The Study On The Shareholders’ Right Of First Refusalof The Limited Liability Company

The Limited Liability Company(LLC) has characters based on the trust and capital. Based on the "capital", the freedom of the share transfer is inherent rights of shareholders. But based on the "trust", a considerable degree of dependency is needed among shareholders. So, in order to balance the freedom of the share transfer and the trust among shareholders, shareholders’ right of first refusal was designed. But how to grasp the scale of the balance has become the cause of controversy of the right in the application.The right of first refusal originates in the field of civil law. Shareholders’ right of first refusal is its extension in the field of commercial law. Shareholders’ right of first refusal means that in the LLC, where a shareholder intends to transfer its shares to any non-shareholder, the other shareholders have the opportunity to purchase the shares first under the same conditions. It is obvious that the legislative idea is to protect the characters based on shareholders of the LLC and the old shareholders’ interests. But the nature of shareholders’ right of first refusal is controversial. There are three typical theories including "theory of expectation right", "theory of right of formation", and "theory of right of claim". By comparing the advantages with the disadvantages of the theories and balancing the interests of all parties, that "theory of right of formation" can give the right holders the best protection is founded. But, the "suspensive condition" is unnecessary.By comparing the international legislative model, it can be seen that shareholders’ right of first refusal is one of the important ways to limit the share transfer. Shareholders’ right of first refusal is necessary to exist because of the difference from the consent right. "Company Law of China" Article 71, Paragraph 3 has the regulation about shareholders’ right of first refusal, but the content is not in detail, and many specific rules in the legal application are still ambiguous. So, to publish the relevant legal interpretation and guidance as soon as possible is necessary. But "the priority of company charter" of "Company Law of China" is deserved to be positive, because it is in the spirit of autonomy of company charter and complies with the development of the law.Due to the imperfect legislation, many problems need to be explained in the exercise of shareholders’ right of first refusal. Firstly, it should be taken that the shareholder signs the framework agreement about the share transfer with the third party as the premise of the exercise of right. Not only the definite terms and conditions can be provided, but convenient demand can be met, and the interests of the third party won’t be damaged. Secondly, the subjects of the right of first refusal should include all the shareholders, and it is the protection of the interests of "have-agreed shareholders". Thirdly, the right of first refusal shall be exercised within a certain boundary. But in some special cases, the bound can be overstepped, in order to protect the interests of the old shareholders. Fourthly, the "Eclecticism" should be accepted to judge the "same conditions", because of the consideration to both standardization and rationality. Fifthly, to prevent the abuse of the right of first refusal, and to protect the interests of the third party and the shareholder who intends to transfer shares, the partial exercise should not be allowed and a certain deadline should be set up.The exercise of shareholders’ right of first refusal will produce legal effect. About the validity of the contract between the shareholder and the third party, there are four typical theories including "invalid", "pending validity", "revocable" and "valid". In the practice, the courts’ decisions are different, too. Through the analysis of the advantages and disadvantages of the theories, the theory of "valid" should be accepted. Because the "valid" can distinguish the contract and share transfer and make it that not only the old shareholders’ interests will not be damaged but the interests of the third party will be protected. In addition, in the third party’s interest protection, some scholars put forward the bona fide acquisition. But the bona fide acquisition is not appropriate, because the shareholders are not the persons with unauthorized disposition and the bona fide acquisition will form the excessive protection for the third party, when the bona fide acquisition applies to shareholders’ right of first refusal.