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How to divide the equity of limited liability company in Ningbo divorce

Ningbo Author：LuXu WANG

The raising of 1. issues

mr. Li and his wife have been married for 15 years. After marriage, Mr. Li invested 1 million yuan in a limited liability company with his husband and wife, which was registered in his own name.

Now the two are getting divorced, and his wife is asking for the division of these 1 million shares. Mr. Li said that the company is an independent legal person, and his wife cannot get back half of the original capital contribution.

This paper will focus on the above issues, from the legal provisions, practical operation, typical cases of three dimensions of the system.

2. legal basis

article 1062 of the the People's Republic of China Civil Code stipulates that the income from production, operation and investment earned by the husband and wife during the existence of the marriage relationship shall be the joint property of the husband and wife and shall be jointly owned by the husband and wife.

Article 73 of the Interpretation (I) of the Supreme People's Court on the Application of the Marriage and Family Code of the the People's Republic of China Civil Code stipulates that the people's court hears divorce cases involving the division of the joint property of the husband and wife in the name of one party in the limited liability company, and the other party If it is not a shareholder of the company, it shall be dealt with separately according to the following circumstances:

(I) both husband and wife agree to transfer part or all of the capital contribution to the spouse of the shareholder, and more than half of the other shareholders agree, and the other shareholders clearly give up the preemptive right, the spouse of the shareholder can become a shareholder of the company;

(II) more than half of the other shareholders do not agree to the transfer of the amount of capital contribution, but are willing to purchase the amount of capital contribution on the same terms, the people's court may divide the property obtained from the transfer of capital contribution. If more than half of the other shareholders do not agree to the transfer and are unwilling to purchase the capital contribution on the same terms, they shall be deemed to have agreed to the transfer, and the spouse of the shareholder may become a shareholder of the company.

The evidence used to prove the consent of the shareholders as provided in the preceding paragraph may be the materials of the shareholders' meeting or the written statement of the shareholders obtained by the parties through other legal channels.

Article 84 of the the People's Republic of China Company Law provides that shareholders of a limited liability company may transfer all or part of their shares to each other. Where a shareholder transfers his equity to a person other than a shareholder, he shall notify the other shareholders in writing of the quantity, price, payment method and time limit of the equity transfer, and the other shareholders shall have the right of first refusal under the same conditions. This article is the new "Company Law" that came into effect on July 1, 2024. Zhejiang Province has passed the entire electronic registration system to online equity transfer "one thing" (tax market supervision joint office), and equity change registration can be handled online.

3. core points

1. Equity is the joint property of husband and wife, but the company is an independent subject.

The equity acquired by the joint property contribution after marriage, whether registered in the name of one or both parties, is in principle the joint property of the husband and wife. However, the company has an independent legal personality, the divorce is divided into the equity itself or its realized value, can not directly the company account funds as family property.

2. There are three common paths to segmentation.

The first is the negotiation between the two parties, one party holds the shares and gives the other party discount compensation; the second is to transfer part of the equity to the spouse to make it a shareholder; the third is to transfer the equity to the outside world, and the two parties divide the transfer money.

3. The preemptive rights of other shareholders must be respected

if the spouse wants to become a shareholder of the company, it needs the consent of more than half of the other shareholders, and the other shareholders give up the right of first refusal. If other shareholders are willing to buy on equal terms, the court may divide the transfer.

4. Equity value needs to be assessed

when the parties cannot agree on the value of the equity, it is usually necessary to commission a professional appraisal agency to assess the value of the company's equity, and the base date is generally determined by the date of prosecution or by mutual agreement.

4. boundary conditions

  • the equity acquired by the personal property of one party before marriage is in principle personal property, but the appreciation of equity and dividends after marriage may be common property.
  • If the equity is held on behalf of, you need to confirm the actual investor and the holding relationship before determining whether it can be divided.
  • If there are restrictions on the transfer of shares in the articles of association, the provisions of the articles of association shall be applied first, but the mandatory provisions of the law shall not be violated.

