Assignment Of Defective Equity: Validity Of The Transfer Contract And Allocation Of The Civil Liability

To settle legal issues and disputes related to the transfer of defective equity, local courts have promulgated some judicial opinions respectively. However, those judicial opinions express different principles when handling those issues,which causes difference and conflicts in judgments and harms public credit of the courts. The increasing number of the cases related to the transfer of defective equity has attracted attention from both the practice and academic field. The judicial interpretation promulgated by the Supreme People's Court has set some uniform rules about defective equity transfer. However,some legal issues still remain unsolved by the interpretation and thus ambiguous. Those issues include the validity of defective equity transfer contracts; the responsibility of the transferor and transferee to the company,other shareholders complied with the contract and chapter,and creditors of the company; etc.This article tries to make a brief description of those issues and make relevant analysis about the validity of defective equity transfer contracts and the burden of liabilities in compliance with general regulations of the Contract Law and the Company Law. And the author hopes those will be helpful to judicial practice. The article includes three parts.PartⅠis the general description of defective equity transfer. This part first gives the definition of defective equity transfer and its categories,and points that this article mainly focuses on the defective equity caused by the defective investment by shareholders. The part then analyzes the transferability of defective equity and draws the conclusion that the defect investment doesn't necessarily lead to the denial of the shareholder capacity and defective equity can be the object of equity transfer.PartⅡanalyzes the validity of defective equity transfer contracts. This part first conducts a comparative study of different theories. The author is in favor of theory that different cases should be handled differently. This part also explains the way to identify the validity of defective equity transfer contracts. The author holds that the consent of transferor and transferee may be the essential elements when identifying the validity of such contracts. And this opinion is supported by cases and regulations contained in this part.PartⅢdiscusses the liabilities of defective investment after the transfer of defective equity. Because different opinions exist about this issue, the author analyzes respectively. To find a reasonable solution the author makes a comparative study about regulations and cases in different local courts. The author then discusses the liabilities of defective equity shareholder to the company, other shareholders and creditors respectively.