On The Validity Of The Pledge Of Defective Shares

As a way of pledge of obligation, the pledge of shares has unique advantages which the real estate mortgage and the chattel mortgage is short of. It has become more and more popular for the financing persons. However, as the existence of defective shares caused by defective funding, coupled with Chinese relevant laws have not yet clearly defined it, the validity of the pledge of defective shares is worth to discuss. The validity of the pledge of defective shares mainly involves three aspects:First, it involves the constitution elements of the effectiveness of the pledge of defective shares, that is the precondition and the effect elements. Specifically, the shareholders which funded defectively must have the qualifications of share and enjoy the share rights. This is the precondition. At the same time, the contract of the pledge of defective shares should be effective, and the pledge of defective shares has registered in authority organizations. This is the effect element. Secondly, it involves the scope of the validity of the pledge of defective shares. It includes three aspects. That is the scope of debt which guaranteed by the pledge of defective shares, the scope of the validity of pledge of the pledge of defective shares and the pledge of the defective shares on people's validity. Thirdly, it involves the relief mechanism of the rights of pledgees. As the negative impact caused by the pledge of defective shares is mainly borne by pledgees, the relief mechanism of the rights of pledgees turns to be the foothold. Drawing on the relevant legislation of other countries or regions, we can protect the rights of pledgees from building the systems of the loss of defective shares system, giving a presumption of defective shares and improving the relief ways of the pledgees.