Study On The Restriction On Transfer Of Shares In Close Corporation

The rule that some restrictions should be imposed on the transfer of shares, is one of the special needs for close corporation, since it combines certain characteristics of both unlimited company and the publicly-held corporation. Though the active company law of the People's Republic of China has set down some provisions to regulate what and to what extent should these restrictions be, still there are many questions and disputes not only from the companies, but also from the scholars, and even from the judges. Therefore the study on this project is of great theoretic and practical value.Restrictions are adopted to settle the problems posed by free transferability of corporation shares, which are impediments to the wishes of close corporation participants to control the identity of new shareholders, to preserve an existing balance of power, or to assure that there will be a way to disinvest themselves, even though there is no active market for shares of their company. To achieve foregoing objects, many countries lade down in the company law directly or empower the corporations to create one or more of such restrictions: rights of first refusal, first options, consent powers, buyback rights and buy-sell arrangements. According to article 35 of Company Law of P.R.C., Shareholders may transfer among themselves all or part of their capital contributions. Where a shareholder transfers its capital contribution to a person other than a shareholder, the consent of more than half of all shareholders shall be required. A shareholder objecting to such transfer shall purchase the capital contribution to be transferred and such shareholder is deemed to have agreed to the transfer if he does not purchase the capital contribution. For a transfer of capital contribution which is transferred with the consent of the shareholders, other shareholders have a pre-emptive right to purchase it on the same conditions.These regulations have been important guidance to company practice, but some of them are irrational and still many important problems are left untouched. So, at the end of this paper, some reconstruction advice will be set out, which are based on both chinese practice and other countries' legislation.