5. operational steps

  1. confirmation of time of equity acquisition and source of capital contribution: Transfer of industrial and commercial registration, capital contribution flow, articles of association.
  2. Determine the nature of the equity: joint contribution after marriage or personal contribution before marriage, whether there is a proxy.
  3. Negotiate the division scheme: choose discount compensation, equity transfer or external sale.
  4. Solicit opinions from other shareholders: notify other shareholders in writing to confirm whether to agree to the transfer and whether to waive the right of first refusal.
  5. Commissioned appraisal agency: if the negotiation fails, apply to the court for entrustment to assess the value of the equity.
  6. Sign an agreement or court decision: clarify the ownership, compensation amount, payment period and liability for breach of contract. The registration of equity change shall be applied for through the "company change registration" of Zhejiang government service network within 30 days from the date of the company's resolution.

6. common mistakes

myth 1: Equity registered in a party's name is personal property.

The equity acquired by the joint property after marriage is the joint property of the husband and wife, even if it is registered only in the name of one party.

Myth 2: Divorce can be direct branch money.

The assets of the company belong to the legal person of the company, and the shareholders can only divide the equity or the realized value of the equity, and cannot directly divide the company's property.

Myth 3: The spouse automatically becomes a shareholder of the company.

In order to obtain shareholder status, the spouse must obtain the consent of more than half of the other shareholders and give up the right of first refusal, which cannot be achieved by divorce judgment alone.

Summary of 7. relevant laws and regulations

the main legal provisions covered in this paper include:

  • article 73 of the Interpretation (I) of the Supreme People's Court on the Application of the Marriage and Family Part of the the People's Republic of China Civil Code
  • article 84 of the the People's Republic of China Company Law

8. Practical Operation List

if you are facing related problems, it is recommended to follow the following steps:

  1. collect evidence: organize all written materials, transfer records, chat records, etc. related to the case;
  2. consult a professional: before taking any action, it is recommended to consult a professional lawyer to understand their rights and possible legal consequences;
  3. assessing costs and benefits: litigation requires time and economic costs, which need to be combined with the amount of the case and the probability of winning the case;
  4. choice of dispute resolution: give priority to negotiation or mediation, and consider litigation if no agreement can be reached;
  5. note the statute of limitations: the law does not protect the person lying on the right to sleep, be sure to claim the right within the statutory statute of limitations.

Practical Experience of 9. Lawyers

the first thing to be solved in divorce is not "how many shares are divided", but "how much are these shares worth". The equity value of a limited liability company is not easy to determine, and there is often a wide gap between one party claiming to be based on the amount of capital contribution and the other party claiming to be based on current net assets. The prudent approach is to promote the audit or evaluation at the early stage of the case or negotiation, and put the company's books, operating conditions and dividend records on the table, otherwise it will be a muddle-headed account in the end. The value cannot be fixed, and any division scheme is just a castle in the air.

Involving the transfer of capital contributions to non-shareholder spouses, there is no way around the opinions of other shareholders and the right of first refusal. The company is a personal organization, and whether the spouse can become a shareholder depends on whether the remaining shareholders agree to the transfer and whether they give up the right of first refusal. Therefore, there are two options in strategy: one is to strive to become a shareholder and hold equity directly; the other is to give up shareholder status and require the other party to compensate at a discount based on the appraised value. Which is more feasible depends not only on the company atmosphere and evidence, but also on whether you really want to be involved in the company's operation.

At the operational level, several practical things should be done: timely fixed equity information and industrial and commercial registration, to prevent the other party from quietly diluting or transferring through capital increase, transfer and proxy holding, and to apply for preservation when necessary; During the negotiation, the two sets of plans of "entering the company" and "taking compensation" are prepared, and acceptable upper and lower limits are set. At the same time, pay attention to the impact of the division method on the company's operation, and insist on the division of equity, which may drag down the company, implore their own interests, take a step back in exchange for equivalent compensation, and sometimes fall into the bag more real.