Restrictions On Equity Transfer By Limited Liability Companies

The Company Law of our country grants the authority of "otherwise stipulated" to the articles of association in many aspects,ensuring that parties can effectively apply the principle of autonomy of will when governing companies in accordance with the Company Law.Among them,Article 71 stipulates that there are "other provisions" for equity transfer,but does not constrain the scope of "other provisions".With the increasing number of equity transfer transactions and the increasingly complex provisions of company bylaws,there have been a large number of cases of abuse of "other provisions" in practice.Additionally,due to the lack of unified standards for "other provisions" in the bylaws,disputes over the transfer of equity have ultimately increased in legal practice.In judicial practice,the limitations on equity transfer in the articles of association of limited liability companies mainly include: the scope of "otherwise stipulated" is too broad,there are many disputes,and there is no final conclusion,which is difficult to apply according to the nature of each case.The judge’s discretion is too large,making it difficult to make a satisfactory judgment for all parties;Inappropriate restrictions on equity transfer rules in the articles of association can lead to a decrease in the transaction efficiency of equity disposal,as well as an increase in the cost of equity disposal.The backlog of equity dispute cases waiting to be resolved can increase the accumulation of lawsuits and seriously affect the normal management and operation of the company.If shareholders want to transfer their equity to the outside world,the company will force them to remain,which not only fails to consolidate human relations,but also may undermine internal harmony within the company,Ultimately leading to a deadlock in corporate governance;The legal consequences of violating the principle of restricting the transfer of equity in the articles of association are not yet clear.There are only five provisions in the Company Law regarding equity transfer,especially regarding the issue of restricted transfer of equity.Only Article 71(4)of the Company Law cannot deal with it,and relevant provisions are difficult to deal with complex and ever-changing case disputes,let alone clarify the legal consequences of violating the articles of association.In response to the difficulties in equity transfer,improvements should be made from the following aspects: firstly,measures such as introducing rationality review standards and rationality review concepts should be taken to address the lack of restrictions on the scope of "otherwise specified" in the articles of association,and to establish clear normative standards for the effectiveness of restrictions in the articles of association,in order to reduce misunderstandings and differences in the application of "otherwise specified";Secondly,by specifying the transfer system,such as clarifying the scope of the designated subject and transferee,the conditions,procedures,and terms applicable to the designated transfer system,and considering the subsequent establishment of guarantee systems,alternative relief measures are set up to ensure the smooth completion of equity transfer.As a relief measure,the designated transfer system can not only achieve the purpose of shareholder equity transfer,but also maintain the company’s human rights,effectively balancing the relationship between the two;Finally,clarify the legal responsibilities of company leaders who fail to fulfill their duty of care in different situations,shareholders who transfer equity in violation of regulations,and malicious transferees,so as to make the restrictions on equity transfer in violation of the articles of association clear and specific.