Insights

Ningbo divorce involves the division of the company's equity, how to balance the marriage law and the company law.

Ningbo Author：LuXu WANG

The raising of 1. issues

not long ago, a Ningbo business owner came to consult: his wife sued for divorce and demanded to split 60% of the company under his name.

He fears that if it is split, control of the company will fall and other shareholders will have an opinion.

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 husband and wife during the marriage shall be the joint property of 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. If the other party is not a shareholder of the company, the following circumstances shall apply: Both parties agree to transfer part or all of the capital contribution to the spouse of the shareholder, if more than half of the shareholders agree and other shareholders explicitly waive the right of preemption, the spouse may become a shareholder; if more than half of the shareholders do not agree to the transfer, but are willing to purchase the capital contribution at the same price, the people's court may divide the property derived from the transfer; if more than half of the shareholders do not agree to the transfer or are unwilling to purchase at the same price, it shall be deemed that they agree to the transfer and the spouse can become a shareholder.

Article 84, paragraph 2, of the the People's Republic of China Company Law (as amended in 2023) stipulates that where a shareholder transfers an 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.

3. core points

1. First look at whether the equity is the joint property of the husband and wife.

The equity acquired by one party before marriage is, in principle, personal property, but the value-added portion and dividend income after marriage may be recognized as common property. The equity acquired by the joint property contribution after marriage, or the equity acquired by means of capital increase or equity transfer after marriage, usually belongs to the joint property of the husband and wife.

It should be noted that the proportion of equity between husband and wife registered in industry and commerce is not of course equivalent to the agreement on the internal property of husband and wife. Unless a clear written certificate or agreement on the division of property is submitted at the time of establishment of the company, the divorce cannot be simply divided according to the proportion of industrial and commercial registration.

2. Look at whether the obligation to contribute is a joint debt of the husband and wife.

If the equity contribution obligation is recognized as a joint debt of the husband and wife, both spouses may be jointly and severally liable for the capital contribution obligation, regardless of how the equity is divided and whether the capital contribution period expires. In judicial practice, the key depends on whether the creditor can prove that the capital contribution is used for the joint life of the husband and wife, joint production and operation or based on the common intention of both parties.

Article 88 of the new Company Law stipulates that if a shareholder transfers the shares that have been paid but have not been paid for the period of capital contribution, and the transferee fails to pay in full and on time, the transferor shall bear supplementary liability. This means that the original shareholder may still be exposed to the risk of subsequent capital contributions when the unpaid equity is transferred to the spouse at the time of divorce.

3. The path of "asking for money" or "asking for power" is completely different.

If the non-holding party only requires discount compensation, the court focuses on reviewing the value of the equity. If the two parties can agree on the negotiated price; if the negotiation fails, the evaluation can be entrusted; if the evaluation cannot be carried out, the court will make a comprehensive decision on the amount of capital contribution, the company's operating conditions, financial information and other factors.

If a non-holding party requests to become a shareholder directly, it shall notify the other shareholders in writing to protect their right of first refusal. The new Companies Act removes the precondition of "consent of a majority of other shareholders", but retains the preemptive right rule.

4. boundary conditions

  • if one party holds shares before marriage and has no capital increase or business investment after marriage, the equity itself is still personal property, and the spouse can only claim the value-added or dividend portion after marriage.
  • If both husband and wife are shareholders of the company, the proportion of shares is relatively free to adjust, but the division of internal property still needs to be negotiated or decided by the court.
  • If the equity is held on behalf of, pledged, frozen or involving outsiders, the divorce case may not be dealt with and needs to be resolved in another case.
  • After the implementation of the new "Company Law", the system of accelerated maturity of capital contribution and loss of shareholders' rights may affect the equity value and severability; if the capital contribution period of Ningbo stock company exceeds 5 years, it must be adjusted to 5 years before 2027-06-30 and recorded in the articles of association (according to the reply letter of Ningbo Jiangbei District Municipal Supervision Bureau, North District Municipal Supervision [2025] No. 14).

