Discussion on Legal Issues Discussion on Legal Issues of Corporation’s Capital Dof Corporation’s Capital D

ecreaseecreaseSun Bo

Wuhan University Jiaying College

1. Introduction1. Introduction Practice of Practice of Codes of CorporationCodes of Corporation has made has made

a capital mythologya capital mythology

Contradiction of Chinese Contradiction of Chinese Codes of CorporationCodes of Corporation

2. Legislative condition 2. Legislative condition too loosetoo loose

Actual capital decreaseActual capital decrease Nominal capital decreaseNominal capital decrease Whether to reduce the capital and how are mostly Whether to reduce the capital and how are mostly

up to company’s free willup to company’s free will It may cause the right to be abused in practice It may cause the right to be abused in practice

because legislation appears excessively tolerantbecause legislation appears excessively tolerant As will harm creditors or shareholders’ interestAs will harm creditors or shareholders’ interest

3. Substantial conditions 3. Substantial conditions of capital decreaseof capital decrease

Legal cause of must capital decreaseLegal cause of must capital decrease Regulations of specific capital decrease modeRegulations of specific capital decrease mode Protection of shareholders’ interest during Protection of shareholders’ interest during

capital decreasecapital decrease Legal liabilityLegal liability

3.1 Legal cause of must 3.1 Legal cause of must capital decreasecapital decrease

Codes of Corporation

French Spanish Chinese

Net assets <1/2 total registered

capital

Loss > 1/3 of its total registered capital

This state lasts more than two years

Blank

3.2 Regulations of specific 3.2 Regulations of specific capital decrease modecapital decrease mode

To decrease total amount of shares To decrease the face value per share To decrease both, etc. Specified condition correspondent with certain

specific mode

3.3 Protection of shareholders’ interest 3.3 Protection of shareholders’ interest during capital decreaseduring capital decrease

Shareholders’ equality principle may lead to actual inequality

3.4 Legal liability3.4 Legal liability

Senior executives’ behavior is the common cause of substantial capital decrease

Chinese Codes of Corporation 　 blurs Definitude advised

4. Actual practice 4. Actual practice too tighttoo tight

Too much operational cost Rigidification of shareholders’ equality principle Capital decrease procedure is severe Creditor's interests got protected, but how about

shareholders’ (especially minority shareholders) interests?

5. Transformation of capital 5. Transformation of capital decreasedecrease

Withdraw and release & escape

No chance and mechanism to withdraw leads to unfair result

Buy back and mortgage

Capital issue system and profit distribution system

(To be conciliating, got revised )

6. Co-partnership companies’ capit6. Co-partnership companies’ capital decreaseal decrease

Unwise to forbid capital decrease

7. Conclusion7. Conclusion

Stipulate legal capital decrease reasons Specify modes in particular conditions Respect to principle of shareholders’ will

autonomy To define directors’ & managers’ liabilities To strengthen maneuverability Attention to transformation Taboo of Co-partnership companies’ capital de

crease?