A limited company is a combination of human and financial cooperation. At the beginning of the establishment of a company, the shareholders usually sign an investment agreement to stipulate the rights and obligations of each party, including a "trust clause" in which one of the shareholders has special rights in terms of dividends, voting, etc. Shareholders sign the "trust clause" to enhance their investment confidence and ensure that the investment purpose is ultimately realized, so the legitimacy and legitimacy of the "trust clause" are particularly important.
In this case, Qihoo 360 signed an Investment Agreement with other shareholders and the target company prior to the investment, stipulating that it had the "right of veto". However, when the agreed equity transfer occurred, Qihoo 360 was unable to protect its legitimate rights and interests through the jointly confirmed "one vote right", and ultimately could neither effectively exercise the right of first refusal, prevent the relevant parties from transferring the equity, nor obtain compensation from the defaulting party.
Keywords: one-vote veto, trust clause, charter agreement, rights remedy
Case: (2014) Hu Er Zhong Min Si (Shang) Zhong Zi No. 330 Dispute over request for change of registration of the company
The company was registered and established on March 21, 2011 by the Yangpu Branch of the Shanghai Municipal Administration for Industry and Commerce, and the registered and paid-in capital of the company was 100,000 yuan at the time of its establishment, of which: Hu subscribed and paid 60,000 yuan, Li subscribed and paid 40,000 yuan, and the legal representative of the company was Hu.
In June of the same year, Qihoo 360 Company, as Party A, Laoyouji Company, as Party B, Hu and Li, an outsider to the case, as Party C, jointly signed the Investment Agreement, stipulating that all parties to the agreement agreed and confirmed that Party A would contribute 3.5 million yuan in cash to subscribe for the company's new registered capital, accounting for 38% of the company's registered capital after the capital increase, of which 61,290 yuan would go into the company's registered capital and the rest would go into the company's capital reserve. After the capital increase, Party B shall set up a board of directors, which shall consist of three directors, Party A shall have the right to appoint one director, and Party C shall have the right to appoint two directors...... Party A has the right of veto to Party B to engage in the following acts: c) changes in the company's share structure or corporate form, including but not limited to: the company's financing plan, reorganization, ...... and the sale, transfer, pledge of any shares or the disposition by shareholders in any way of part or all of the equity in the company held by them. At the same time, the parties agreed on the liability for breach of contract and the address for service.
On June 13, 2011, Laoyouji Company formed a new Articles of Association in accordance with the Investment Agreement, Article 16 of which stipulates that the voting on the following matters shall be subject to the written consent of the directors appointed by the shareholder Qihoo 360 Company before they can be passed: (added here in accordance with the agreement).
On August 12, 2013, Hu, a shareholder, issued a Notice of Equity Transfer to Qihoo 360 Company and Li, an outsider to the case, to inform him of the transfer of equity, including the proportion and price of the equity transfer, but neither Qihoo 360 nor Li gave a written reply to Hu.
On September 27, 2013, Hu transferred 37.2% of the equity of Laoyouji Company, which he legally owned, to Jiang for a consideration of 100,000 yuan, and the next day, Jiang paid 100,000 yuan to Hu. However, the company failed to go through the registration procedures for equity change in time. Accordingly, Jiang filed a lawsuit with the court of first instance, requesting Laoyouji Company to cooperate in completing the industrial and commercial change registration procedures.
1. The validity of the "one-vote veto" clause in the Constitution
1. Legal provisions
China's Company Law clearly stipulates the establishment, organizational structure and equity transfer of limited companies, and at the same time, in some areas involving the field of corporate autonomy, shareholders are allowed to make special agreements on specific matters, that is, under certain circumstances, shareholders are authorized to make special agreements that are different from statutory provisions in the form of jointly formulating articles of association. This kind of authorized legal norm is generally expressed as "unless otherwise agreed in the charter".
Companies Act 2018
Article 71 [Equity Transfer] The shareholders of a limited liability company may transfer all or part of their equity to each other.
The transfer of equity by a shareholder to a person other than the shareholder shall be subject to the consent of more than half of the other shareholders. Shareholders shall notify other shareholders in writing to solicit consent for their equity transfer, and if other shareholders do not reply within 30 days from the date of receipt of the written notice, they shall be deemed to have agreed to the transfer. If more than half of the other shareholders do not agree to the transfer, the shareholders who do not agree shall purchase the transferred equity;
For the equity transferred with the consent of the shareholders, other shareholders have the right of first refusal under the same conditions. If two or more shareholders claim to exercise the right of first refusal, the right of first refusal shall be determined through negotiation, and if the negotiation fails, the right of first refusal shall be exercised in accordance with the proportion of their respective capital contributions at the time of transfer.
If the articles of association of the company have other provisions on the transfer of equity, follow those provisions.
2. The validity of the "trust clause" in the articles of association
The articles of association of the company are an important embodiment of the company's autonomy and human compatibility, and it is also the embodiment of the principle of good faith and the principle of autonomy of will among shareholders in the civil law. As long as the "trust clause" in the articles of association does not violate the mandatory provisions of the Company Law, the validity of the articles of association is generally recognized in judicial practice. Once this kind of "trust clause" is filed with the industry and commerce, it is not only binding between the company and shareholders, but also has the same binding force on third parties who can learn the relevant content through inquiry.
II. Reasons and Results of the Court's Adjudication
1. Is the "one-vote veto" included in the articles of association of Laoyouji?
Since the parties have only formed an Investment Agreement and no other agreement in the process of investing in the establishment of Laoyouji Company, the phrase "added herein according to the agreement" in Article 16 of the Articles of Association should be understood as adding the content of the Investment Agreement to this clause.
