The Establishment On The Rule Of Expulsion Of The Limited Company

The limited liability company (LLC), which has both characters based onshareholders and characters based on capital, plays an important role in domesticeconomy. The trust between shareholders is the basis to establish a business. On theone hand, under the guidance of characters based on shareholders, the limited liabilitycompany has more right of autonomy. On the other hand, the ownership and the rightof management are not totally separated, because most shareholders participate in thecompany management directly or indirectly. Contrasted with joint-stock company, incase that shareholders lose trust in each other or events breaching the articles ofcompany occur, shareholders can hardly take measures to settle consequent deadlock.Traditional method can hardly protect the benefit of non-breaching shareholders andmay even lead to the close-down of the company, which is against justice. Therefore,expulsion of shareholders comes into being in Germany.The expulsion of shareholders in LLC is a new rule introduced in Provisions ofthe Supreme People’s Court on Several Issues concerning the Application of theCompany Law of the People’s Republic of China (III)(hereinafter referred to as“Provisions III”). This rule is seldomly discussed in China. The author of this articlebelieves that a perfect rule of expulsion of shareholders can not only solve theproblem of deadlock but also will enhance the efficiency of operating a company.This article discusses the rule of expulsion of shareholders from five aspects. Part one introduces the jurisprudence basis of the rule of expulsion ofshareholders including the theory of autonomy, the characters based on shareholdersand the transformation from capital credit to asset credit. The rule of expulsion ofshareholders is a must for the principle of judicial autonomy and does not impair thebasis of company credit.Part two introduces the value of establishing the rule of expulsion ofshareholders from several aspects，which are avoiding deadlock, balancing thebenefits of parties, urgent needs of justice practice, etc.Part three analyses the possible rights conflicts brought by the rule of expulsionof shareholders of LLC from the aspects of the conflicts between shareholders, theconflicts between the company and the expulsed shareholders, the right conflictsbetween the company and the creditors, etc. It can be concluded that the battle for thecontrolling power can be avoided and the legal advantages of creditors and theexpulsed shareholders can be effectively protected through good design of the rule ofexpulsion of shareholders.Part four analyses the existing rules of expulsion of shareholders of LLC inChina and its defects, such as narrow reasons for expulsion, lack of specificprocedural regulations, etc.Part five elaborates construction of LLC in China from four aspects, which arereasons for expulsion, procedural factor for expulsion, disposition of expulsed equityand the legal result of expulsion.