Under the new "Company Law", the target company must be brought with you when signing an equity transfer agreement!

Author: Qi Jingzhi

Source: House of Justice

The Company Law of 1994 and the Company Law of 2005 are not clear on the mode of equity change, and neither of them stipulates the point of obtaining the qualification of the transferee shareholder in the equity transfer. Lawyer Qi Jingzhi reminded that the 2024 Company Law stipulates that only the effect of debt occurs after the equity transfer contract takes effect, and the transferor has the obligation to request the company to recognize the transferee as a shareholder to achieve the purpose of the contract; The new company actually adopts the theory of "company recognition effectualism equity change model" of Mr. Li Jianwei, and I pay tribute to Mr. Li Jianwei. That is to say, in the equity transfer, the company is no longer to perform procedural obligations such as changing the register of shareholders, commercial registration, and recording in the articles of association, but can enjoy the substantive right to determine whether the transferee can obtain shareholder qualifications, so the target company must be included as a party to the contract in the future equity transfer agreement.

This article is not shallow, and the analysis is as follows:

1. Before the establishment of a new company, in the transfer of equity, the Company Law does not clearly stipulate when the transferee will acquire the equity, which leads to various times when the court determines the acquisition of equity in practice.

1. After the equity transfer contract takes effect, the transferee's shareholder qualification shall be obtained from the date when the transferor or the transferee notifies the company of the fact of equity transfer.

Opinions of the Higher People's Court of Shandong Province on Several Issues Concerning the Trial of Corporate Dispute Cases (for Trial Implementation) 35. After the equity transfer contract takes effect, the transferee's shareholder qualification shall be obtained from the date on which the transferor or the transferee notifies the company of the fact of the equity transfer. However, the equity transfer contract has special provisions on the transfer of equity, or the equity transfer contract is invalid, revoked or dissolved.

If a shareholder transfers the same equity multiple times, the people's court shall determine that the transferee who has obtained the industrial and commercial change registration has the qualifications of a shareholder. If a shareholder transfers the same equity multiple times and fails to go through the formalities for changing the industrial and commercial registration, the equity transfer notice shall arrive at the company's transferee first to obtain the shareholder qualification.

2. After the equity transfer contract is established and takes effect, the effect of equity change shall occur when the company recognizes the qualification of the new shareholder.

Guangxi High Court | Guidelines for the adjudication of several issues concerning the trial of corporate dispute cases 》18.[Judgment on the time point of equity change] After the equity transfer contract is established and takes effect, the effect of equity change shall occur when the company recognizes the qualification of new shareholders, except for equity transfers that are subject to approval procedures as stipulated by laws and administrative regulations. The principle is that equity is mainly a relative right, a kind of human rights rather than property rights, and must be specifically claimed to the company or other shareholders, so the equity transferee should substantially enter the legal relationship of capital contribution with the company and other shareholders, and should go through the knowledge or confirmation of the company and all shareholders, so that the transferee can fully obtain the membership of shareholders, fully exercise equity rights and assume shareholder obligations.

In this case, the time of change should be taken as the time when the company confirms the equity transfer. The specific time point is generally when the company begins to change the company's shareholder register, change the items recorded in the company's articles of association, go through the registration of industrial and commercial changes, issue a capital contribution certificate to the new shareholder, etc., or if the new shareholder has in fact begun to exercise the rights of shareholders in a case, it can also be regarded as the company's confirmation of the membership of the new shareholder, and this is the time point of equity change.

Although the change of the company's register of shareholders is not the only point in time or formal requirement for the effect of the change in equity, if the name or title of the equity transferee has been recorded in the company's register of shareholders, it can be determined that the transferee has acquired the equity.

3. In the transfer of equity in a limited liability company between the parties, the transferee claims that it has acquired equity on the ground that its name or title has been recorded in the register of shareholders.

8. [Changes in Equity of Limited Liability Companies] Where the parties transfer the equity of a limited liability company, and the transferee claims that it has acquired the equity on the ground that its name or title has been recorded in the register of shareholders, the people's court shall support it in accordance with law, except for the equity transfer that laws and administrative regulations provide shall go through approval formalities to take effect. If the company fails to register the change of equity with the company registration authority, it shall not confront the bona fide counterpart.

4. When the company recognizes the transferee as a new shareholder with meeting minutes and other documents, the equity transferee obtains the shareholder qualification.

Understanding and application of the Minutes of the National Work Conference on Civil and Commercial Trial of Courts: It should be noted that although the Company Law clearly requires that a limited liability company shall maintain a register of shareholders, the management of some companies in current practice is not standardized, and there are situations where the register of shareholders is virtually non-existent or even does not have a register of shareholders. In view of this reality, considering that the purpose of the change in the shareholder register is to formally recognize the fact that the company officially recognizes the equity transfer, in trial practice, it can be determined whether the shareholder register has been changed according to the actual circumstances of the case.

In the absence of a standard register of shareholders, the relevant corporate documents, such as the articles of association and meeting minutes, can have corresponding effect as long as they can prove that the company recognizes the transferee as a new shareholder.

2. The New Company Law stipulates that "the transferee may claim the exercise of shareholder rights against the company from the time it is recorded in the register of shareholders", which actually adopts the theory of Mr. Li Jianwei's "Company Recognition of the Effectiveness Doctrine Equity Change Model", and the company has the right to examine whether the transferee can become a shareholder.

1. In the case of equity transfer, the transferee may claim the exercise of shareholder rights from the company from the time it is recorded in the register of shareholders.

Article 86 of the 2024 version of the Company Law stipulates that if a shareholder transfers his or her equity, he or she shall notify the company in writing to request a change in the register of shareholders, and if it is necessary to go through the change registration, he shall request the company to go through the change registration with the company registration authority. If the company refuses or does not reply within a reasonable period of time, the transferor or transferee may file a lawsuit with the people's court in accordance with law.

