On The Shareholders’ Pre-emptive Rights Of The Limited Liability Company

The system of shareholder’s preemption is a special system, which not onlypaves the way for the exit of shareholders but also balances the interests of all parties.With the continuous development of marketization and increasingly loose conditionsfor establishing small and medium-sized enterprises (SMEs), accurate understandingand proper application of this system would be closely related with each of us.However, in the PRC Corporate Law promulgated in2005along with itsfollowing interpretations, there are only two provisions concerning shareholder’spreemption with about three hundred words. It is clear that the two provisions areunable to provide comprehensive guidance of law with regar to all or most problemsoccurring in external transfer of limited liability company’s shares. In recent years’disputes of shares transfer, almost every dispute involved shareholder’s preemptionto different degrees, among which above seventy percents were directly related. Themost important focus of dispute was about the validity of contract on externaltransfer of shares without consent from other shareholders. In addition,“identification on the same conditions” has been a unavoidable issue in judicialjudge. It is a pity that current laws make no clear provisions on the legalresponsibility for violating shareholder’s preemption. Therefore, it cannot be deniedthat legislative defects within the system is one of the major causes for the growingdisputes concerning external transfer of limited liability company’s shares.In the face of these legislative defects and practice disputes, scholars start tothink about effective ways to solve those problems and make further exploration onthe major problems in external transfer of limited liability company’s shares.Consensus has been reached concerning some issues, such as recognizing thevalidity of contract on transfer of shares without consent from shareholders withpreemptive right. However, more issues still remain controversial, such as naturedetermination on shareholder’s preemption, specific contents of the “sameconditions” and etc. Based on previous studies, this paper starts with analyzing legislation models of different countries on the system of shareholder’s preemptionand compares them with China’s relevant laws and regulations. What is more, thenature and legal sense of shareholder’s preemption are explored within theframework of China’s laws. This paper also tries to summarize all those issues whichare controversial in academic circle and spread widely in practic circle and proposeits opinions and solutions to those issues. This paper would be specified in thefollowing four parts:The first part makes detailed elaboration on the definition of shareholder’spreemption and compares legal provisions on shareholder’s preemption betweenChina and other countries to analyze their advantages and disadvantages. This partsummarizes major problems under those disadvantages of our country and brings upthe major discussion of this paper.The second part proposes its own understanding on the nature determinationand legal sense of shareholder’s preemption. It believes that the preemptive right ofshareholders is both right of claim and right of formation without mutual conflicts.In the meanwhile, legal value of the system of shareholder’s preemption is of greatsignificance since it involves the survival and development of limited liabilitycompanies and concerns the stability of the whole commercial society, which is themajor basis for this topic.The third part makes exploration and analysis on the important problems in thesystem of shareholder’s preemption including subject, scope and term of this right,identification on “the same conditions”, recognition on the validity of contract ontransfer of shares without consent from shareholders with preemptive right,notification on fulfilling obligation and etc.The forth part proposes suggestions on improve the system of shareholder’spreemption. It makes concise analysis and argument on the feasibility of relevantsolutions mainly based on the establishment of responsibilities mechanism, deletionof “articles of agreement” and specific methods of system improvement.