On Judicial Application Of The Rule Of Appraisal Right Of Dissenting Shareholders Of Limited Liability Companies

Since the 2005-year revision,the Company Law of the People's Republic of China,has introduced the system of appraisal right of dissenting shareholders to regulate the interest relationship between majority shareholders and minority shareholders so as to avoid "majoritarian tyranny".However,Article 74 of the Company Law has not establish concrete provisions on the conditions and procedures of the exercise of appraisal right of the dissenting shareholders,and the company's liability for the illegal repurchase.Therefore the 2005-year Company Law failed to establish a complete and independent appraisal right system of dissenting shareholders of Limited Liability Company.The current legislation remains too simple compared with the legislation of other advanced countries.In recent years,with the development of the economy and society,the judicial application of the rule of appraisal right of dissenting shareholders has shown a gradual increasing trend,but the results of empirical study show that the success rate of the shareholders' requests are not high,and in practice,the scope of the appraisal right of the shareholder is not clear.The number of cases that support the repurchase request of the shareholders under extra-legal conditions is increasing and even higher than the cases caused by statutory conditions in some provinces.The inconsistency in interpretations of statutory reasons,applicable conditions,statutory procedures and reasonable repurchase price by courts has caused many different judgments in the same kind of cases.Therefore,although the minority shareholders possess the appraisal right in the legal sense,they faced great hinderance in fulfilling it which includes that the interpretation standards of "company merger" "company division" "transfer of major assets of the company" are not clear and wethermodifing the articles of association in purpose of extending the duration of the company before it expired is a repurchase condition prescribed by the Article 74 of the Company law is not sure.The inconsistent interpretations of the statutory reasons and procedures for exercising the appraisal rightr have caused many different judgments in the same kind of cases which led to the widespread misuse of the Article 74 in judicial practice.The purpose of introducing the appraisal right system of dissenting shareholders is to provide minority shareholders with a protection so that they could successfully withdraw from the company and maintain their own interests when the company makes a resolution that is contrary to their wishes.And to make the system work effectively,the law must clarify the standard of exercising the right and provide a clear explanation of the scope of the right-holders and the statutory causes of the right.For that purpose,how to interpret this article becomes the key point to solve the problems in practice.To tackle this problem,the judge should insist the standard of "prohibit in principle and allow in exceptions" when deciding wether to allow the limited liability company to repurchase its own shares so as to prevent excessive expansion of the scope of the repurchase condition which would endanger the company's capital sufficiency and the interests of the creditors.Furthermore,the law should also establish an exemption mechanism for the company's repurchase obligations and provide clear standards in deciding the statutory causes of the appraisal right of the dissenting shareholders and the conditions for the dissenting shareholders to exercise the right.