Study On The Validity Of Guarantee By Limited Liability Company For The Share Transfer Between Shareholders

As an important mean to ensure the realization of creditor’s right,guarantee is widely used in commercial transactions.In recent years,the limited liability company often plays the role of a guarantor in the transfer of share between shareholders,and problems in practice have also followed.Compared with the general guarantee provided by companies for shareholders,the particularity of this type of guarantee is that both the creditor and the obligor are shareholders.When dealing with such cases,the courts form judgments that affirm the validity of the contract and deny the validity.The provisions of Article 16 regarding the guarantee resolution procedure and Article35 of the Company Law of the shareholders’ prohibition of withdrawal of capital contribution are the most frequently cited legal basis for determining the validity of guarantees in judicial judgments.There are also many problems in the court’s use of law.The question is,as a provision in the Company Law,can the company’s legal representative violate Article 16 paragraph 2 as a direct basis for determining the validity of such a guarantee contract? How does Article 16 relate to the validity of the contract? In addition,the court may deny the validity of the guarantee on the grounds that the guarantee constitutes a withdrawal of capital contribution.The German company law has formed a complete system of rules governing the relationship between the company and its shareholders.The guarantee provided by a limited liability company to shareholders may violate the principle of capital maintenance in Article 30 of the German Limited Liability Company Act.When the obligor fails to perform the obligation,the company faces the risk of assuming the guarantee liability with its own property,which deviates from the company’s purpose to a certain extent.However,in the current economic and social environment,the Company Law does not intend to deny the company’s guarantee capability.Instead,it restricts the company’s guarantee intention formation procedure through relevant clauses.Its purpose is to strictly control the formation of the company’s internal guarantee intention through the law.Implement the basic requirements of modern corporate governance and achieve a balance of interests among the company,shareholders,and obligee of the company.The legal representative of the company conclude a guarantee contract without a resolution of the shareholders meeting,constituting an ultra vires representative.In this case,the guarantee contract is not of course invalid,but introduces the counterparty’s review obligation,establishes the counterparty’s goodwill judgment standard,and thus determines the attribution of the contract’s validity.Regarding the determination of Article 35 of the Company Law that shareholders must not withdraw their capital contribution,a substantive analysis should be made based on the facts of the case,and the company’s return of property to shareholders should be regarded as too arbitrary for the withdrawal of capital contribution.This article contains four main chapters:The main content of the first part is the relevant provisions of the current Company Law on company providing guarantee to shareholders.First,it briefly summarizes the company’s acts of providing guarantee for share transfer between shareholders,including the economic significance and possible risks of such guarantees.Second,it is clear that Article 16 of the Company Law is to regulate the formation procedure of the company’s guarantee intent,rather than directly regulate the company’s guarantee behavior.The second part is to sort out the focus of disputes,judgment ideas and value measurement of such guarantees in current judicial practice,as well as theoretical disputes on the validity of guarantee,and the relationship between the company’s resolutions and the validity of legal actions in German company law.Article 16 of the Company Law should not be used as a direct basis for determining the validity of a guarantee contract.When the legal representative oversteps the power to conclude a guarantee contract,the relevant rules of the contract law shall be introduced to determine whether the guarantee contract is effective for the company.The third part discusses the validity of such guarantee contract from the perspective of the rule of prohibiting the withdrawal of capital contribution,drawing on the constitutional elements,legal consequences and judicial precedents of the capital maintenance principle in German law,clarifying the criteria for determining of withdrawal of capital and drawing the conclusion whether it can be used as the basis for judging the validity of the contract.The last part analyzes the relationship between the validity of the guarantee contract and the company’s guarantee liability.And from the perspective of the protection of the interests of relevant subjects analyze the risk prevention and control methods of providing guarantee for share transfer between shareholders.