Insights

Can the entrepreneurial spouse of Ningbo after marriage share the equity income?

Ningbo Author：LuXu WANG

One person starts a company from scratch, and the other person supports daily life at home. This is the true division of labor for many entrepreneurial families. When they are separated, there is only one name on the capital contribution certificate and only one shareholder in the industrial and commercial information. The other party is often asked: He made the company, and what makes me share it. The answer does not depend on who is running the business, but on where the money comes from and when the benefits are generated.

Who owns the equity of the company funded by the 1. after marriage.

Article 1062 of the the People's Republic of China Civil Code stipulates that the income from production, operation and investment during the marriage shall be jointly owned by the husband and wife. When a company is established with marital income or joint deposits, the equity formed is common property within the husband and wife, and the only person registered as a shareholder is the person exercising the right.

The source of funding is the first and most critical issue.

If the contribution comes from a pre-marital personal deposit, a pre-marital property realization, a parent's explicit gift to only one party, or a property that is owned by one party at the time of inheritance or gift, then the corresponding equity has a personal property attribute. Conversely, the use of wages, bonuses, operating income and other common property to contribute, no matter who goes through the procedures, does not change the nature of the common property. This step is wrong, all the calculations behind are empty.

Three paths to 2. income: dividends, value-added and transfer.

What the non-holding party gets depends on which path it takes. The difficulty and amount of proof of the three paths vary greatly, and choosing the wrong direction will be in vain.

Dividends are the most direct and value-added are the most commonly used.

Cash dividends actually received during the marriage relationship are investment income and are recognized as common property and are distributed in half. However, most small and medium-sized enterprises do not pay dividends for a long time and keep their profits on the books. At this time, they should take the path of value-added, calculated according to the difference in net assets between the point of marriage or capital contribution and the base date of division. Where the equity is transferred within marriage, the transfer is also common property and the whereabouts of the funds need to be tracked.

3. want equity or money: the difference between the two demands

many people ask to become shareholders at the beginning, but in practice, they often can't get it and slow down the progress of the case.

The threshold of human nature of limited liability companies.

If one of the spouses claims to divide the amount of capital contribution of a limited liability company registered in the name of the other party and requests to become a shareholder, the consent of more than half of the other shareholders shall be required, and the other shareholders shall expressly waive the right of first refusal. If the conditions are not met, the discount compensation can only be claimed for the property value corresponding to the amount of capital contribution. For most non-holding parties, asking for money directly is faster and more enforceable, especially when corporate governance has lost the foundation of trust.

Variability of 4. nominee, capital increase and equity incentive

the ownership structure of a start-up company usually undergoes multiple rounds of adjustment, and a simple glance at business information can easily miss large chunks of value.

Three types of shareholding patterns that are easily missed

first, the shares are held on behalf of relatives and friends, and need to be restored through capital contribution certificates, holding agreements, dividend flow and traces of actual participation in the operation. The second is to increase the capital after marriage and increase the registered capital with undistributed profits, which are usually included in the division because the undistributed profits themselves have common property attributes. The third is equity incentive, the share granted and exercised due to employment during the marriage relationship, it corresponds directly to labor and is generally recognized as common property.

5. Base Date, Valuation and Division of Evidence

for the same company, the base date is half a year different and the valuation may be twice as bad. Only when the time point and method are fixed can the negotiations have common coordinates.

1. How the base date is usually set

in practice, the date of the initiation of divorce proceedings or the end of the first instance court debate is used as the benchmark date, and if otherwise agreed, it shall be agreed. Companies with large fluctuations in performance, the base date is directly related to the size of net assets, in the event of a heated dispute can apply for judicial audit determination.

2. Who will give evidence and how to obtain evidence.

The party claiming division bears the burden of proof. Can obtain their own industrial and commercial registration information, annual reports, the other party's social insurance and housing accumulation fund payment records, public bidding and reporting information; The complete financial books, bank account details, shareholders' meeting resolutions and dividend distribution records that need to be obtained by the court shall be obtained through an application for investigation and evidence collection or an investigation order. The application form shall specify the facts to be proved, the name of the materials, the holding subject and the period.

