Research On Effectiveness Of Stock-transfer Restrictions In The Articles Of Corporations Limited

The Corporation Law was revised and passed by the 18th Session of the 10th NPC Standing Committee on October 27,2005. The amendment added the provisions of the transfer of shares of the limited company, namely Article 72 Paragraph 4. The supplement of the provisions not only enhanced the subjective initiative of market players but also led the Same Different Phenomenon in practice. The reason mainly lies in the uncertainty of the main nature and the restriction of rights of the provisions, which leads to the misunderstanding and misuse of the provisions. The articles of incorporation are established by the commercial subjects, which is intended to normalize the management and operation of the company and realize the optimum allocation of shareholders’and company executives’rights and obligations, but the validity of the articles of incorporation is still reviewed by the nation and law. In terms of the Corporation Law, firstly, the company must establish the articles of incorporation after the foundation of the company, which is the obligation not the right of the company; secondly, after the articles of incorporation has been established, the approval authority and registration authority will review its validity and requirements related to decide whether to grant approval. Therefore, though the articles of incorporationare independently established by the company, it still should consider its range of self-determination within the legitimacy. After the revision of the Corporation Law, in terms of the scope that the articles of incorporation can restrict the equity transfer, many scholars have expressed their own views and opinions, but did not reach an agreement.The first part of this paper discusses the historical evolution of the Corporation Law. It mainly introduces the purpose of legislation, the policy background and implementation effect of the Corporation Lawin 1993 and the Corporation Lawin 2005; analyzes and compares the new content added to the Article 72 of the Corporation Lawin 2005considering that ithas the adaptability with the development of the economic policies; further analyze show the purpose of legislation of legislators influence equity transfer boundaries that the articles of incorporation can restrict;analyzes the applicable range of the new added Paragraph 4from the view of system explanation, considering that this paragraph is both suitable for internal equity transfer and external equity transfer. The second part describes the nature of equity and the articles of incorporation. The equity and the articles of incorporation are the two core concepts in this paper and they are also the basis for the further study of other issues. This paper argues that the nature of equity should be taken as an independent concept, that is, equity has its own unique nature and it should not be forced to be classified. Analysis shows that our people generally think less of the articles of incorporation and do not place significant emphasis to the articles of incorporation to maintain their rights and maximize their interests. This paper adopts a compromised way to describe the nature of the articles of incorporation in order to define the scope of rights and be easily understood. Major western countries have two types of division of the nature of the articles of incorporationbased on whether it has the right to forbid equity transfer completely. The distinction of the initial charter and the amendment of the articles of incorporation is particularly important to this paper. In addition, this paper also analyzes the equity transfer contract that violate the the articles of incorporation. According to the explanation of the Supreme People’s Court, the validity of the equity transfer contract has relativity, that is,it is valid for the transfer and the transferred and it is still in a pending status for the company. The third part analyzes some cases in reality from entity and procedure and analyzes the diverse conditions that the articles of incorporation restrict the equity transfer, like the condition that the articles of incorporation forbid or forbid in disguised form the equity transfer, the articles of incorporation restrict the equity transfer, the articles of incorporation have the procedure different from the Corporation Law, the articles of incorporation restrict or restrict in disguised form the shareholders’preemptive right.Also, this part analyzes the application of laws of the same cases with different sentences in reality.The fourth part gives advices to the improving of the legislation of the equity transfer system, that is, the legislation should follow the major principle of free equity transfer and specify the distinction that the two articles of incorporation can restrict the validation of the equity transfer in order to solve the validity disputes about the initial charter and the amendment of the articles of incorporation in reality. Meantime, the articles of incorporation should reserve the mechanism of the protection of the rights and the mechanism of withdrawal when it restricts the equity transfer.The main innovation of this article is analyzing and comparing the articles of incorporation and the nature of equity from the perspective of the legislative background and the legislative purpose of legislators, and further analyzing the scope that the articles of incorporation can restrict the equity transfer;further displaying and analyzing the status of using the provisions of the Corporation Law based on some cases in practice;finally recommending the importance of setting a uniform boundaries and standards by law.