Research On The Restriction System Of Equity Transfer

After the establishment of a limited liability company, the capital contribution to thecompany shall be parts of assets of the company, shareholders cannot dispose the assets of thecompany for his own interests. As a consideration, shareholders get the correspondingproportion of equity. Transfer the equity interest will become a better and wise method forshareholders to protect their lawful interests, except for enjoy the capital proceeds. In themeanwhile, equity interest transfer may have major implications for improving capitaloperation efficiency if it is operated reasonably. Different from free transfer of shares in ajoint stock company, the nature of co-author decides the transfer of equity shall berestricted to some extent in a limited liability company, especially the transfer to anon-shareholder party. In contrast with1999Revision of the Company Law of People’sRepublic of China (the “Company Law”), provisions relating to equity transfer have beensignificantly improved in many aspects in the2005Revision. Such as changing thestipulation of “a majority of all shareholders agree” into “a majority of the othershareholders agree” in the consent system for avoiding vote for self-interest oftransferor; increasing implied consent system for preventing other shareholders fromnot making reply about equity transfer and hurting lawful interests of transferor;increasing pro rata purchase among several shareholders when they claim pre-emptionrights at the same time. What is more important, the mandatory regulations regardingequity transfer have been changed into operational regulations in the2005Revision,which is the topic of revision in2005.Even so, it is hard to design a legal system which can be perfect and completelyfit the development trend of the times. The2005Revision still has many deficienciesand makes inconvenience to practice. Such as inconsistent in compulsory purchaseobligation provision, vague “same condition” in pre-emption right, none deadline forexercising pre-emption right, matters of validity of varying degrees of restrictions inassociation articles and so on, which shall be problems to be specified and resolved.In the meanwhile, there are many disputes arising from above deficiencies. Based on the current system, I will do an exhaustive analysis on the above problems, after acomparative study of extraterritorial legislation, and put forward some soundproposals for improving the current system design so that it can be helpful to realizethe interests of the transferor, the other shareholders and the transferee in goodbalance, service practice better and reduce the incidence of equity transfer disputesfinally.