With the continuous development of economy, more and more investors put their funds into enterprises and become the investors of enterprises. After investment and merger, enterprises should pay attention to tracking, monitoring and management of the target subject, so as to avoid the legal risks after investment and merger, and maximize the investment value.

1. Focus on the effective exercise of investor rights

After the investment enterprise becomes the investment equity holder of the target subject, it should pay attention to effectively exercising its investor rights, so as to obtain reasonable dividends from the target subject, and avoid taking legal responsibility without knowing it. Taking a company as the object of investment, investors' rights are divided into two categories according to different sources: one is the statutory rights explicitly stipulated in the Company Law, and the other is the rights agreed by the articles of association. As for the rights stipulated in the articles of association of the company, the investor may understand the rights stipulated in the articles of association through the procedure of voting on the contents of the articles of association at the shareholders' (general) meeting; Shareholders who join later can learn their rights by referring to the articles of association. The legal rights of investors are discussed here:

First, the right to know. According to the provisions of Article 33, paragraph 1, of the Company Law, shareholders have the right to consult and copy the articles of association, minutes of shareholders' meetings, resolutions of the board of directors, resolutions of the Board of supervisors and financial and accounting reports. This is the preferred method for shareholders to get a full picture of the company. When a shareholder considers it necessary, he may, in accordance with the provisions of Article 33, paragraph 2, of the Company Law, request for inspection of the Company's accounting books by filing a written application; If the company refuses to consult, the shareholder may make a request to the people's court to require the company to provide convenience and assistance for the inspection.

Second, the right to convene and preside over shareholders' meetings according to law. According to Article 39 of the Company Law, shareholders' meetings are divided into regular meetings and temporary meetings, and regular meetings are held on time in accordance with the provisions of the articles of association. The shareholders representing more than one-tenth of the voting rights, more than one-third of the directors, the board of supervisors or the supervisors of a company without a board of supervisors have the right to propose the convening of an extraordinary meeting. If the board of directors or the executive director, the board of supervisors or the supervisor of the company fails to perform the duty of convening the board of directors, the shareholders representing more than one-tenth of the voting rights may convene or preside over the shareholders' meeting on their own in accordance with the provisions of Article 40 of the Company Law.

Third, the right to protect the company and its legitimate rights and interests in its own name. After exercising the right to know to consult and analyze the company's information, if a shareholder believes that the content of the resolution of the company's shareholders' meeting or the shareholders' meeting or the board of directors violates laws and administrative regulations, he may, in accordance with the provisions of Article 22 of the Company Law, request the People's Court to confirm that the content of the resolution is invalid.

If a shareholder considers that the convening procedure or voting method of the shareholders' (general) meeting or the board of directors meeting violates laws, administrative regulations or the articles of association of the company, or the resolution violates the articles of association of the company, he may, within 60 days from the date of making the resolution, request the people's court to rescind it.

Fourth, the right to transfer equity according to law. According to Article 71 of the Company Law, shareholders of a limited liability company may transfer all or part of their equity to each other; With the consent of more than half of the other shareholders, a shareholder may also transfer the equity to a person other than a shareholder. Exercising the transfer right according to law is a way for shareholders to protect their legitimate rights and interests. If the shareholders have a conflict of interest with the company or are not optimistic about the company's prospects, they can end their relationship with the company by transferring their shares to realize and protect their property rights.

Fifth, the right to request the company to purchase its equity at a reasonable price. According to Article 74 of the Company Law, under any of the following circumstances, a shareholder who votes against the resolution of the shareholders' meeting may request the company to purchase its equity at a reasonable price: (1) The company has not distributed profits to shareholders for five consecutive years, but the company has made profits for five consecutive years, and the conditions for profit distribution stipulated in this Law are met; (2) Merger, division or transfer of the principal property of the company; (3) When the term of business stipulated in the articles of association expires or any other cause for dissolution stipulated in the articles of association occurs, the shareholders' meeting passes a resolution to amend the articles of association so that the company can survive. If the shareholders and the company fail to reach an equity purchase agreement within 60 days from the date of passing the resolution of the shareholders' meeting, the shareholders may bring a lawsuit in the people's court within 90 days from the date of passing the resolution of the shareholders' meeting. This right helps shareholders get rid of the control of the actual controller in order to avoid or reduce investment losses.

2. Pay attention to the betting clause in the investment agreement

As a risk management tool, bet clause plays an important role in avoiding the risk of imprecise valuation and performance management integration after merger and acquisition. After the completion of the investment merger and acquisition, if the company finds that the target subject does not meet the requirements of the company in terms of performance, listing, etc., during the process of tracking and management of the target subject, it should pay attention to whether the investment agreement signed by the target subject contains the gambling clause agreed on the above matters. If the investment agreement has agreed on the corresponding bet clause and the agreed items have appeared, the enterprise can choose to claim rights to the target subject according to the clause. Investment enterprises need to focus on the following issues in the agreement of gambling clauses:

First, the gambling clause should be guaranteed to be effective and enforceable. According to the spirit of the Minutes of the Civil and Commercial Trial Work Conference of the National Court, when the investment enterprise requires the target company to perform its gambling obligations, it not only needs the gambling agreement to be effective, but also needs the target company to perform when the conditions stipulated in the gambling agreement are triggered.

Second, when the investment enterprise requests the target company to fulfill the share repurchase obligation, the investment enterprise shall require the target company to complete the capital reduction procedure first. According to the relevant provisions of the Company Law, the company may implement share repurchase due to the reduction of registered capital. If the target company is a joint-stock limited company, the resolution to reduce the registered capital must be passed by more than two-thirds of the votes held by the shareholders present at the shareholders' meeting.

