Empirical Study On Shareholders' Rights Of First Refusal

With the rapid development of the market economy,the number of equity transfer disputes has increased sharply and the interest relationship has become more complex.Among them,the disputes over shareholders' rights of first refusal have caused a lot of controversy in both practical and academic circles.Although articles 71 and 72 of the Company Law prescribe the system of the right,there are many problems in the process of application of the law,because the disputes of shareholders' rights of first refusal in practice involve many multiple interests while the provisions are someway principle.Judicial Interpretation of Company Law(Four)issued in September 2017 made some further supplements on the basis of Company Law.Particularly,article 19 and article 21 add the time limit for exercising the right of first refusal.Article 20 gives shareholders “the right of rescission”.However,after summarizing and analyzing related cases,it can be found that there are still many cases with different sentences after the introduction of Judicial Interpretation of Company Law(Four).Thus,this paper selects three core and controversial issues and discusses them through empirical analysis and normative analysis.What is the effect of the equity transfer contract that impairs shareholders' rights of first refusal? Firstly,from the three perspectives of year,trial level and region,this paper gives an overview and analysis of all the cases that infringe upon shareholders' rights of first refusal,presenting the characteristics and trend of the cases.From the overall situation of the 508 cases,from 2010 to 2019,the number of relevant cases showed an overall rising trend,especially after 2013.More than 50 percent of the cases were occurred in Jiangsu,Guangdong,Zhejiang,Sichuan Provinces as well as in Shanghai,which have more developed market economies.The proportion of appeals reached 54.24%,indicating that the compliance rate of the parties was not high;Then,starting with the controversial issues in judicial practice,this paper summarizes 86 judicial judgments on the effectiveness of equity transfer contracts,with a total of six views: The contract is valid,invalid,revocable,ineffective,unconfirmed and subject to the conditions of effectiveness.Next,the paper analyzes above viewpoints based on the Company Law and its judicial interpretation.After discussing the key points of the problems,it is concluded that the effect of the contract will not be affected if other shareholders exercise the right of first refusal.On the basis of the valid equity transfer contract,if other shareholders claim the rights of first refusal and conclude a valid contract with the transfer shareholder,then there would be two valid equity transfer contracts.Then which party should the shareholder transfer equity to first? Whether does the right of first refusal has effectiveness of adversarial? To explore the cognizance situation in judicial practice,this paper selects 13 relevant cases for analysis.Almost all judges believe that shareholders' rights of first refusal have effectiveness of adversarial and is a right of formation,which will hinder the performance of the equity transfer agreement between the transfer shareholder and the third party.These referee views actually reflect the value orientation in the process of interest measurement,and gives special protection to shareholders' rights of first refusal and the personal combination of the limited liability company over the transaction security of the third party in the market.On the performance of the equity transfer contract,the views of the practical and academic circles are quite different,which lies in the identification of the nature of shareholders' rights of first refusal.There are some disputes about the nature of shareholders' rights of first refusal in the academic circles,including mainly three representative viewpoints: right of expectation,right of formation and right of claim.The article then carries out a normative analysis on the nature of shareholders' rights of first refusal and draws the conclusion that shareholders' rights of first refusal should be the right of claim.The right of first refusal is a tool to balance the interests in the process of equity transfer.The transfer shareholder may decide whether enter into an agreement with other shareholders or not.The order of performance of the contract shall follow the general rules of performance of the debt.The transfer shareholder may perform the contract to either party,but shall bear damages for breach of contract to the other party.This will not lead to the failure of the right of first refusal,nor will it necessarily damage the human cooperation of the limited liability company.Then how to determine the compensation for the loss caused by the failure to perform the contract? The paper sums up 17 related cases,and analyzes the difference between the court's determination of the damages scope under the two scenarios of whether the liquidated damages are agreed in advance or not.The scope of compensation is on the basis of the principle of full compensation and in combination with the rules of limitation compensation such as the rule of foreseeability and the rule of victims having faults.The compensation scope includes the interest loss,the loss of the acquirable interest caused by the equity appreciation,personnel salary,consulting fees,audit fees and other expenses which is necessary for the performance of the contract.At last,the contents of different damages should be calculated by specific methods.