Discussion On The Preemptive Right Of Shareholder In Limited Liability Company From The Perspective Of Validity Of Share Transfer Contract

The validity of the share transfer contract which infringes the shareholder's preemptive rights remains controversial,since no explicit regulation has been prescribed in the company law and judicial interpretation of China.The Author thinks the share transfer contract above is valid.The Author thinks,from the perspective of the literal legal provision,the shareholder's preemptive rights in China falls in the scope of Statutory Preemptive Right System.However,from the perspective of the practice value,given the legislative defect of the Statutory Preemptive Right System,it's necessary to change the system to Agreed Preemptive Right System by modifying the relevant regulations in China.This essay can be divided into four parts according to its main structure:1.Summarize of the Shareholder's Preemptive RightThe first part preliminarily analyzes the basic theory of shareholder's preemptive rights from the concept and nature of which.Concerning the concept of shareholder's preemptive rights,the Author makes analysis in combination with the following three points:(1)exercise occasions,that the preemptive rights only can be exercised whenthe shareholder of a limited liability company transfers his shares to the person other than the shareholder;(2)exercise subject,that the shareholder other than the one transferring his shares;(3)exercise conditions,that the right can only be exercised under the same purchase terms and conditions.As for the nature of shareholder's preemptive rights,the Author discusses it from the following five aspects: legality,real right,expectancy,conditional right of formation,and timeliness,so as to understand its concept and connotation profoundly.As mentioned before,China has established the statutory preemptive right system that the preemptive right is stemmed from company law other than the agreement between the shareholders.The preemptive right is granted by the law,the shareholder starts to enjoy the preemptive right from the date obtaining shareholder's qualification and loses such right as of the date the shareholder's qualification is ended.The Author holds the viewpoint that the preemptive right,to a certain extent,has some character of real right.Regardless the preemptive right is stemmed from law or shareholder's agreement,such right shall possesses the exclusive power to against third party once such right is established,and therefore the obligee shall have the right to suspect the validity of share transfer once the preemptive right has been infringed and require to purchase the shares under some purchase terms and conditions,otherwise the preemptive cannot be called as “preemption” or “privilege”.The Author raises that preemptive right shall be exercised under certain circumstance,which means such right shall only be exercised when a shareholder of limited liability company transfers his shares to a third party other than the company shareholders.Without the preceding condition,no shareholder can exercise such right and purchase the company shares.The preemptive right is a right to obtain some certain privilege at a certain time node in the future,before the time node arrives,the preemptive right cannot be exercised,which gives the preemptive right of expectancy nature.Whether the preemptive right belongs to a right of formation or right of claim is still in dispute,which confuses legal practice field of China for many years.TheAuthor raises the thought that the preemptive right belongs to a conditional right of formation.The law never protects the person who lies on the right to sleep.In case the shareholder who enjoys the preemptive right fails to exercise his right in time,he may lose his preemptive right,that is so called the timeliness of preemptive right.2.The validity of the Share Transfer ContractAs for the validity of the share transfer contract which infringes the shareholder's preemptive rights,the validity of which remains controversial,since no explicit regulation has been prescribed in the company law and judicial interpretation of China.Nowadays,there're different viewpoints concerning the validity of the share transfer contract which violates the shareholder's preemptive rights,that such contract shall be deemed as invalid,valid,pending valid,revocable or conditionally rescissible.The Author agrees the viewpoint that the share transfer contract violating the shareholder's preemptive rights is valid."Equity change" and "equity transfer contract" are two different concepts,in the event that a third party is unable to obtain an equity,the equity transfer contract is still valid and can be used as a basis for third party rights protection.Considering that the contract violating the shareholder's preemptive rights remains controversial both in practice and theory,and no unified conclusion can be made,the Author proposes to replace the Statutory Preemptive Right System with Agreed Preemptive Right System,leaving the question of whether the shareholder has the preemptive rights,the consequence of the breach of preemptive rights,the nature of preemptive rights and etc.to the shareholder's agreement.3.The Legislation Modes of Shareholder's Preemptive RightThe third part mainly introduces the legislation modes and trends on the shareholder's preemptive rights in worldwide and discusses the advantages and disadvantages of the two different legislation modes.The Author believes that an internal logic must exist that makes countries andregions in worldwide all abandon the Statutory Preemptive Right System and embrace the Agreed Preemptive Right System,it's because all the countries and regions find out that Statutory Preemptive Right System is inappropriate and falls in disadvantage.However,China still adopts Statutory Preemptive Right System that makes China backward in this trend.4.The System Construction of Shareholder's Preemptive RightThrough the above analysis,the Author thinks the preemptive right system in China shall be reconstructed urgently given the advantage and disadvantage of statutory preemptive right.Also,we must explicitly regulate the validity of the share transfer contract which infringes the shareholder's preemptive right.At the end of this essay,the Author tries to,based on the expectation of the consent system,Agreed Preemptive Right System and Separation of identity right and property right,propose some thoughts on the modification on the regulation of preemptive right.