Lawyer Wang Jian from Zhejiang Liqun Law Firm

【Case details】

In November 2005, Xu, Dong, Jiang, Yang, and Lin invested to establish Taizhou Driving Training Co., Ltd. The registered capital of the company is 500000 yuan. Yang is an executive director, of which Xu contributes 150000 yuan, accounting for 30% of the company's equity. Dong and Jiang each contribute 37500 yuan, accounting for 7.5% of the company's equity. Yang and Lin each contribute 137500 yuan, accounting for 27.5% of the company's equity. Xu each holds 30% of the company's equity. The company needs a capital of 3.25 million yuan to purchase vehicles, rent premises, build working rooms, and add shareholder assets. According to share allocation, Xu should contribute 975000 yuan, Dong and Jiang should contribute 487500 yuan, and Yang and Lin should contribute 1.785 million yuan. Xu, Dong, and Jiang have already made the agreed capital contributions, but Yang and Lin have not made the agreed capital contributions, and there is still 1016521.75 million yuan that has not been made. Due to the inability of Yang and Lin to make capital contributions, on April 30, 2007, after financial accounting and shareholder approval, the equity of the company's shareholders was adjusted according to the debt to equity swap agreement, forming a shareholder equity split agreement. After the adjustment, Xu held 52% of the company's equity, Dong and Jiang each held 14% of the company's equity, and Yang and Lin each held 10% of the company's equity. After the debt to equity swap, Xu and three other shareholders repeatedly urged Yang and Lin to go to the administrative department for industry and commerce to handle the shareholder equity change procedures. However, Yang and Lin have been pleading with the court to confirm that Xu holds 52% of the company's equity, Dong and Jiang hold 14% of the company's equity, and Yang and Lin hold 10% of the company's equity.

【Trial】

The first instance court held that although Yang and Lin did not invest in full as agreed, their actual investment in the company was 770978.25 yuan, exceeding the subscribed capital contribution. However, Yang and Lin did not owe the company an investment of 1016521 yuan. Due to Yang and Lin's failure to invest as agreed, which violates the principle of good faith, shareholders can readjust the company's shareholder equity, but must not harm the legitimate rights and interests of other shareholders. Adjusting the shareholders' equity of the company belongs to modifying the company's articles of association, and shareholders must convene a shareholders' meeting in accordance with the provisions of the company's articles of association. Yang, Xu, and Dong did not hold a shareholders' meeting attended by all shareholders when readjusting the company's shareholder equity. The improper calculation method for equity distribution damaged the legitimate rights and interests of shareholder Lin. The shareholder equity division agreement was not signed and recognized by Lin, so the agreement was not established in accordance with the law. Court judgment: Reject the litigation claims of Xu, Dong, and Jiang.

After the first instance verdict, Xu and others appealed against the verdict. The second instance court held that the shareholder equity division agreement was personally signed by shareholders Xu, Dong, and Yang, and all shareholders who signed the agreement recognized it. The first part of this agreement states: Shareholders Yang and Lin are husband and wife, accounting for 55% of the company's equity. The amount of capital contribution, loans, and debts are considered the same shareholder, while shareholders Dong and Jiang are husband and wife, accounting for 15% of the company's equity. The amount of capital contribution and loans are considered the same shareholder. This is understood as follows: the agreement stipulates that shareholders Yang and Lin are the same shareholder, and shareholders Dong and Jiang are the same shareholder. From the perspective of the couple's external civil legal behavior, it has consistency and meaning of the subject The consistency of representation and the identity of effectiveness attribution. Although this agreement belongs to the equity division agreement, in terms of its content, the agreement on the change of equity and the division of rights, responsibilities, and interests between internal shareholders still engages in civil activities in the name of the company externally, without affecting the legitimate rights and interests of the state, collective, and others. Therefore, this agreement should be deemed valid, and the rights and obligations arising from the signature of husband Yang in the agreement shall be jointly enjoyed and borne by wife Lin, The rights and obligations arising from Dong's signature in the agreement are jointly enjoyed and borne by his wife Jiang. Therefore, the second instance court revoked the civil judgment of the first instance court, confirming that Xu holds 52% of the company's equity, Dong and Jiang each hold 14% of the company's equity, and Yang and Lin each hold 10% of the company's equity.