As far as the original shareholders of Laoyouji are concerned, the content of the articles of association "added here in accordance with the agreement" can be understood as the relevant content of Qihoo 360's exercise of the right of veto, and the relevant content of the Investment Agreement has been incorporated into the articles of association of Laoyouji.
2. What is the effect of the "one-vote veto" on shareholders?
In this case, the right of veto granted to Qihoo 360 on special matters, including the transfer of shares, was an important condition for Qihoo 360 to subscribe for the new capital, and this restriction was the result of negotiations between the parties based on their own interests and needs, and was in line with the true intention of the shareholders at that time, and did not violate the mandatory provisions of the Company Law, and should be deemed to be in line with the spirit of the company's shareholders' autonomy and its validity should be recognized.
3. Is it reasonable for Qihoo 360 to have the right of veto in this regard?
On August 12, 2013, prior to the transfer of equity, Hu issued notices to shareholders Qihoo 360 and Li respectively on the exercise of the right of first refusal, and although the notice did not ask Qihoo 360 whether it exercised the right of veto, Qihoo 360 did not reply or raise any objection to the transfer of the equity when it knew that Hu intended to transfer the equity and the object of the transfer, and was negligent in exercising its rights. Therefore, Qihoo 360's reason for refusing the equity transfer on the basis of the existence of a "one-vote veto" cannot be established.
4. Can the "one-vote veto" be effective against a third party, and should the equity transfer agreement continue to be performed?
Judging from the evidence in this case, Jiang fulfilled his duty of reasonable care in the transaction, and he and Hu entered into an equity transfer agreement at issue one and a half months after the notice of exercising the right of first refusal was issued, and transferred 37.2% of the equity of Laoyouji Company held by Hu at a price of 100,000 yuan with a capital of 60,000 yuan, and the price was reasonable, and Jiang had fulfilled his payment obligation.
However, from the perspective of people outside the company, it is difficult to understand the specific content of the "investment agreement" because they do not know the content of the "investment agreement". From the perspective of maintaining the security of commercial transactions, the principle of commercial appearance should be followed, and the trust interests of bona fide third parties should be protected, and the internal agreements between the shareholders of Laoyouji Company should not be used against bona fide third parties.
In the end, the court of second instance should recognize the validity of the equity transfer agreement at issue, and held that Jiang's application for continued performance of the agreement for industrial and commercial change registration should be supported.
3. Evaluate and analyze the legitimacy and legitimacy requirements of the "trust clause" based on cases
1. Special agreements are by no means "arbitrary agreements or capricious agreements"
Although the law authorizes shareholders to make special agreements, such agreements are by no means "arbitrary agreements", and must not violate the mandatory provisions of the law, and cannot break through the protective restrictions of the law, such as prohibiting equity transfer in disguise, exempting directors, supervisors and senior executives from non-compete obligations, and not agreeing to exclude shareholders' right to know.
In this case, the parties unanimously agreed on the "one-vote veto" of Qihoo 360, but this clause did not prohibit the transfer of equity and was not an invalid clause that broke the bottom line of the law, so the validity of the clause was determined in accordance with the law.
2. A remedy plan should be provided for the "trust clause" to enhance the legitimacy of the agreement
In this case, the court of second instance held that if Hu would always be locked in Laoyouji, it would be difficult to achieve Qihoo 360's original investment purpose when there was a conflict between the two parties and Laoyouji was not operating normally. Therefore, Qihoo 360's defense of refusal to perform was not recognized.
It can be seen that although shareholders may agree that a shareholder enjoys special rights in respect of special matters, such rights must not seriously harm the interests of other shareholders, nor may they be "indefinitely expanded", resulting in infringement of shareholders, or even the target company or a third party.
In order to prevent the trust clause from causing deficiencies or defects in legitimacy and legitimacy due to the lack of remedies, reasonable restrictions should be imposed on the "trust clause" and necessary remedies should be stipulated.
3. Comprehensively revise the articles of association in accordance with the "trust clause", and timely file for industry and commerce
In this case, after review by the court of second instance, it was confirmed that there was no other agreement between Qihoo 360 and other shareholders and the company, so that the content of the "agreement clause" quoted in the "Articles of Association" could be relatively clear, and finally the court confirmed the internal effect of the clause between the shareholders and the company.
However, it has to be said that it was precisely because the articles of association of the record did not expressly stipulate the content of the clause, so that the third party could not directly and accurately know the content of the "trust clause", so the court of second instance held that the shareholder Qihoo 360 Company could not use this to oppose the bona fide third party, and did not accept its defense, and finally supported the transferee.
4. The law does not protect those who sleep on their rights, neglect to exercise their rights, and bear adverse consequences
In this case, Hu, a shareholder, within a reasonable period of time, delivered the "equity transfer information" containing the equity transferor, equity transfer price, equity transfer ratio and other contents to the shareholders, and notified the shareholders of each party to exercise the right of first refusal. In the case that the shareholders did not claim within 30 days, they signed and delivered the equity transfer money with the other party in a timely manner. During the entire equity transfer process, Qihoo 360 did not raise any objections, nor did it declare that it exercised the "one-vote veto". In the end, although the court of second instance confirmed the internal effect of the "trust clause", it held that it was negligent in exercising its power and did not support its defense.
"The law does not protect those who sleep on rights", the law only protects those who actively claim their rights, but not those who are lazy in asserting their rights. The sleeper of rights ignores the existence of his own rights and is indifferent to his rights, which is a desecration of rights, and even more so a disregard for the law, so he will not be punished by the law.