New Shares Pre-emption Rights Research

As a major shareholder right, preemptive right is the priority right for existing shareholders to proportionally purchase newly-issued shares. Through the theoretical studies of the concept, characters and classification of the shareholder’s preemptive right, the quest for its empirical and juristical foundations, and the comparative studies of its precedents and theories abroad, this paper seeks to put forward practical methods for exercising preemptive right, and tries to establish a remedy system, hoping to provide helpful practical and theoretical references for China’s lawmaking in such area.This paper is divided into four chapters in addition to the Introduction and the Conclusion.Chapter One mainly seeks to discuss the basic theories of shareholder preemptive right, including the intension, extension, characters and classifications of its concept. The intension of shareholder preemptive right refers to when a company limited by shares issues new shares, based on their status in such company, the shareholders are entitled to the priority in buying new shares, in proportion to the shareholders’original shareholding. Judging from the intensions of the law makers and the shareholders’goals when exercising such right, as well as such right’s objective results, preemptive right holds the characters of beneficial rights, and more importantly also of procedural rights. Among which abstract preemptive right is one kind of expectant rights; material preemptive right is one kind of formation rights. According to different ways of classification, preemptive right can be classified into:preemptive rights defined by regulations, by Articles of Associations, and by corporation organs; limited preemptive rights, unlimited preemptive right; normal preemptive right, specific preemptive right.Chapter Two is the analysis of preemptive right both empirically and juristically. The main content of preemptive right is the priority enjoyed by the shareholder when buying new shares. The reasons in regulating such right include the prevention of the shareholders from the dissolution of their financial interest in the company; also the prevention of company from major change in its governing structure. Between the stability of the company’s inner governance, and the efficiency in capital raising, the preference in the former is the fundamental legal basis of the establishment of the shareholder preemptive right.Chapter Three discusses the legal application of preemptive right, including its endowment and limitations, namely the further elaboration on balancing the interest between shareholders and the company; also the precedents abroad and the regulations of China’s company law. China takes a position of voluntarism on preemptive right legislation. To enhance the protection of the shareholders’preemptive rights, the principle of legality shall be embraced, consulting from the lawmaking experiences of Germany, France and South Korea, also inheriting from the traditions of China’s Company Law concerning preemptive right; except when particular circumstances occur for legitimate protection of the company’s interests, under which the shareholders’preemptive right can be ruled out by a Special Resolution of the General Shareholder Meeting.Chapter Four is about the excision and remedies of preemptive rights. Its excision includes the limitations on the qualifications of the buying shareholder, duration of buying, buying price, and the requirements for right transfer. When the preemptive right is breached, the legit interest of the damaged shareholder can be protected by exercising the right of claim for ceasing of new stock issuance, bringing a lawsuit for annulment or revocation of the Shareholder Meeting’s Resolution, or claiming damage from the Directors.