Viewpoint | A brief analysis of the changes in the equity transfer system of the New Company Law
Published:
2024-04-19
In corporate disputes, equity transfer disputes have become the most important type. In view of the differences in practice, the new company law has been revised accordingly, and new procedural norms have been set up for the transfer of shareholders of limited liability companies. How to understand the internal logic and practical application of the new company law is of great value.
Introduction
In corporate disputes, equity transfer disputes have become the most important type. In view of the differences in practice, the new company law has been revised accordingly, and new procedural norms have been set up for the transfer of shareholders of limited liability companies. How to understand the internal logic and practical application of the new company law is of great value.
Legal provisions
Article 84 of the new Company Law: Shareholders of a limited liability company may transfer all or part of their shares to each other.
Where a shareholder transfers his equity to a person other than a shareholder, he shall notify the other shareholders in writing of the quantity, price, payment method and time limit of the equity transfer, and the other shareholders shall have the right of first refusal under the same conditions. If a shareholder fails to reply within 30 days from the date of receiving the written notice, it shall be deemed to have waived the preemptive right. If two or more shareholders exercise the right of first refusal, they shall negotiate to determine their respective purchase ratios; if they fail to negotiate, they shall exercise the right of first refusal in accordance with their respective proportions of capital contribution at the time of transfer.
Where the articles of association provide otherwise for the transfer of shares, such provisions shall prevail.
legal analysis
According to Article 71 of the Company Law before the amendment, the external transfer of equity requires the consent of other shareholders and the exercise of the right of first refusal by other shareholders. If a shareholder transfers his or her shares to an external party, he or she is required to give two notices to the shareholder regarding the transfer, I .e. to solicit the consent of other shareholders to the external transfer and the same conditions for other shareholders to exercise their right of first refusal, and the other shareholders are required to respond twice. When only more than half of the shareholders agree to the external transfer of equity, the preemptive right of other shareholders will be generated, and the shareholders who have the right to exercise the preemptive right include the shareholders who agree to the external transfer. Since other shareholders can exercise the preemptive right regardless of whether they agree to the transfer or not, it is the other shareholders who ultimately determine whether the shareholders can transfer their equity to the outside world.
At the same time, the dual restrictions of "consent" and "right of first refusal" have created many difficulties in practice: first, according to the rules, other shareholders have the right of first refusal whether they agree to the transfer or not, leading some shareholders to abuse their negative votes to prevent the transfer from being detrimental to themselves. Second, the definition of the right of first refusal under the same conditions is not clear, resulting in the lack of uniform discretion standards in practice. Third, if the articles of association set some stringent restrictions on the transfer of shares, it will lead to a conflict between the autonomy granted by law to the articles of association and the freedom of transfer of shares. In addition, the double restriction system results in shareholders having to give two notices on the transfer of shares, which is twice the ex ante transaction costs.
In addition, if more than half of the shareholders do not agree to the external transfer of shares by the shareholder, the shares should be purchased, but the law is not clear as to whether the purchase procedure also applies to the preferential purchase rule. Because the procedure of the provision is complex and not clear enough, there are many different understandings of the application of the provision in practice, resulting in a large number of disputes. In practice, shareholders, lawyers, and judges almost all tend to skip the shareholder consent process and directly apply the preemptive right rule. From the point of view of comparative law, there are three modes of restrictions on the transfer of shares of closed companies: first, the consent or recognition of the company, shareholders or the board of directors. Both procedures can realize the protection of human equity by agreeing or exercising the preemptive right, but the agreed procedure has stronger protection of human equity, and the company, the majority shareholders or the board of directors can decide whether the shareholders can transfer their equity to the outside world. Under the preemptive right rule, other shareholders cannot decide whether the shareholders can transfer their equity to the outside world, and they can only exercise the preemptive right.
However, the consent procedure is complicated. If the company, shareholders or the board of directors does not agree with the external transfer of shareholders, it is necessary to designate a specific entity to purchase the equity to be transferred. At this time, the price paid by the transferee is not the price to be transferred by the transferor, but the objective price after evaluation, which is unfavorable for the transferor to recover the investment through the transfer of equity. As a kind of property right, the transfer of equity shall abide by the principle of autonomy of private law, and the freedom of equity transfer can realize the value of equity, thus facilitating the company to raise funds from investors, therefore, in the value order, the value of equity circulation should take precedence over the value of the protection of human nature.
To sum up:Article 84 of the new "Company Law" simplifies the procedures for external transfer of shareholders, cancels the requirement of shareholder consent, changes the consent procedure to the notification procedure, only retains the preemptive right rule, and changes the consequences of other shareholders not replying to the notice within 30 days From "deemed to agree to transfer" to "waive the preemptive right", and allows exceptions to be made in the company's articles of association to fully protect shareholders' free agreement on equity transfer. At the same time, Article 84 of the new "Company Law" inherits the proper meaning of "equal conditions" in the "(IV) for Judicial Interpretation of the Company Law", by setting out the specific matters notified in writing at the time of equity transfer, that is, the quantity, price, and payment of the equity transfer The method and time limit, etc., indicate that the "equal conditions" should also take into account the above factors. Through the form of legislation, the elements of judicial interpretation are absorbed into the new company law, which makes the normative system of shareholders' external equity transfer more clear and rigorous. Therefore, the biggest impact of the adjustment of this rule on shareholders is that the shareholders of a limited liability company can be more "free" in and out of the company, and the liquidity of "capital" among investors is stronger, which improves the convenience of equity transfer, encourages investors' enthusiasm for foreign investment, and solves the "worries" of investors, This is the significance of this revision and adjustment.
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