Research On The Transfer Of The Principal Part Of The Property In Companies Law

A transfer of a company’s principal part of its property is provided by Article74, Article104and Article121in the Companies Law of the People’s Republic of China. These provisions have some defects. First, different types of companies have different provisions. Second, the definition of property and the standard of principal part are not clear. Third, there is no provision concerning the sell of assets and liabilities as a whole. Thus I try to study the provisions and cases from the United States, Taiwan and Germany and to offer my suggestions based on the aforesaid study.First, the provisions for the company with limited liability, the company limited by shares other than listed company and listed company should be unified. The transfer of a company’s all or principal part of its property shall be approved by the shareholders representing two-thirds or more of the voting rights no matter what type of the company is. The transfer of a company’s principal part of its property is a fundamental issue, which affects the basic structure of the company and deeply affects the rights and interests of the shareholders. Thus it shall be provided by the law and shall not be subject to the company’s articles of association alone. Essentially, the transfer of a company’s principal part of its property is the same as merger and division. That’s why it shall be approved by a special majority.Second, the transfer of business shall be provided to solve the problem that there is no provision concerning the sell of assets and liabilities as a whole in the current Companies Law.Third, change the current legal standard provided by Article121that a sell of assets constitutes a sell of major assets as long as it exceeds30percent of a company’s total assets by using the qualitative and quantitative test. The qualitative and quantitative test means that both quality facts and quantity facts shall be considered when analyzing the character of the property sold. I suggest increasing the quantitative standard from30percent to75percent for companies with limited liability, companies limited by shares other than listed company and to50percent for listed companies. When considering the objects compared, the transfer of property and the transfer of business shall be distinguished. In the situation of transfer of property, it is generally recognized that the book value of the property sold shall be compared to the book value of the total assets of the company. But in my opinion, the book value of the property sold shall be compared to the book value of the operating assets of the company. In addition, the property’s contribution to the company’s revenues and incomes can also be taken into consideration. In the situation of transfer of business, the margin between the assets and the liabilities sold shall be compared to the net asset of the company. As for the qualitative standard, first of all, the transfer of principal part of the company’s property shall be out of ordinary course of business activity. Second, the transfer of property shall affect the basic structure of the company and substantially affect the existence and purpose of the company.