5. operational steps

  1. fixed equity information: access to the articles of association, register of shareholders, industrial and commercial registration, capital contribution certificates, financial statements, confirmation of capital contribution and equity value.
  2. Clear claim direction: choose discount compensation or direct division of equity, the legal procedures and evidence requirements of the two options are different.
  3. Notify other shareholders: If a direct division of the shares is advocated, the shareholder shall notify the other shareholders in writing, stating the quantity, price, payment method, term, etc. of the transfer, pending the exercise of the right of first refusal.
  4. Assess the value of equity: if the negotiation fails, apply to the court for an audit appraisal, and pay attention to retaining evidence of the company's cooperation with the appraisal.
  5. Write the divorce agreement or judgment: clear ownership, compensation amount, transfer period, capital contribution responsibility, liability for breach of contract, etc.

6. common mistakes

myth 1: Divorced equity is naturally half a person. The common property of husband and wife is not equal to the sharing of shares, but also depends on the source of capital contribution, the company's personality, the will of other shareholders and other factors.

Myth 2: I write 90% for industrial and commercial registration, and 90% for divorce. Industrial and commercial registration is not binding on the division of property within the husband and wife, unless there is a clear agreement on marital property.

Myth 3: It is safe to transfer the equity to the spouse at a low price. Article 88 of the new Company Law clearly states that the original shareholders may still bear the responsibility of supplementary capital contribution after the transfer of the outstanding shares. At the same time, malicious low-price transfer may be regarded as the transfer of the common property of husband and wife. Ningbo local judges are strict with this. According to Cixi Court (2020) Zhejiang 0282 Minchu No. 7108, Ningbo Intermediate People's Court (2020) Zhejiang 02 Minzhong No. 5716, the transfer of equity occurs after the company's liabilities, the transfer of both parties are close relatives, no consideration and other circumstances, may be found to be invalid, the transferor's contribution to accelerate the expiration of the supplementary liability, the transferee shall bear joint and several liability.

Myth 4: Spouses can check all accounts when they become shareholders. The shareholder's right to know has a legal scope and the exercise procedure is required, and it is difficult for the non-holding party to exercise the right to know directly if the change of the register of shareholders has not been completed at the stage of divorce division. In addition, according to Ningbo Intermediate People's Court (2010) Zhejiang Yong Shang Zhongzi No. 1027, shareholders must first perform the pre-procedure of written request to exercise the right of inspection, and if the company is not requested in writing to inspect the accounting books and is refused to sue, the claim will not be supported.

Equity division is a difficult problem in divorce cases, not only to settle the property account, but also to balance corporate governance. It is recommended that divorced parties involved in equity division collect company financial information in advance and, if necessary, isolate risk through shareholder agreements, articles of association or family trusts during periods of stable marital relationships.

Summary of 7. relevant laws and regulations

the main legal provisions covered in this paper include:

  • article 88 of the Company Law
  • 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

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 reason why the division of equity is difficult is that it steps on the two sets of rules of marriage and company at the same time ". Before starting work, find out the situation: whether the equity is acquired before or after marriage, where the capital contribution comes from, whether the holder operates in person or only receives dividends, and whether the company is a limited liability company or a joint stock limited company. The value of the equity formed by the capital contribution of the common property after marriage belongs to the common property in principle, but whether it can be divided directly and how to divide it is also subject to the rules of the company law on the qualification of shareholders and the right of first refusal of other shareholders.

There are three different demands to distinguish in operation: the recognition of the property value of the equity, the distribution of the corresponding economic benefits, and the acquisition of shareholder status. In most cases, it is easier for one spouse to claim the value of the property corresponding to the split stake than to directly request the change of registration as a shareholder; if he does wish to enter the company, it is also necessary to consider whether the other shareholders agree and trigger the right of first refusal, and the procedure should be designed in advance. To this end, it is necessary to prepare industrial and commercial files, capital contribution certificates, articles of association, financial statements, dividend records and other materials, and apply for audit or evaluation if necessary.

In practice, the most vigilant is the "new stove" type of equity transfer, such as marital low-cost transfer, looking for someone to hold, with a new company to undertake business, these arrangements will make the nominal value of the equity shrink. Found abnormal to timely preservation, apply for investigation, claim that the relevant sanctions do not have effect on their own. Negotiations can be held together with the company's control and business arrangements, such as one party retaining equity and paying compensation to the other, which is often more likely to maintain the company's operations and be more acceptable than a forced division.