6. case proof

in practice, if the registered shareholder is one party to a company established by joint deposit after marriage, the court usually determines that the property rights and interests corresponding to the amount of capital contribution belong to the joint property of the husband and wife. Taking the audited net assets of 6 million yuan and the shareholding ratio of 60% million yuan as an example, the corresponding equity is about 3.6 million yuan, and the discount compensation that the non-holding party can claim is mostly in the range of 1.5 million yuan to 1.8 million yuan, and the payment arrangement is determined in combination with the cash flow situation. In similar cases, the amount of division or compensation is usually in the range of $100000 to $3 million, depending on the size of the property and the circumstances of the evidence.

In practice, the shareholders claim that the company has been losing money for years, the equity is not valuable, but the audit found that there are large shareholder loans long-term accounts, related party funds frequent transactions, the court generally does not accept the book data, but according to the adjusted net assets to determine the value. In such cases, the determination is usually more favorable if the non-holding party makes an audit application within the period of proof. In similar cases, the amount of division or compensation is usually in the range of $100000 to $3 million, depending on the size of the property and the circumstances of the evidence.

7. Risk Alert

  • only look at the business information: holding, capital increase and incentive share is not reflected in the registration page, easy to miss the whole block.
  • Missed audit application point: after the expiration of the period of proof, may be found to be overdue and not allowed.
  • Instinate to become a shareholder: when the conditions of majority consent are not met, the claim is difficult to achieve and long-term.
  • Credulous book loss: SME statements often underestimate the true value, need to check the original vouchers and running water.
  • Neglect of proof of source of funds: it is not possible to prove that the contribution comes from common property and may be considered personal property as a whole.
  • Compensation instalments are not guaranteed: there are no liquidated damages and guarantee clauses, and subsequent implementation is very difficult.

8. FAQ

the company is completely run by the other party, can I really divide it?

Can. The judgment is based on the source of the capital contribution and the time when the income is generated, not who is specifically operating. The proceeds generated during the duration of the marriage and the contribution of the joint property are generally the joint property of the husband and wife.

The company has not paid dividends, has it not scored?

It's not. The non-dividend does not affect the accumulation of net assets, and the share can be claimed according to the growth of net assets during the marriage relationship, and if necessary, apply for judicial audit to determine the benchmark value.

What should I do if the other party transfers the equity to the partner?

The disposition may be claimed to harm the common property rights and interests. If the transfer takes place during the period of marital tension, the price is obviously low and the price is not actually paid, the confirmation may be requested to be invalid, or the hidden or transferred party may be divided less or less at the time of division.

After getting the discount compensation, the company will go public or be acquired. Can I still chase it?

generally cannot. The division is based on the value of the base date, and the subsequent ups and downs are borne by the holding party. If it is believed that the other party has concealed material transaction information at the time of division, it may request another division within three years from the date of discovery.

Practical Experience of 9. Lawyers

the answer does not depend on who is running the business, but on where the money comes from and when the income is generated. Therefore, the first step is always to check the source of capital contribution: whether the company is set up with post-marital wages, bonuses and joint deposits, or whether it is invested with pre-marital personal property and money that parents explicitly give to only one party. The equity formed by the former is common property within the husband and wife, while the latter has the attribute of personal property. This step is wrong, all the calculations behind are empty.

The next key is to choose the right path. There are roughly three things that non-shareholders can claim: dividends, value-added, and transfers. Cash dividends actually received during marriage belong to investment income, which is a better proposition. If the company does not pay dividends for a long time and keeps profits on the account, it must take the path of value-added, calculated according to the difference in net assets between the agreed time point and the base date of division, which often requires application for audit or evaluation. If the equity is transferred within marriage, the whereabouts of the transfer money must be pursued. The difficulty and amount of proof in the three roads vary greatly. If you choose the wrong direction, your strength will be wasted.

In terms of response, the party advocating the income should apply for audit and evaluation as soon as possible to fix the company's operation and capital flow, so as to prevent the other party from losing the income through non-dividend, low-price transfer and related party transactions. The holding party often defends with "the company is his and the business is his". You should use the capital contribution certificate and the evidence of joint investment after marriage to establish the common attribute. When negotiating, cash compensation is often easier to land than the equity itself, and a specific amount and installment plan can be discussed around net assets and dividend expectations. Timing, the sooner the audit and preservation, the better, the longer the delay, the uglier the book.