A Legal Study On The Influence Of Limited Liability Company’s Charter On Restricting Equity Transfer

A limited liability company has been favored by investors, for it has fewerstakeholders and less regulated by law. It has become an important part of marketeconomy. Since the restrictions on the equity transfer of limited liability companiesaffect the fundamental interests of the shareholders, it has been an issue in the field ofacademic circles and also gives rise to many disputes in practice. Though theCompany Law was revised in2014, which makes the equity transfer be limited fromlegally to autonomously, there is still a lot of controversy. Based on Paragraph4ofArticle71of the Company Law, which admits that under the circumstance that thecharter of the limited liability company has restrictions on equity transfer, this articleanalyses controversial issues on equity transfer, both in theory and in practice. It alsodraws on the experience of other countries, uses comparative analysis and empiricalanalysis and gives suggestions on some representative ways to make the charter limitequity transfer in our country.This article analyses some existing issues in juridical practice of equity transfer,including the conflicts between the autonomy of company charter and the freedom ofequity transfer, how to protect the interests of the minority stakeholders under thecapital majority decision rule, and the validity of the dispose of equity once violatethe company’s charter. Since objective circumstances and changes and differentjudiciary may take different approaches, similar cases may have different verdicts. Itnot only damages the legal interests of stakeholders but also hinders juridical justice.Although there are some problems in juridical practice, the law still affirms thelegal status of company charter in restricting the equity transfer, which is based oncertain theoretical bases: first, limited liability companies attach great importance onmutual reliance and cooperative relationship between the stakeholders, which can beseen as a foundation of solidarity. The collaboration of human resource plays animportant role. It is the key why limited liability companies exist as well as a legalfoundation for other characteristics. Second, the company’s charter is autonomous. It encourages company to make its personalized internal mechanism based on its needsand the interests of its stakeholders to improve the company, enhance itscompetitiveness and better protect its trade secrets. Third, it shows the conjunctionbetween supplementary standards and the freedom of charter amendments. Thestakeholders can make limited rules on equity transfer in addition to statutoryconditions, as long as they do not violate the compulsory provisions and basic rules.It is also a need to balance the interests of different stakeholders. Reasonable equitytransfer provisions are preventative rules to avoid dispute after the transfer and toprevent the transfer party from willfully transferring the equity and causing damage tothe company or other interest relevant parties.In the affirmation of regulations on company charter, this article analyses thelegal validity of different charters. By using judgment analysis method, it makes acomprehensive comparison on the views of our country’s theory circle and practicalcircle, practices from other countries and analyses the representative cases, which isthe validity on forbidding equity transfer, forcing equity transfer and modifying thecharter after equity transfer, considering the company’s will of autonomy, the featureof equity and the interests of the company.In the last part of this article, suggestions are made on how limited liabilitycompany’s charter can better restrict equity transfer based on the previous analysis.Under the company’s charter, the country can give proper state intervention. However,state intervention and company autonomy are not alternative. They should worktogether. The Company Law serves the legal guiding function of the law. It protectsthe company’s charter and its autonomy right. Both legally and institutionalsuggestions are given specifically from the perspectives of building the legalautonomy boundaries, establishing the standards of juridical review and protectingminority stakeholders and considering the latest legislative reform and cases fromother countries.