Research On The Issue Of Compulsory Equity Transfer In The Articles Of Association Of Limited Liability Companies

Item 4 of Article 71 of the Company Law of the People's Republic of China writes that“Where the articles of association of the company otherwise provide for transfer of equity interests,such provisions shall prevail.” This is the official affirmation that articles of association of limited liability companies are self-regulatory at the legislative level,and it is also the legal basis for articles of association to obtain compulsory equity transfer clauses.However,this provision lacks a supportive mechanism,of which the academic community has not reached a unified understanding,making theoretical support for judicial practice unavailable.Disputes arising from compulsory equity transfer based on the articles of association of limited liability companies are ever increasing,while courts are notorious for a shortage of logic orderliness and judgement consistency due to the absence of theoretical agreement and legal provision.The chaos has challenged the stability and authority of law,wasting judicial resources and hindering economic growth.In the first chapter of the Thesis,the author analyzes the main controversies in several typical cases,and finds out that judicial judgments vary on the following three aspects: 1)the legitimacy of the compulsory equity transfer based on the articles of association;2)the effectiveness of the compulsory equity transfer provisions in the articles of association;and 3)the legal consequences of violating the compulsory equity transfer provisions in the articles of association.The second chapter analyzes the legal nature of articles of association,the characteristics of limited liability companies,and the relationship between the Company Law and articles of association.The conclusions are that 1)articles of association work as autonomous laws and regulations;2)limited liability companies accommodate cooperation of persons and of capital;and 3)the Company Law authorizes articles of association to conduct autonomy.The legitimacy of compulsory equity transfers based on articles of association is hence proved.The third chapter,on a theoretical basis of case study,analyzes the main academic theories,summarizes existing imperfect standards for reviewing provisions effectiveness in judicial practice,and refers to foreign legislative experience,so as to define the whitelist and blacklist for reviewing provisions effectiveness.In the fourth chapter,the legal consequences are separately discussed on two occasions: equity transfer agreement and equity transfer behavior.Through in-depth study of the elements of agreement effectiveness and equity change,it is concluded that the agreement is effective in principle,but whether equity change is activated needs to consider the consensus within the company.The fifth chapter,given specific national conditions and inspirations from above discussed divergencies,it puts forward suggestions to improve the compulsory equity transfer system based on articles of association of limited liability companies in China,in a bid to provide a clearer judicial thinking pattern for the chaotic judicial practice,and help to tackle reoccurring complex cases in this field.