Third, when the investment enterprise requests the target company to fulfill the obligation of monetary compensation, it needs the target company to have distributable profits. The Jiangsu High Court's "Yangduan Case" retrial judgment ((2019) Su Min Zai No. 62) affirmed that the investment enterprise can obtain relatively fixed income through compensation clauses between the investment enterprise and the target company. The investment enterprise should pay attention to the fact that the annual rate of return agreed in the gambling clause should not be too high compared with the financing cost of the enterprise in the same period, and should not deviate from the normal operation law of the target company's operating costs and operating performance.

3. Look at the stated warranties in the investment agreement

When the investment enterprise and the target company sign the investment merger and acquisition agreement, the target company will often make statements and guarantees on the company's performance, equity structure, asset status, income and expenditure management and other matters. However, after the completion of the investment and merger, the investment enterprise may find that the corporate performance and operating profit of the target company have not met the standards agreed in the stated guarantee clause. In addition, the investment enterprise may also find that the actual value of the target company's assets is lower than its claimed value, or the target company has a large number of inefficient or invalid assets, or even illegal assets. The target company may also, due to malicious concealment of debts or irregularities in the financial system, result in the balance sheet not reflecting or unable to reflect the debts already incurred or potential debts, such as guaranteed debts, debt for bill liabilities, debt for compensation due to product infringement or environmental protection liabilities, pending litigation or potential litigation, administrative fines, etc.

The above risks will cause great damage to the interests of investment enterprises. The author suggests that the investment enterprises should first negotiate with the target company when they find the above risks, and reduce the losses of the investment enterprises by returning the capital contribution and transferring the equity. If the negotiation fails, it is suggested that the investment enterprise file a lawsuit with the court to maintain its legal rights by claiming that the target company constitutes a breach of contract or tort liability.

【 Case Study 】

On April 16, 2011, the investor Wang Dollar (Party A) (plaintiff) and the investor Chen Xiaolong (Party B) (defendant) signed a Subsidiary Agreement on Capital Increase and Share increase for third party Diamond Company to prepare for restructuring and listing. The main contents of the contract are as follows: "1. The investor contributes 3.75 million yuan to subscribe for 1 million new shares of the third party; 2. In order to ensure the interests of the investor, Party B agrees that the investor has the right to request Party B to repurchase the aforesaid shares held by the investor when any of the following conditions are met, and Party B shall unconditionally accept the investor's application for repurchase: 1. The audited net profit of the joint-stock company in 2010 is less than 9 million yuan, or the audited net profit in 2011 is less than 21 million yuan, or the audited net profit in 2012 is less than 40 million yuan; 2. The company fails to declare the listing materials to the CSRC before June 30, 2013; 3. The joint stock company meets the listing conditions, but refuses to list, etc.; 3. If the investor applies for share repurchase under the above circumstances, Party B shall purchase the investor's shares in cash. Purchase price = investment amount of the investor + (Investment amount of the investor × 8% × days from the transaction date to the acquisition date Re365 - cash dividends received by the investor before the acquisition date). After the signing of the contract, the plaintiff paid the full amount of investment to the defendant in accordance with the agreement, and the third party failed to complete the shareholding transformation and report the listing materials to the China Securities Regulatory Commission before June 30, 2013. To this end, the plaintiff required the defendant to repurchase the shares in accordance with the agreement.

The court held that the "Capital Increase and Share Expansion Subsidiary Agreement" signed by Wang Dollar and Chen Xiaolong is the true intention of both parties, does not violate the mandatory provisions of laws and administrative regulations, is legal and effective, and is legally binding on both parties. The above agreement indicates that although the target company has not been established and the agreement cannot continue to be performed, Wang Dollar is still entitled to receive appropriate compensation under the agreement to protect its investment. The investment return rate of 8% per annum is also within a reasonable range. The "share repurchase" clause agreed by both parties is a special provision set by Wang Dollar to withdraw from the investment legal relationship under certain conditions, restore the original status of the equity, and obtain certain economic compensation in order to protect its own interests. It belongs to the arrangement of the parties to the business risk of investment cooperation in the contracting process, and there are no other additional conditions. In this agreement, the two parties have made arrangements for the possible consequences of cooperation in the future business process, which is the rational choice and business judgment of the two parties. The court should respect the autonomy of the two parties and respect the contract or contractual arrangement reached by the parties based on the spirit of autonomy of private law. Under the premise of not violating the effectiveness of legal provisions, the principle of good faith and the principle of public order and good customs, and not damaging the social public interests, the contract or contractual arrangement voluntarily reached by both parties is valid and should be respected, and both parties should abide by it. Because the third party Shuangyang Diamond Company failed to declare the listing materials to the China Securities Regulatory Commission at the agreed time, the original and the defendant agreed on the share repurchase conditions have been achieved, and the plaintiff has the right to ask the defendant to repurchase the third party Shuangyang Diamond Company's equity.

Gambling clause is a common clause in the process of capital operation of enterprises, especially in the process of investment and merger. The essential function of this clause is risk control. The main purpose of this clause set by the investor is to avoid the situation that the target company cannot meet the investor's requirements after the investment and merger due to the inaccurate valuation of the merger and acquisition, and finally the fundamental purpose of the investment and merger will be disappointed. In essence, the acceptance of gambling clauses is based on the important embodiment of the principle of private law autonomy in the modern civil and commercial law system, and it is also the inevitable result of the evolution of commercial development process. In this case, the parties signed the Subsidiary Agreement on capital increase and share expansion of the third party diamond Company to prepare for restructuring and listing, and the "share repurchase" clause in the agreement is one of the gambling clauses, which belongs to the self-protection mechanism for the parties to withdraw from the investment legal relationship under certain conditions for their interests. Where both parties agree to the clause, the court will generally not find it invalid.