Analysis On Pre-emption Rights Of Limited Liability Company Under The Indirect Equity Transfer Model

Indirect equity transfer model refers to the transaction mode that indirectly obtains control rights of the underlying company by acquiring the equity of the parent company in the case of a multi-tier parentsubsidiary company.This trading model can avoid the pre-emption rights of other shareholders of the target company effectively.It has become a major concern of protecting the target company’s shareholders’ right in indirect acquisitions in today’s academic and judicial practice in case of the rules or provisions of pre-emption rights in the indirect equity transfer mode have not been enacted in China.In this paper,the question of whether shareholder can claim the preemption rights in the indirect equity transfer is derived through the introduction of the case of Bund No.8-1.Then the paper analyzes the basic nature of the pre-emption rights which is the right of formation.The paper also explicit Article 71 of the Company Law in China belongs to suppletory or default rules instead of mandatory rules.Afterwards,the paper analyzes the legal force and autonomy scope of the articles of association and shareholders’ agreement regarding the pre-emption rights based on interpretation of Article 71(4)of the Company Law in China,in order to come to the conclusion that shareholders of project company can protect their pre-emption rights in the indirect equity transfer mode by setting the term of change of control.Furthermore,this paper comes to the conclusion that pre-emption right cannot be applied to indirect equity transfer if there are not special stipulations in the articles of association or shareholders’ agreement by combining the exploration of the comparative law and case.Finally,this paper concludes the remedy of pre-emption rights in indirect equity transfer for reference in judicial practice based on the summary of the remedy of the pre-emption rights in direct equity transfer on former different conditions.