On The Determination Of “Good Will” In The Bona Fide Acquisition Of Stock Equity

The application of the bona fide acquisition of stock equity was firstly recognized by the Provisions of the Supreme People's Court on Certain Issues Concerning the Application of the“Company Law of the People's Republic of China”(III)which was promulgated in 2011.However,this legal document only solves a small portion of cases relating to equity transfer disputes.It fails to provide general provisions on the elements of bona fide acquisition of stock equity.Instead,it stipulates this issue with reference to Article 106 of the Real Rights Law of the People's Republic of China.Equity and property rights are different,so are the equity transfer rules and real rights transfer rules.Therefore,the elements of bona fide acquisition of stock equity should be differentiated from the elements of bona fide acquisition of the real rights.This thesis only discusses the specific determination of the core elements,“good faith”,in the context of bona fide acquisition of stock equity.This thesis contains five sections:The first section puts forward and analyzes the problems in the determination of “good faith” of the bona fide acquisition of stock equity.First,The regulation of Provisions of the Supreme People's Court on Certain Issues Concerning the Application of the “Company Law of the People's Republic of China”(?)stipulates the issue of application of bona fide acquisition of stock equity with reference to the Article 106 of Real Rights Law of the People's Republic of China.Such a rule ignores the distinctions between the stock&stock transfer rules and real rights&real rights transfer rules.Meanwhile,the article fails to illustrate which rule is referred to apply the bona fide acquisition of stock equity,that the rule of bona fide acquisition of chattel or the rule of bona fide acquisition of the real estate.Second,the application of bona fide acquisition of stock equity should be based on reliable rights appearance.The article 32 of Company Law of the People's Republic of China which stipulates that “anyone that fails to complete registration or change registration may not resist the claim of a third party”,should not be considered that the company registration is the right appearance of stock equity.The appearance of stock equity is unclear at present.Third,the time of the “good faith” judgment will affect the right of the real owner of stock equity and the assignee.If the law adopt the time when transferee obtaining stock equity,this issue would be further complicated due to the uncertainty of the equity transfer pattern.Therefore,how to determine the time to judge the “good faith” deserves further discussion.Fourth,the currentjudicial practice has not formed a unified approach to the distribution of the burden of proof of the "good faith" relating to the bona fide acquisition of stock equityThe Second section solves the problem of rights appearance of stock equity.One of the doubts about the bona fide acquisition of stock equity from the scholars is that they think there's no proper appearance of stock equity existing in domestic legal framework,hence there's no basis to apply the bona fide acquisition of stock equity.In order to apply the bona fide acquisition to stock equity,it must firstly satisfy the structure of the appearance of right.At present,some of China's judicial practice have already regard the commercial registration as the appearance of stock equity.But the opinion of academic community is controversial and some scholars proposed that the internal registration of shareholders within the company can be reformed as the appearance of stock equity.This article will compare the commercial registration and the shareholder registration in four aspects: the contents of registration,the correctness,the cost of examination and the entities of application.Based on the comparison,it is considered that the shareholders' registration is more suitable for the appearance of the stock equity than the commercial registration.However,the above approach is comparative.The shareholders' registration still needs to be reformed to become the appearance of stock equity since it would face many procedural and physical problems.Even if the reformed shareholders' registration can be used as the appearance of stock equity,this is still a long-term goal.For the considerable amount of equity transfer disputes at present,the discussion of the determination of “good faith” should still based on the current commercial registration system.The third section probes into the standard of "good faith".For a long time,there's disputes about the determination of “good faith” in both the bona fide acquisition of chattels and the bona fide acquisition of real estates in China's judicial practice.The legal document Interpretation I of the Supreme People's Court on Several Issues concerning the Application of the Property Law of the People's Republic of China unified the connotation of “good faith”as “do not know and have no gross negligence” in bona fide acquisition of chattels and real estates.This document also stipulates more specific rules relating to the determination of“good faith” of bona fide acquisition of chattel and real estates.The connotation of “good faith” of bona fide acquisition of stock equity should also adopt “do not know and have no gross negligence”.“No gross negligence” means that when a third party transfers equity,it should satisfy the duty of care which a general commercial entity would pay attention to.The fourth section analyze the specific determinant factors of “good faith” in the bona fide acquisition of stock equity.Although the current commercial registration is not able to be the proper appearance of stock equity at present,the commercial registration is still the legal form for companies to disclose information.The third party concerned should refer to the commercial registration in the equity transaction,which is the natural requirement of the party's subjective “good faith”.However,this does not mean that commercial registration has been recognized as the appearance of stock equity.On this basis,reasonable consideration should be an intrinsic requirement for "good faith" determination.It does not have to be an element of bona fide acquisition of stock equity alone.Since the appearance of stock equity is not yet clear currently,the determination of “good faith” must be supplemented by the investigation obligations undertaken by the assignee,but such investigation obligations should be limited to “necessary”.The recognition of "good faith" is very complex since it requires a combination of various factors in a specific case to determine.The time to judge“good faith” should depend on the time when the assignee was recorded in the commercial registration.If the shareholders' registration can be reformed to become the qualified appearance of stock equity,then the time to judge “good faith” should be the time when the list of shareholders have submitted to the commercial registration authority and such information should be accessed by any potential assignee.The fifth section discusses the burden of proof of “good faith” in the bona fide acquisition of stock equity.The inversion of the burden of proof can be applied to the determination of the “good faith” in the bona fide acquisition of stock equity.But since the appearance of stock equity is unclear at present,the presumption of “good faith” should not be based solely on the commercial registration.The assignee shall provide relevant evidence for the reasonable duty of care,so as to deduce the assignee as “bona fide”.On the contrary,the burden of proof is attributed to the real equity holder who need to prove that the assignee at good will when the assignee carried out the equity transaction.