Company Equity Pledge Legal Issues

Share pledge is a small topic within the security system, but is relevant to the studies of both economics and law and covers various branches of law, including property law, law of liabilities, company law, securities law and financial law. Share pledge is a very comprehensive topic, full of abstractness. From the perspectives of both scholar and practice, the author makes a full discussion of certain basic issues of share pledge, including establishment principals, subject of share pledge, its effectiveness, and practical operation.In addition to the introduction, this thesis is composed of four chapters, which can be divided into four parts.Part 1: Share Pledge and the Pledge. In this part, the thesis analyses the basic theory of share pledge, and in particular, definition of share, essence of share and its components. Legal terms that are relevant to share are also discussed and compared with each other. By reviewing the legal history of share pledge and utilizing comparative analysis, the author makes a thorough discussion on characters of share pledge and a detailed presentation of comparability and distinction between share pledge and other means of security.Part 2: Analysis on Principals of Establishing Share Pledge. This part makes analysis on contents and characters of share pledge contract. By an in-depth discussion of share, the author reveals the essence of the subject of share pledge, the form of share, and restrictions on subject of share pledge. Considering the practice of share pledge in China, this part also presents a full and comprehensive introduction and analysis of the existing provisions on public announcement of pledge, and special provisions on establishing share pledge on various types of companies.Part 3: Effectiveness of Share Pledge. This part mainly focuses on analysis of effectiveness of share pledge, and makes thorough discussion on the scope of liabilities secured by share pledge, scope of subject matter covered by share pledge, rights and obligations of pledgee, rights and obligations of pledgor, methods of implementation of share pledge.Part 4: Analysis of Relevant Issues for Share Pledge in Practice.Firstly, the risks associated with share pledge are fully reviewed based on the practice of share pledge. The risks associated with share pledge are that, due to change to the value of shares, the risks faced by the parties involved in share pledge are higher that those faced by parties involved in other types of pledge. Contrary to the movable property or other rights the value of which does not change significantly since coming into existence, the value of share generally changes significantly due to the business operation of the company, market conditions and etc. In short, the risks associated with share pledge are attributable to the following factors: moral hazard, choice of pledge, market, and realization of the value. Based on detailed analysis of the risks of share pledge, this part proposes several preventive measures to reduce risks in respect of share pledge procedures, subject matter and relevant regime.Secondly, the shareholder's voting rights during the period of pledge is explored, mainly from the perspective of theory and existing legal regime. The author is of the opinion that share pledge, as one of the pledges of a right, has its distinctive character, and it shall be separated between the realization of pledge and the exercise of share rights during period of pledge. The author construes the functions of share rights in the perspective of value orientation of rights and explains the rationality of shareholder exercising co-benefits rights during the period of pledge. The voting rights during the period of pledge is also analysed from the aspect of distinction between share pledge and ownership and from the aspect of essence of co-benefits rights. It is then concluded that we shall grasp the track record of the evolution of subject matter of share pledge in real time. During the period of pledge, the pledgor shall continue to be entitled to co-benefits rights. Upon the realization of the share pledge, the pledgee shall be entitled to dispose the whole share rights and the subject matter of share rights covers both the self-benefits rights and the co-benefits rights.Lastly, this thesis makes analysis of the value change of share and the impact of corporate bankruptcy on share pledge. When shares are pledged, one of the problems is that the price of shares is constantly changing. This change can harm the interests of the pledgor or pledge. Under the Security Law of China, there is no explicit provision on value change under the pledge of a right. Relevant provisions can be found in the Administrative Measures on Loan with Share Pledged for Security Company jointly promulgated by the People's Bank of China, China Banking Regulatory Committee, and China Securities Regulatory Committee in 2004. By introducing various systems provided under the Administrative Measures on Loan with Share Pledged for Security Company, the author explains the legal basis of the Administrative Measures on Loan with Share Pledged for Security Company and indicates the shortage of the current method of practice and suggests solution. Regarding the impact of corporate bankruptcy on share pledge, the author mainly explains the relationship between the priority of compensation and exemption rights under the share pledge. It is explained that the exemption rights shall be conditioned on existence of the company. If the company is in bankruptcy, the pledgee shall be compensated after the general creditors of the company even if the pledgee has assumed the position of shareholder.