After the judgment of the court of second instance, Lin appealed and the Municipal People's Procuratorate submitted a protest to the Provincial People's Procuratorate. The Intermediate people's court of Taizhou held a retrial that the case was a mutual transfer of equity between shareholders, and there was no transfer of equity to anyone other than shareholders. The provisions on the agenda of the shareholders' meeting were not suitable for the case. There was no necessary causal relationship between whether Lin attended the shareholders' meeting and the effectiveness of the equity transfer in the case. From the content of the agreement on the division of shareholder property rights in this case, Yang represents the couple in disposing of their rights, and Dong also has the same situation. Mr. Xu, Mr. Dong and Mr. Jiang believed that Mr. Yang's punishment constituted Apparent authority, and provided corresponding evidence to prove that they accepted the opinions of Mr. Xu and others. Moreover, after the establishment of the company, Lin participated in the management of the company, but never actually participated in the shareholders' meeting. The shareholder rights of Yang, Lin and his wife, Dong, and Jiang were respectively exercised by Yang and Dong, which is enough to convince other shareholders of the company that Yang is qualified to represent Lin in matters related to equity. Therefore, the equity transfer content in the shareholders' equity division agreement in this case is legal and valid, and the reasons for the protest by the protest authority are not valid. The judgment of the second instance court in this case is correct and should be upheld.

【Evaluation and Analysis】

The focus of controversy in this case: Can Yang sign the "Shareholders' Property Division Agreement" on behalf of his wife Lin? Is it legally binding on Lin?

1. Corporate equity disputes should not only be governed by the Company Law, but also by other laws.

This case is not like a typical dispute between shareholders of a company. The uniqueness of this case lies in the fact that shareholder Yang and shareholder Lin have a marital relationship, and Yang is also an executive director. This special and specific identity relationship results in the internal governance of Wanli Company being different from that of a general limited liability company. The relationship between Yang and Lin is very close compared to a third party, so this case is not only applicable to the provisions of China's Company Law, Article 89 of the Opinions on Several Issues of the General Principles of Civil Law, Article 17 (2) of the Interpretation of Several Issues of Marriage Law, and relevant provisions of Contract Law should also be applied.

2. Yang's behavior constitutes Apparent authority.

The shareholder Yang and the shareholder Lin in this case are married. According to the provisions of the Company Law, when a husband and wife establish a company and become shareholders of the company, they should use their respective property as their registered capital and bear corresponding responsibilities. Based on this, Yang and Lin should submit a property division certificate when registering the company. However, in this case, Yang and Lin did not undergo property division during the registration of the establishment of the company, so it should be determined that Yang and Lin became shareholders of the company through their joint property contributions. Yang and Lin jointly contribute to the joint property of the husband and wife. During the existence of the marital relationship, the company shares of the husband or wife are jointly owned by both parties. As co owners, the husband and wife have equal rights to possess, use, benefit from, and dispose of the jointly owned property. Article 17 (2) of the Interpretation on Several Issues Concerning the Application of the Marriage Law by the Supreme People's Court stipulates: "If a husband or wife makes important decisions regarding the joint property of the husband and wife other than for the purpose of daily life, both parties shall negotiate on an equal basis and reach a consensus. If others have reason to believe that it is a joint intention expressed by both parties, the other party shall not oppose a bona fide third party on the grounds of disagreement or lack of knowledge The company's decisions on any major matters have been signed by Lin, represented by her husband Yang, and Jiang, represented by her husband Dong. This is also a consistent operating model since the company's establishment. Xu and others have also provided the court with the "Board Resolution" of March 11, 2006, the "Details of the Coach Deposit of Wanli Driving School" from November 16, 2005 to May 10, 2006, and the "Shareholders' Equity Division Agreement" in this case, All are sufficient to prove this fact, and there is no evidence to prove it. Since the establishment of Wanli Company, Yang's signature cannot represent Lin's signature, and Lin has never raised any objections to Yang's signature on his behalf. The other shareholders have full reason to believe that Yang's signature on the Shareholders' Equity Division Agreement is a joint expression of their spouses' intentions. According to the above judicial interpretation of the Supreme Court, Lin must not deny the signature of her husband Yang on the grounds of disagreement or lack of knowledge, and therefore oppose other bona fide shareholders of the company. According to Article 49 of the Contract Law, Yang's act is a kind of Apparent authority act, which is effective and legally binding on Lin.