Company Law
Clarifications of Certain Applications
China Supreme Court issues forth the Interpretation
PART 2 (see PART 1 in January 2018 edition)
在上期，我们了解了《最高人民法院关于适用〈中华人民共和国公司法〉若干问题的规定（四）》有关在董事会决议以及股东会、股东大会决议的有效性方面、股东法定知情权方面、股东利润分配权方面所作出的规定。本期我们将着重了解优先购买权和股东代表诉讼有关的法律适用问题。
有限责任公司具有较强的人合性，股东之间基于相互信任而共同投资。为此，公司法规定，股东向公司股东以外的人转让股权时，其他股东享有的在同等条件下优先购买转让股权的权利。这是股东维护其人合性利益的主要法律依据。为此，《规定（四）》一是细化了行使股东优先购买权的程序规则。二是明确了股东优先购买权的行使边界和损害救济制度。股东优先购买权制度的立法宗旨，在于维护公司股东的人合性利益，而非保障其他股东取得转让股权。据此，《规定（四）》第二十条规定，有限责任公司的转让股东在其他股东主张优先购买后又不同意转让的，对其他股东优先购买的主张，人民法院不予支持，亦即其他股东不具有强制缔约的权利。同时，为了防止转让股东恶意利用该规则，损害股东优先购买权，《规定（四）》第二十一条明确规定，转让股东未就股权转让事项征求其他股东意见，或者以欺诈、恶意串通等手段，损害其他股东优先购买权的，其他股东有权要求以实际转让的同等条件优先购买该股权。
在完善股东代表诉讼机制方面，一是明确公司法第一百五十一条涉及两类不同诉讼。二是完善了股东代表诉讼机制。公司法第一百五十一条第二款、第三款规定了股东代表诉讼，但对于股东代表诉讼中的当事人地位、胜诉利益的归属、诉讼费用的负担等问题，没有规定具体的操作规则。《规定（四）》第二十四、第二十五、第二十六条分别就这三个方面的问题作出了规定。
在当前的经济形势下，《规定（四）》的公布实施，对于维护股东权利，协调股东与公司的关系，推动公司法人治理机制的进一步完善，营造良好的营商环境都具有重大意义。
On August 25th, 2017, China’s Supreme People’s Court (the “SPC”) issued the Provisions on Certain Issues Concerning the Application of the Company Law of the People’s Republic of China (IV) (“Interpretation IV”), which came into effect on September 1st, 2017. The release of Interpretation IV is aiming to unify the application of laws and provide guidance on litigated disputes in relation to the validity of corporate resolutions, shareholder’s information rights, dividend rights, right of first refusal and shareholders’ derivative lawsuits. This article intends to give a brief summary about the guidance adopted in the above areas and the corresponding implications on related parties.
IV. Right of First Refusal
According to the Company Law, when a shareholders of a limited liability company seeks to transfer its equity interest to a third party, under equivalent conditions, the other shareholders of the company shall have the right of first refusal on said equity interest, but the Company Law does not stipulate the detailed notification procedure, methods, time limit and remedies for the exercise of right of first refusal. Interpretation IV supplements this general rule by providing more detailed operative provisions:-
- Factors of equivalent conditions shall include quantity, price, payment method, payment period, etc. of the transferred equity interest. When the transfer of equity interest is through auction or the transfer of equity interest of a state-owned limited liability company is made in a property rights exchange, factors of equivalent condition could be interpreted by corresponding laws and judicial interpretations or the trading rules set by the property rights exchange.
- Transfer notice could be in written form or other reasonable methods that are able to acknowledge the receipt need not be limited to written form. When the transfer of equity interest is through auction or the transfer of equity interest of a state-owned limited liability company is made in a property rights exchange, the notification formality could be interpreted by corresponding laws and judicial interpretations or trading rules could be set by the property rights exchange.
- The exercise period of the right of first refusal shall be determined by the articles of association or transfer notice if articles of association have not prescribed the exercise period or the provisions are unclear. In any case the minimum time limit for the exercise of the right of first refusal is 30 days.
- Unless otherwise stipulated in the article of association or agreed by all the shareholders, the shareholders who intend to transfer the equity interest can discontinue the sale after other shareholders exercise the right of first refusal but the said shareholder will be liable for compensating losses reasonably caused to the other shareholders who exercise the right of first refusal.
- The people's court shall uphold the claim of shareholders who claim to purchase the equity in question under the same conditions due to the fact that their right of first refusal has been infringed by other shareholder(s), unless such shareholders fail to make such claim within 30 days of knowing or within 30 days since they should have known such equivalent conditions for the right of first refusal or, one year has passed since the change of registration of the equity in question. Interpretation IV grants the third party transferee right to claim for civil liability against the transferor if the goal of the contract is unable to achieve in the event the exercise of right of first refusal is upheld by the people’s court.
- Interpretation IV supplements Article 71 and Article 75 by providing unless otherwise provided by the articles of association of the company or agreed by all shareholders, the right of first refusal shall not be applicable to the scenario where a natural-person shareholder of a limited liability company is changed due to inheritance relationship.
V. Derivative Suits
The Company Law generally provides that under certain circumstances, shareholders of a company are entitled to petition the supervisors or directors of a company, on behalf of the company, to bring a suit against directors, supervisors, senior management personnel who violate laws, regulations or articles of association and cause losses to the company. If the directors or supervisors reject or fail to take action within thirty days where the failure will cause irreparable damage to the company, the requesting shareholder may bring the corresponding suit on its own name.
Interpretation IV clarifies several procedural issues in relation with such kind of lawsuit. It confirms that:-
i. If the directors or supervisors are subjects who bring the derivative suits, the company shall be the plaintiff; and
ii. If the shareholder directly files lawsuit against the directors, supervisors or senior management personnel on its own name, the company shall be listed as the third party. In such case, financial interests resulting from the derivative suit shall belong to the company itself and the company shall compensate the reasonable costs of the shareholders.
VI. Conclusion
It is obvious that the issuance and implementation of Interpretation IV will provide more certainty for legal implementation as well as judicial enforcement in practice. Also, it will have long-lasting positive impact on protecting shareholders’ legitimate rights, improving the management mechanism of the company and creating good business environment. The relevant parties shall review the articles of association and shareholders agreements to evaluate whether the said legal documents shall be further modified to optimize the terms in relation to written resolutions, right of inspecting the account book when the shareholder being competitor of the company, liability of producing and maintaining the corporate documents, right of first refusal for share inheritance, revocation right of the transferor when the other shareholders exercise the right of first refusal. Though some concepts set forth in Interpretation IV are still relatively general, it may be further clarified by the leading cases released by SPC from time to time. Besides, implementation regarding the validation of board resolution of sino-foreign equity joint ventures and sino-foreign cooperative joint ventures remain uncertain, which is subject to SPC’s further interpretation or leading cases announced by the SPC.
