A Study On The Legal Issues Of The Right To Claim The Equity Repurchase

The right of share repurchase was the legal product arising out of capital majority rule, which was formed in order to make up the defect of medium and small shareholders’ losing their speaking right. The right of share repurchase ensures minority shareholders’ withdrawal right through low-price compensation when they suffered benefit lost. In essence, the realization way of such withdrawal system is the stock buyback of a company, which is difficult to avoid the abuse of rights and subsequently leading to the infringement of shareholders’ and third party’s rights. Therefore the scholastic circles disputed the rationality of the right of share repurchase, however currently most countries have confirmed such right by means of legislation because there are more advantages than disadvantages whether on legitimacy or in value.This article studies the relevant issues of the right of equity repurchase through analyzing the latest case decided by the Intermediate People’s Court of Nanjing i.e. Zhuangnong v. Nanjing Baishi company share repurchase claim case,combining views of both Chinese and overseas scholars to put forward some legislative suggestions. In such case,Baishi company conducted a series of behaviors without prior permissions of the shareholder named Zhuangnong,including but not limited to, conducted external guarantee of a large sum for several times,continuously increased the capital of wholly-owned subsidiaries,equity transfer of Baishi Property Management Company(one of the wholly-owned subsidiaries) to Chengxinhang Company,transferred equity of Jiuben Energy Technology Industrial Company to a stockholder named Huping for shareholding entrustment then returned such equity to the Company resulting in actual loss of RMB 4728000. To sum up,the above behaviors relate to four main issues of the right of share repurchase: definition of principal qualification,applicable scope of the right of share repurchase,price setting of the share buy-back and procedure of exercising the right of share repurchase.Regarding definition of principal qualification,the language of the law of mainland China describes as “stockholders with counterviews”. However,stipulations are obscure on the issues of qualification of successive shareholders, dormant shareholders,shareholders with capital contribution flaw or without a right to vote,therefore this article discussed such issue through the combination of both Chinese and overseas legislative practice.Regarding the applicable scope of the right of equity repurchase,though current legislation in our country is conservative,however legislation pattern thereof is in the course of transformation based on sum up experience of lawmaking of other countries. In China,the definition and confirmation of major assets have no explicit provision,nonetheless the phenomenon of contention of a hundred schools of thought appears in academic circles. This article advocates a form of judgment rule through combination of both quality and quantity.Regarding reasonable price,various countries have no perfect solution on such difficult problem,hence this article combined definition and evaluation of fair price to explore reasonable judgment standard through summarizing various country’s legislative practice.Regarding the procedure for performance, legislation in our country seemed extremely simple. This article summarized general views, cleared up common procedure of the share repurchase right i.e. rights apprizing,declaration of intention when shareholders have dissenting opinions,setting price of share buy-back. In addition,innovation point of this article is that the confirmation of pull back is discussed in relation to declaration of intention when shareholders have dissenting opinions.