A Study On The Rational Use Of The Pre-emptive Right In Share Transfer

For a long time, share transfer is a common economic phenomenon in the market. Unlike the openness of equity trading in the Stock Exchange and other public trading platforms, the equity transfer of Limited Liability Company needs certain restrictions due to its human combination. In view of this, the Company Law of PRC gives the pre-emptive rights to the shareholders of the limited liability company. The equity transfer involves the interests of multi parties, but the rules and provisions on the specific conditions and the validness of the pre-emptive right are not complete. The issue discussed in this article is based on the background of share transfer which happened in Limited Liability Company.The Company Law of PRC set pre-emptive right in the Article 71(formerly Article 72), and since the scholars have kinds of interpretation of this article since it came into effect. With the rapidly development of market economy, there is a wide range of interpretation on the nature of shareholders; the Company Law has no more specific provisions on the exclusion for pre-emptive rights, such as “the Same Condition”, “the applicable period”, and they are completely determined by the Articles of the company; there are also variety views of the legal effect while the pre-emptive rights were violated.This article starts from the theoretical level and firstly to explore the concept and the nature of pre-emptive right, derived form the nature to the uncertainty of the specific operation procedures, and then to the remedy of shareholder’s pre-emptive rights. This article attempts to combine theory and practice, with precedents, to explore how to set to further restrictions and actionable ways of the shareholder’s pre-emptive rights to make it perform reasonable and orderly under the Article of the company and the Law, in order to balance interests of the transfer shareholder, the third party and the other shareholders with pre-emptive rights.This article divided into three parts. Part 1 describes the theoretical background of the shareholders’ pre-emptive rights. The pre-emptive right is owned under the situation of share transfer in Limited Liability Company. For the nature of pre-emptive right, there are a variety of academic perspectives, the typically views are “Expecting Right Theory”, “the Claim Right Theory” and “the Formation Right Theory”. And ensure the nature of the pre-emptive right has key effect on the validness of it.Part 2 describes the current situation of our country on the practice of the pre-emptive right, including the provisions on the pre-emptive right in the existing law. There is no clear and detailed legislative explanation on the provisions of “the same condition” and other restrictions, and law experts also argued for their own opinions since there are a variety of different ideas. This article discusses the legal consequences of violation of pre-emptive right of shareholders by sharing cases and practical experience.Part 3 learn from the foreign legislation on the limits of share transfer and the protection of the shareholder’s pre-emptive right to explore the suggestions of China’s legislation to improve the system of the shareholder’s pre-emptive right, in order to maintain a healthy and orderly environment for the market economy and take into account of multi-market party’s interests.