The Effects And Resolutions Of Pre-emptive Right On The Transferability Of Shares In LLC

Abstract: The pre-emptive right, as a limitation of the transferabilityof share, reflects the conflicts between different featureas, namely thetrust-based relationship and capital-based relationship, in the LLC. Thenature of share is a right to claim specific conduct of another party inthe same legal relationship and the nature of delivering a share is aquasi-conduct that delivers property right.Many countries stipulate the pre-emptive right in their Company Code,so does China. However, the articles involving pre-emptive right in China2005Company Code are defective.The pre-emptive right consists of four individual right, that is, theright to maintain the status as a right-owner, the right to request theshareholder to inform the transfer of share, the right to enter into acontract by force and the right to receive the share prior to thenon-shareholder.The shareholders should exert the pre-emptive right when they becomeas shareholders, this is also the time when the pre-epmtive right emerges.The time limit of exreting this right falls into the power of legislation,no more theoretical discussion necessary. The contract between shareholders and the non-shareholders is valid.And the bona fide auquisition is unable to be applied under this conditiondue to the preferred protection of the trust-based relationship in LLC.The“same condition” means not only the price to purchase the share, butalso the time, place and the way to perform this contract.Whether thepre-emptive right should be exerted partly is actually a question thatwhether the pre-emptive right should be segmented to be exerted. Theanswer is not unique. The best solution is to confirm to the intentionof transferor.As to exercise the pre-emptive in the compulsory process guided bycourt, the articles in the China2005Company Code and relating regulationis rationale.However, some measurements to avoid unfair conducts inpractice are essential.