Research On The Rules Of Companies Law Concerning A Transfer Of A Principal Part Of A Company’s Property

A transfer of a principal part of a company’s property is provided byArticle74, Article104and Article121in Companies Law of the People’sRepublic of China. The aforesaid provisions have some problems. First,a transfer of a principal part of its property of a company with limitedliability is subject to resolution by the shareholders assembly, whichis subject to adoption by the shareholders present who hold half or moreof the voting rights. A transfer of a principal part of its property ofa company limited by shares is subject to the company’s articles ofassociation. A transfer of a principal part of its property of a listedcompany is subject to resolution by the shareholders general assembly,which is subject to adoption by the shareholders present who holdtwo-third or more of the voting rights. The question is whether suchdifferent provisions are necessary. Second, the definition of propertyand the standard of principal part are not clear in the current CompaniesLaw. Third, there is no provision concerning the transfer of assets and liabilities as a whole. In order to offer my suggestions to solve theseproblems, I research into provisions, theories and legal cases from theUnited States, Taiwan and Germany.First, a transfer of a principal part of a company’s property shall besubject to resolution by the shareholders assembly or shareholdersgeneral assembly, which shall be subject to adoption by the shareholderspresent who hold two-third or more of the voting rights no matter whatkind of company it is. A transfer of a principal part of a company’sproperty is a company’s fundamental issue, which deeply affects the basicstructure of a company and the rights and interests of the company’sshareholders. Thus, a transfer of a principal part of a company’sproperty shall be provided by the law and shall not be subject to thecompany’s articles of association alone. Furthermore, a transfer of acompany’s principal part of its property is essentially the same as mergerand division, which means it shall be subject to a special majority.Second, substitute the word “property” for “asset” in Companies Law.The “property” means operating assets. A transfer of business shall beadded into the Companies Law to regulate the transfer of assets andliabilities as a whole.Third, substitute the qualitative and quantitative test for the currenttest provided by Companies Law. The qualitative and quantitative testmeans both quality facts and quantity facts shall be considered when thecharacter of the property sold is tested. My suggestion is that thepercentage shall be increased to75percent for companies with limitedliabilities and companies limited by shares and shall be increased to50percent for listed companies. In the situation of transfer of property, it is generally considered that the book value of the property sold shallbe compared to the book value of the total assets of the company. But inmy opinion, the book value of the property sold shall be compared to thebook value of all the operating assets of the company. In the situationof transfer of business, the margin between assets and liabilities soldshall be compared to the net asset of the company. In addition, theproperty’s contribution to the company’s revenues and incomes can alsobe taken into consideration. As for the qualitative standard, a transferof a principal part of a company’s property shall be out of ordinarycourse of business activity. If a transfer of property is in ordinarycourse of business activity, it isn’t the transfer of property I’mdiscussing in this dissertation even if it contains all or substantiallyall of a company’s assets. And a transfer of property shall affect thebasic structure of the company and substantially affect the existence andpurpose of the company.