Discussion On The Perfect System For Shareholder Preemptive Violation

Limited liability companies as the main participants of the modern market economy have attracted more and more attention and researches in recent years. Among all the other legal concepts and theories, the shareholders' preemptive right is such an important topic that cannot be ignored by researchers and have caused heated debates and discussions. It is clear that the purpose of the company law to provide shareholders' preemptive right is to maintain the committed relationship among the owners. However, under certain circumstances, vagueness and impractical embed in the theory also bring barriers into practice, and make it really hard to achieve the purpose mentioned above. Although relevant essays on the shareholder's preemptive right are countless, the problems occurred in the practice are rarely discussed. Therefore, studies and analyses on this theory from the perspective of practice are still necessary.The author uses case analysis, comparative study, and literature review as research methods and develops this paper based on the Shanghai Bund "Di Wang" case. By analyzing this well-known case thoroughly, the author try to apply the theory into real life situation and provide deeply insights on the hot debated legal issues on shareholders' preemptive right in this case. Mainly, this paper includes three parts:Part IThe paper starts with the introduction of the Shanghai Bund "Di Wang" case. The author introduces the case in chronological order and points out the legal disputes involved at each stage. Then by focusing on the legal disputes, the author extracts several problems related to the shareholders' preemptive right.Part IIThis part serves as the theoretical basis of this paper and mainly focus on the jurisprudence analysis of shareholders' preemptive right. More specifically, the author firstly discusses the nature of the shareholders' preemptive right, after comparing and contrasting different assertions and theories, the author makes it clear that the nature of shareholders' preemptive right should be considered as right of claim rather than right of formation or expectancy right. Meanwhile, in this section, the author expresses disapproval of the original court decision which considers the shareholders' preemptive right as a kind of statutory right and totally ignored the exclusive effects of the articles of association. Secondly, the exercise conditions of the shareholders' preemptive right are been discussed. Two crucial concepts are involved here, namely "the equal conditions" and "a certain time limited". The author defines what "the equal conditions" is and comes up with the assertion that "the equal condition" should not only include the price, subject, but quantity of the subject, payment method, time of performance, and other general terms and conditions. On the other hand, for "a certain time limited" the author believes that the legislation should set the time period for one month, under certain circumstances, it may extends to three months. The last section focuses on the validity of share transfer agreement if the shareholders' preemptive right has been violated. The author agrees with the "effectiveness theory" and discussed in detail at this stage.Part IIIFinally,the author concentrates on the perfect system for shareholder preemptive violation. Specifically, based on the theoretical analysis in part II, the author evaluates the reasonableness of the court's decision and review the theme at the end of the paper.