Study On The Legal Effect Of Equity Repurchase Clause In Private Equity Investment

With the rise of private equity investment,when the investor signs an agreement with the company,there are more and more cases in which the clause of equity repurchase is set.The equity repurchase in this paper is discussed in the context of a company with limited liability,which is different from the equity repurchase of a company limited by shares.the clause of equity repurchase is also different from the minimum-guarantee clause,the format clause,and the conditional contract of transfering equity.the clause of equity repurchase is a special design of the parties.It does not make it effective immediately at the beginning of the act,but waits until the agreed conditions are fulfilled before it is fully effective.That is,the clause of equity repurchase is conditional contract in legal character.The review of the legal effect of the clause of equity repurchase also involves many aspects.In judicial practice,the court recognizes that the major shareholder can act as the subject of the equity repurchase,while the main trend of judgement does not recognize the agreement that the company with limited liability can act as the subject in the clause of equity repurchase.From the perspective of the internal relationship of the company,the company repurchase shares is a corporate governance and should be given full autonomy under the legal framework.However,the company repurchase its own shares will in fact lead to reduct the company's capital,which may damage the interests of creditors.Therefore,China still maintains a conservative attitude towards the company as the subject of repurchasing shares.In the judicial adjudication,the invalidity of the contract should strictly follow the statutoryism.Although the effect of the clause of equity repurchase ultimately depends on the attitude of the company law on repurchasing shares,but the company law prohibits repurchasing shares of the company with limited liability.There is no clear regulation,so it cannot be simply determined that the clause of equity repurchase is invalid.Of course,in the absence of the current law,it can only be improved through explanation.On the basis of sorting out the legal principles of the company repurchase shares,the excessive restrictions on the company repurchase shares should be relaxed.In the question of the effectiveness of the company as a guarantee,it usually goes back to whether the investor has fulfilled the formal obligation and whether the external guarantee has passed the resolution of the board of shareholders.But in essence,these two situations do not affect the validity of the clause,but only the issues that the two parties bear responsibility.This clause is only set to protectinvestors from the risk of asymmetry information.The same investor should also make a reasonable review of the obligation to seek a balance between efficiency and fairness.The company's guarantee for shareholders must be resolved by the board of shareholders to prevent the loss of company property,but violation of the decisionmaking body and procedures can not affect the validity of the terms.It should be noted that the judgement should consider whether the investor has exercised a formal obligation according to specific factors,leaving him with some discretionary space,and should not make a heavy burden for the investor's transaction.In the process of negotiating the terms of equity repurchase,the choice of the subject of the equity repurchase directly affects the judgment of the jury on the validity of the clause.In order to reduce risk,we need to design the main structure.It is divided into two situations: First,when the investor negotiates with the company,the major shareholder should act as the subject of the equity repurchase,and the company with limited liability should be required to bear guarantee for the obligation of the major shareholder to repurchase shares.The board of shareholders shall pass the guarantee with more than half of the voting rights and include it in the articles of association.Second,when an investor enters a company with limited liability with a dispersed shareholding and its ratio is large,it is more practical to choose a company to buy back shares.However,when the company is the subject of repurchase,it may involve the issue of capital reduction.Therefore,the board of shareholders shall pass the repurchase by more than two-thirds of the voting rights,promptly notify the creditors and obtain the consent of more than half of the creditors.A solvency test on the share repurchase of a company with limited liability should also be appropriately introduced.Secondly,parties set reasonable objectives and focus on the operability of repurchase,that is,under the premise of protecting the interests of investors,we must also consider the affordability of limited liability companies.By agreeing to pay the repurchase price in installments and conducting the payment of installment,the pressure on the cash payment of the company with limited liability is alleviated,and the interests of the creditors are guaranteed.In addition,at the level of legal recognition,it is necessary to ensure that the clause of equity repurchase are differentiated from “clear stock and real debt”.Finally,fully design the terms and conditions,consider the multi-faceted factors in reality,and strive to solve problems efficiently and conveniently.