How to split equity/ company shares when divorce in China?
Time:2024-03-14 10:56:16Source:Click:次
Divorce proceedings in China, like in many jurisdictions, involve the complex task of dividing assets, including company shares or equity. When it comes to equity acquired during marriage, particularly if only one spouse is registered as a shareholder in a limited liability company, the division process can be intricate. In Chinese courts, there are generally two approaches to handling such cases:
1. Consensus Reached by Both Spouses:
When both spouses can come to an agreement on the division of equity, the process becomes relatively straightforward. Here are the two common scenarios:
(1) Transfer by Consensus: If both spouses agree to transfer part or all of the capital contribution to the non-shareholding spouse, and a majority of the other shareholders consent to this transfer, the non-shareholding spouse can become a shareholder in the company.
(2) If both spouses agree on the terms of the transfer, such as the amount of capital to be transferred and the transfer price, but the majority of other shareholders do not consent to the transfer and are unwilling to purchase the capital contribution at the same terms, the court may intervene. In such scenarios, the court may divide the property obtained from the transfer of the capital contribution. However, if more than half of the other shareholders do not agree to the transfer and are not willing to purchase the capital contribution on equal terms, their non-consent is interpreted as consent to the transfer, enabling the spouse of the shareholder to become a shareholder of the company.
2. Lack of Consensus:
However, disputes often arise when consensus cannot be reached. In these situations, the court aims to resolve the conflict while ensuring the company's normal operation and safeguarding the rights of other shareholders. The court typically employs the following approaches:
(1) Compensation: If one spouse is a shareholder but the other does not wish to become one, the court may order the shareholder spouse to compensate the non-shareholder spouse for the value of the equity at a reasonable value during the property division in the divorce.
(2) Direct Division of Shares: In cases where one spouse refuses to compensate for the discounted value or where the equity's value is difficult to ascertain, the court may opt for a direct division of shares. This occurs when other shareholders waive their right of first refusal or fail to respond within the legal timeframe.
(3) Non-Division or Non-Processing: In situations where the equity's value cannot be determined due to disputes between the spouses or their refusal to appraise it, the court may opt not to divide or process the request directly.
Divorce cases involving company equity in China require careful consideration of legal principles and equitable distribution to ensure fair outcomes for both parties involved, as well as the interests of the company and its shareholders.
For more information, please contact
David Gao, Attorney at Law
Email: gaohexin@163.com
Tel: 86 13611158067
