and practices. This thesis includes 3 main parts: introduction, text and conclusion. The main structure of the text is as follows:In the first part, based on the clear meaning of shareholders'pre-emption, the thesis defined its properties. In China, shareholder's pre-emption is statutory, because it has been stipulated definitely in the new "Company Law". Besides, by the meaning, characteristics and function of the right, it is an absolute right of formation. The author also clearly defines the difference between pre-emption of shareholders and "properties being sold twice".The author also makes a comprehensive analysis on the value of shareholders'pre-emption from the perspective of legal basis and economic efficiency, with the characteristics of cooperation, the function of shareholders'pre-emption, economic standards and maximization of value.The second part is a general inspection into the exercise of pre-emption in Limited Company, which is also the emphasis of the thesis. The thesis searches deficiencies and defects of the provisions about pre-emption of shareholders, with analysis on the existing provisions of the "Company Law" and comprehensive references to relevant regulations of other countries. In the aspect of right performer, expressions in Chinese Company Law,"Other Shareholders", are all broad and vague, the author concludes three kinds of models, after studying on relevant provisions of legislation in Japan, Germany, Britain and America; In the aspect of exercise conditions, the concept of "the same conditions " creates a balance point between transfer shareholder and other relevant shareholders, but "the same conditions " is a complex and changeable concept. In this way, the author thinks that "the same conditions"is the substantial condition of the exercise of shareholders'pre-emption. So it must be consistent to the main terms of the equity transfer agreement. At the same time there are many other factors besides the terms of the contract that need considering, because it will significantly affect the fulfillment of equity transfer agreements and the optimal protection of interests of shareholders. In the procedure of exercising the rights, the author applied to the object of inform, content, and registration of internal change of company, and then introduces the unique requirements of other countries as reference to China. At last, the period of exercising pre-emption rights of shareholders are not clearly regulated; it surely is a big flaw in the legislation. Referring to foreign provisions, the author defines the necessity and urgency of setting the right's exercising period. Meanwhile, the thesis reflects on the way of regulation, the time of period, and the starting point of the period.In the third part, the author focuses on the particular problems that exist in practice. First, the thesis clarifies the scope of shareholders pre-emption emphasizing that the internal share transfer of Ltd. should not be restricted by pre-emption. And then, accounting on the disputes on exercising pre-emption, the thesis analyzes these points, and proposes its advices. The author believes that a comprehensive consideration is needed in dealing with the problem of the regulation of the right. At the same time the thesis proposes 3 principles on improving the legislation in the future: Firstly, to totally restrict the exercise of pre-emption; Secondly, to allow shareholders and other parties to negotiate on the exercise of the right; thirdly, the principle of constitution autonomy be adopted in the regulation. Finally, on discussing the problem of pre-emption at the enforcement of courts, this paper analyzes the contradicting regulations in "Company Law" and "Auction Law", and the root that caused the contradiction. Due to the fact that equities in auction by court enforcement differs from that of general auction, so it is unnecessary to obey the regulation in Auction Law, and the resolution are as follows: First, in the long term, " Enforcement Act "should be enacted soon; Second, to notify that at this stage " auction "is just a special realization by courts; Third, to discard the current" Auction Law "in the application of relevant provisions.The last part is the perfection of pre-emption system in China. And it is the most important and innovative points of this paper. In this part the author discusses separately on the defections of legislation that the second part analyzed. First, the author believes that the positioning of"other share holders"in pre-emption should be narrowly understood, only referring to those do not agree with the transfer to foreign shareholders'equity. At the same time, regarding to the provisions of the United States and Taiwan region of China, which gives the company the same pre-emption, the provisions would benefit in protecting interests of the company and the shareholders a lot. Second, the thesis analyzes the perfection of "equal conditions" rule. The author defines the "what is the same" and "what are the conditions" separately. And then defines that conditions, including conditions must be exactly the same in real terms and the way of defining conditions, including essential conditions, must be all the same, and then clarifies the price-making methods and methods for calculating on other factors, in order to achieve the goal of equality of"same condition". Viewing on legislation models of other countries, the thesis proposed a price-making system that fits into the conditions of China: negotiation——evaluation——jurisdiction. Third, as to the perfection of procedures in exercise of pre-emptive rights, the author admits company as the subject of the right, on the basis of the"two stages"theory, divides the contents of inform into three stages. This will solve the contradiction of vague regulations on intentional notice and essential notice. Finally, on discussing the perfection of right exercising period, the author firstly established the rule of setting periods: the combination of law, parties'consultation and judicature. As to the starting point of period, the author agrees on the day when shareholders are fully aware of the specific details of the equity transfer agreement, and gives his analyses.Regulations on pre-emption of shareholders are of high practical values, but the defects in legislation led to embarrassments and errors in practice. The author learns from the advanced model of other countries'legislation, and combined them with specific circumstances of China. The author hopes, that the advices will be helpful to improvement of legislation and resolution of difficulties.