Company Equity Pledge Legal Issues

As a pledge of rights, equity pledge has become one of the common ways of security which is playing an increasingly important role on the prosperity of market and financial intermediation in China. It is a breakthrough in the traditional way of security, which has both the characteristics different from the chattel mortgage, but also different from the other legal characteristics of pledge of rights. Although the most important way to guarantee is chattel mortgage and real estate mortgage, the credit risk of financial loans has becoming larger and traditional security system has been challenged due to the global financial crisis. In recent years, the share of loans secured by equty has been rapidly developed. However, China's existing laws and regulations on equity pledge is too simple compared to other developed countries and there are certain conflicts in different provisions which severely affected the effect of the equity pledge system in practice.With the rapid development of China's market economy, the role of equity pledge will be increasingly important because of its powerful financing guarantee function. On the one hand equity pledge has promoted bank credit and stimulated aggregate demand, on the other hand, it has helped digest some bank deposits and improved the bank's financing structure and financial efficiency. In this paper, the author discussed the concept of equity pledge, the foreign equity pledge system, the establishment of rules, the underlying theory, the effectiveness of the theory the legal problems and countermeasures, and other related issues. Besides the introduction, the paper consists of five parts.PartⅠThe Equity Pledge Overview. In this part, the author mainly discussed the concept of equity and equity pledge, characteristics and other basic issues, the legal concepts associated with equity and introduced the differences between equity pledge and other security methods.PartⅡThe Foreign Legal System on Equity Pledge. In this part, the author introduced the equity pledge system of Germany, Japan and Britain etc. laying the foundation for later reference of relevant legal provisions.PartⅢThe Establishment of Equity Pledge. This part focused on the legislative situation on China's equity pledge. Combined with the actual situation of China's equity pledge it introduced and analyzed the different types of equity pledge and the restrictions on the equity pledge establishment in existing provisions.PartⅣThe Effect of Equity Pledge. This part focused on the effect of the equity pledge, discussed in depth the scope of claims secured by equity, the scope of the subject matter of equity pledge, equity pledge's effectiveness to the pledgee and the pledgor.PartⅤThe Analysis of Legal Issues in Practice. This part analyzed the problems in China's equity pledge system. Combined with the practical situation of China's equity pledge, the paper studied comprehensively the risks and risk prevention measures in the establishment of equity pledge and gave some recommendations to improve the equity pledge systems.