In the case of equity transfer, the transferee may claim the exercise of shareholder rights against the company from the time it is recorded in the register of shareholders.

2. Mr. Li Jianwei's theory of "the company recognizes the effectual equity change model".

After the equity transfer contract takes effect, only the effect of the debt will occur, and the transferor has the obligation to request the company to recognize the transferee as a shareholder to achieve the purpose of the contract;

(1) It is conducive to safeguarding the interests of the company and other shareholders

However, based on the characteristics of a limited company, in practice, the credit and asset status of shareholders are important credit guarantees for the company's operation. Poor shareholder credit will reduce the company's credit and increase external transaction costs. Therefore, if the change of equity is completely decided by the parties to the transaction, it may harm the interests of the company, other shareholders and creditors of the company. For example, a shareholder who has made overdue capital contributions becomes a controlling shareholder by transferring the equity of other shareholders at a low price, and then modifies the capital contribution period to evade the performance of the company's capital contribution obligations. "Subject to the collective property theory, the company is only the object of the shareholder's instructions, and cannot complete the protection of the company's property through the right of action, etc., which in turn leads to the inability to obtain relief when many corporate assets are hollowed out by the controlling shareholder or insiders under multiple entities. "To this end, the board of directors shall examine on behalf of the company and require the shareholders to perform their capital contribution obligations in advance or offset the outstanding capital contributions with the equity transfer proceeds, otherwise the equity transfer shall not be recognized; Under the adversarial mode of recognition, the transfer contract takes effect, the transferee acquires the equity, the transferor recovers the investment, and the notified company can only recognize the transferee's shareholder status. As a result, the company has no choice but to act to the detriment of the company, other shareholders or creditors through the transfer of shares. Under the model of corporate recognition validity, the company's refusal is a legitimate move to protect its own interests, which can indirectly protect the interests of other shareholders and creditors. As for how to deal with the dispute between the two parties to the transfer, it has nothing to do with the company. After the company refuses, the transferee can only claim the liability for breach of contract against the transferring shareholder, which is conducive to urging the transferor to implement the equity transfer in accordance with the law and the articles of association, and does not harm the interests of the company and other shareholders on the premise of maintaining the freedom of transfer. Some scholars have summarized the legitimacy of this arrangement as follows: "Whether the equity transfer is decided by the individual or the company is a matter of corporate autonomy, and the consent of the individual should not be compelled by law". There is a lot of truth to that.

(2) Better balance the interests of both parties to the transfer

On the one hand, the adversarial model of recognition gives the transferee the right to confront the company, and on the other hand, it still regards the transferor as a shareholder, which is easy to induce dishonest behavior. For example, if the transferee has paid the price but is not considered a shareholder by the company, the transferor is prone to collude with the company to damage the interests of the transferee. In addition, under the adversarial model, the transferor is not liable for breach of contract because it has fulfilled the obligation of equity transfer, which is not conducive to the protection of the interests of the transferee. Under the effective recognition model, the transferor has the obligation to request the company's approval to the transferee, which realizes the internal and external unity of the effect of equity changes. In order to maintain a certain check on the assignor, the assignee will carefully decide to pay the price according to its conduct. If the transferee fails to obtain the status of a shareholder as desired, the transferor will be held liable for breach of contract. In short, the recognition of the effective doctrine strengthens the certainty of the effect of equity changes, which is conducive to the stability of the identity of the transferee shareholder, prevents duplicate disposal, and ultimately reduces transaction costs.

and (3) the occurrence of a bona fide acquisition of structural elimination equity

One of the important values of establishing the company's dominant position in equity changes and independent participation mechanism is to obtain the so-called equity in good faith, and the drawbacks of "real right resolution of disputes between shareholders" will be greatly eliminated. According to the provisions of Interpretation III of the Company Law, there are two types of circumstances in which the equity of a limited company is acquired in good faith, one is the disposal of the equity by the nominee shareholder (Article 25), and the other is the "resale of one share", which refers to the situation that "after the transfer of equity, the original shareholder will still be registered in the name of the original shareholder if the change of registration has not been completed with the company registration authority after the transfer of equity". This kind of bona fide acquisition is the most theoretically questioned and cannot be justified by positive law. If the company adopts the effectivist model of the company's approval, every equity change cannot bypass the intention of the company, an independent entity, to participate, and the bona fide acquisition of "one share and then selling" will naturally not occur. This is because the space for the latter buyer to constitute subjective good faith no longer exists. As for the disposal of equity by the nominee shareholder, the buyer's good faith cannot be established, at least in the case of "incomplete anonymity" with the company's knowledge. As a result, the bona fide acquisition of equity will be structurally dissolved. This is of great value for reducing equity transfer disputes, maintaining the business order of the limited company, curbing dishonest equity transfer behavior, and purifying market ethics.

3. Before the new company, the subject of the equity transfer agreement is the transferor and the transferee. After the new company, the subjects of the equity transfer agreement are the transferor, the transferee and the target company.

When the equity transfer agreement lists the target company as a party to the equity transfer agreement, it has also fulfilled the obligation to notify the target company of the equity transfer, and it may be stipulated in the equity transfer agreement that the target company undertakes to issue a new register of shareholders to the transferee within 3 days after the transferor receives the equity transfer money, and complete the industrial and commercial change registration within 7 days, so as to completely and fully protect the legitimate rights and interests of the transferee.

To sum up, after the new company law, only the effect of debt occurs after the equity transfer contract takes effect, and the transferor has the obligation to request the company to recognize the transferee as a shareholder to achieve the purpose of the contract;