Study On The Effect Of Right Of Preemption Of The Limited Liability Company

In order to protect the nature of a limited liability company as a personal company,the Company Law confers on the other shareholders right of preemption when a shareholder transfers his equity.How to identify the effects of right of preemption is an important issue,and there are a lot of controversies about such issue in theory and practice.Internally,after the other shareholders claim right of preemption,what kind of legal relationship will be formed between the other shareholders and the transferring shareholder,and can the transferring shareholder withdraw its intention to transfer? Externally,does right of preemption enjoyed by the other shareholders have the effect against a third person? Can the bona fide third person obtain the equity? The understanding of the effects of shareholders' right of preemption directly affects the manner in which the court disposes of cases in judicial practice.Provisions of the Supreme People's Court on Several Issues Concerning the Application of the Company Law of the People's Republic of China(IV)(“Provisions IV”)answers some of the above questions,but there is still room for further interpretation and improvement.In view of the foregoing,this article has a total of three chapters in which we study the legal effect of right of preemption.The specific content is as follows:Chapter I first analyzes the criteria for determining the content and time of same conditions.This is the premise for exercising right of preemption;secondly,the author begins to discuss the internal effectiveness of right of preemption,mainly the nature of it,whichdetermines what kind of legal relationship will be formed between the other shareholders and the transferring shareholder after the other shareholders claim right of preemption.In theory,right of preemption is mainly deemed as an expectant right,a right of formation or a right of claim.In consideration of transaction practice and balance of interests,the author believes that right of preemption should be a right of claim.In addition,Provisions IV sets the rule on the right of rescission,which the author considers not conferring on the transferring shareholder additional rights.The provisions on the right of rescission only show the Supreme People's Court's attitude of respecting the autonomy of private law.Chapter II deals with the external effectiveness of the shareholder's exercise of right of preemption,focusing mainly on the effectiveness of the equity transfer contract entered into by the transferring party and the third person.Firstly,the author analyzes,after the other shareholders claim right of preemption,whether the innocent transferring party shall bear the liability for non-performance to the third party;secondly,based on the theoretical distinguishing between an act of liability and an act of disposition,the validity of the equity transfer contract and the equity transfer itself shall be decided separately.As to the effects of equity transfer contract that infringes right of preemption,there are different views where the contract are deemed as valid,invalid,revocable or pending.The author believes that the system of right of preemption has nothing to do with the validity of the equity transfer contract.Chapter III deals with the effectiveness of the shareholder's exercise of right of preemption on the transfer of equity itself.To determine the pattern of equity change is the premise of this study.The author believes that the transfer of property rights and the transfer of shareholder's qualification in equity should be distinguished.The former occurs based on consensus,while the latter is effective upon change in the shareholders' register in addition to consensus.Where right of preemption is infringed,the system of shareholder's right of preemption in China should have the effect of real rights against a third person.However,the effectiveness of the transfer shall not be directly negated,the other shareholders shall be given the right to revoke such equity change.Besides,a narrow interpretation to Art.21(1)of the Provisions IV shall be adopted,and under certain circumstances,other parties' right of preemption may not challenge the bona fide third person.