Social Sciences in China (Chinese Edition)

No.7, 2013

 

The Legal Building of Reducing the Agency Costs of Equity Transfer

(Abstract)

 

Luo Peixin

 

The separate handling of the voting right of equity will reduce the welfare of other shareholders, whereas the contractual arrangements limiting or banning the transfer of equity will infringe the shareholder’s right of exit, thereby lessening the restriction of equity market on high-level executives and enhancing the agency costs in the abuse of power of the management. Therefore, in building the legal structure of equity transfer, it is necessary to achieve an appropriate balance between contractual freedom, capital majority and agency cost reduction. The judge should decide the transfer of voting right as invalid, so as to achieve consistency between the voting right and the residual claim right, and maintain the restriction of shareholders’ voting right on high-level executives. Most legislations in the world limit equity transfer with terms and conditions to reduce agency costs. The judge must differentiate the validity of different terms and conditions limiting the equity transfer from a differented perspective of long-term contracts and short-term contracts, and of initial charters and amended charters of these terms and conditions.