The Study On Equity Incentive In Private-hold Company

Equity incentive is a very effective incentive mechanism in company.Equity incentive is a kind of long-term incentive with stocks to mark which is for the directors,supervisors and senior management personnel and other employees of the company.According to different criteria,the classification of equity incentive is various.Principle-agent problem is the theoretical basis of management equity.Human capital theory is the theoretical basis of ESOPs.Compared with the equity incentive implemented in public-hold companies especially in listed companies,legal issues relating to the equity incentive in private-hold companies have not raised people's concern.In the second part of this paper,the necessity of equity incentive implemented in private-hold companies is discussed from two perspectives.Fist of all,by comparative research on the two kind of company formulated in the company law,the necessity is justified.Then from the perspective of infeasibility of human capital as capital contribution such a necessity is justified.In the third part of this paper,four legal issues on equity incentives implemented in private-hold company are discoursed from the perspective of the theory of legal hermeneutics. The first legal issue is the source of equity stake.Issuing new shares to incentive objectn share repurchase,reserving shares when company is established and transferring shares by controlling shareholders are options.The second legal issue is the necessity of transferring partial equity power.The third legal issue discoursed in this part is about the upper limit of the number of shareholders.Through the analysis of article 24 in the company law,we can conclude that 50 is not the upper limit of the number of shareholders during the period of company operation.In practice registrar of Companies may refuse such a case which can be solved by voting trust.The fourth legal issue discoursed is on the effectiveness of equity transferring contract.Meanwhile the time when stock rights change is discoursed.The last but not least legal issue is on the incentive object's dropping out of company.Share repurchase is a feasible idea.Corresponding to the four legal issues discoursed above,some proposals are putting forward in the last part of this paper.These resolving measures are as follows.The legal nature of equity incentive should be given explicit provision:Transferring partial power of equity should be given explicit provision:The upper limit of the number of shareholders in private-hold company should be removed:The effectiveness of equity transferring contract should be given explicit provision:The situation where equity repurchase is feasible should be given explicit provision.