After the due diligence is completed, if the quality of the target enterprise meets the investor's expected requirements, then the investor and the relevant subject will generally enter the transaction negotiation stage. Generally speaking, investment and merger are mainly carried out by means of capital increase or equity transfer. This paper takes the equity transfer of a company as an example to suggest the terms that should be paid attention to when signing an agreement. The terms of the equity transfer agreement mainly include the following:

1. Principal clause

Article 71 of the Company Law stipulates that shareholders of a limited liability company may transfer all or part of their equity to each other. The transfer of shares by a shareholder to a person other than a shareholder shall be subject to the consent of more than half of the other shareholders. The shareholders shall notify other shareholders in writing of the transfer of their shares for consent. If the other shareholders fail to reply within 30 days from the date of receiving the written notice, they shall be deemed to have consented to the transfer. If more than half of the other shareholders do not agree to the transfer, the shareholders who do not agree shall purchase the transferred equity. Failure to purchase shall be deemed as consent to the transfer. If the equity is transferred with the consent of the shareholder, other shareholders shall have the right of preemption under the same conditions. If two or more shareholders claim to exercise the preemptive right, the respective purchase ratio shall be determined through consultation; If no agreement can be reached through negotiation, the pre-emptive right shall be exercised according to the respective proportion of investment at the time of transfer. Where the articles of association provide otherwise for the transfer of equity, such provisions shall prevail.

Therefore, unless the company's articles of association provide otherwise for equity transfer, if the external investor wants to become a shareholder of the target company, it must obtain the consent of a majority of the other shareholders of the company, and the other shareholders of the target company must waive their right of preemption under the same conditions. Therefore, if the transferor does not communicate well with other shareholders, the equity transfer agreement will be difficult to implement.

2. Subject clause

The subject clause is generally related to the transferred equity and the delivery of equity, which mainly describes the status of the transferred equity, including but not limited to the amount of capital contribution of the transferor, shareholders' equity and shareholders' responsibility. It should be reminded here that if the description of the number of shares to be transferred is only expressed as "X% of the shares held by the transferor", there may be ambiguity and disputes. Does the X% account for X% of the number of shares held by the transferor or X% of the total number of shares of the target company? There have been disputes in this regard in practice. Here it is suggested to pay attention to the provisions of this subject and describe them accurately.

3. Price clause

The price of equity transfer is generally related to the valuation of the target company, net assets and the amount of capital contribution of the transferor, and the price of equity transfer will be affected by the net assets per share, the operating profit of the enterprise, the development of the industry and other aspects. The purchase price of the transferred equity usually does not include the company debt concealed by the transferor, which must be agreed in the contract, as to whether the tax (income tax, etc.) involved in the equity transfer is included, it is agreed by both parties, but it is recommended to clearly agree. In addition, the payment of the contract price also needs to be clarified, including the date and method of payment of each installment of the price. Here is a special reminder: In the practice of some equity transfer, the transferor and the transferee, in order to achieve the purpose of "avoiding (avoiding) tax", will "lower" the transfer price and use the yin-yang contract to deal with it. However, nowadays, the registration authority (industry and Commerce Department, tax department) often reviews the equity transfer price agreement when reviewing and handling the equity transfer registration. If it is considered that the transfer price is too low (for example, it is obviously lower than the corresponding value of the profit in the tax declaration of the target company in the previous three months), the transaction parties may be required to explain the reason for the low price (common reasons: kinship, debt offset, etc.), and the reason is unreasonable, may refuse to register, the enterprise needs to pay attention to this!

4. Delivery clause

Delivery terms generally include delivery prerequisites and specific delivery content. The pre-conditions for delivery refer to the relevant work to be completed by the transferor before delivery, such as the target company has passed the resolution of the shareholders' meeting approving the equity transfer, and other shareholders of the company have waived the exercise of the pre-emptive right on the target equity to be transferred by the seller; Another example is that the transferor has lifted the pledge and freezing of the target equity, as of the delivery date, the ownership of the target equity is clear, there is no property rights dispute or potential dispute, there is no pledge, seizure, freezing and other third-party rights, and there is no obstacle for the transferor to transfer the target equity to the buyer's name.

The specific content of the delivery includes the company's registration of the change of the equity transfer to the registration authority (the registration authority will issue a new business license or other effective documents to the company for this purpose), the company's shareholder register and investment certificate indicating that the investor is the company's shareholder, and it is clear that the transferor's default liability for overdue equity delivery procedures.

What needs to be reminded here is: when handling the change registration of equity transfer, do not forget to complete the change registration procedures in the tax registration authority. In practice, both parties to the transaction generally go to the industrial and commercial registration authority for change registration, but most of them will miss the change registration procedures of the tax authority, and often the registration form stored in the tax authority system does not automatically (synchronously) change with the industrial and commercial registration authority, which will bring hidden dangers to both sides of the transaction.

5. Representations and warranties

The main purpose of this clause is to ensure that the parties to the agreement can avoid risks and corresponding legal liabilities. The statements and guarantees of the transferor mainly focus on whether the transfer of the target equity is legal, effective and complete, whether the investment is paid, whether other shareholders are willing to transfer the target equity, and whether the shareholders of the target company have made a decision to agree to the transfer. The statement and guarantee clauses of the transferee mainly express and guarantee the contents mainly focus on the true intention of the transferee equity and the legal and reliable source of funds for the purchase of equity.

A word of caution here is that a simple statement and guarantee in the agreement is not enough as to whether the investment is paid in or not. Both parties to the equity transfer shall make a more detailed agreement on the actual payment of the investment funds. In practice, if the payment of investment funds cannot be properly handled, its shareholders (including existing shareholders and former shareholders) may have to bear the corresponding joint and several liabilities for the debts of the underlying company when the debt problems of the underlying company arise in the future, so that the disposal of claims and debts contained in the previous equity transfer may also be involved.

6. Transitional provisions

The period from the signing of the equity transfer agreement to the formal equity delivery is the transitional period, and the transitional period clause is mainly to protect the interests of the investor during the transitional period and prevent the transferor from negatively operating or even damaging the assets of the target company after the signing of the equity transfer agreement, which will bring losses to the investor. Therefore, such terms will restrict the relevant rights of the transferor and the target company during the transition period, such as the transferor and the Company shall not make any acquisition or sale of equity or material assets or make any disposal or change of its existing material investment.

7. Follow-up matters

This part of the clause is mainly to agree on some matters after equity delivery, such as performance commitment agreement, the previous year's undistributed profit distribution mechanism agreement, etc. The specific parties may further agree on details such as "the accumulated undistributed profits of the target company shall be shared by the shareholders of the company at that time after the completion of the equity transfer in accordance with their respective proportions of the company's equity".

【 Case Study 】

On June 18, 2015, Li Shuqing (transferor, Party A) and Zha Dongqi (transferee, Party B) signed an Equity Transfer Agreement, in which it was agreed that Party A would transfer all the equity of Tongling Jinlu Small Loan Co., Ltd. to Party B at a price of 2 million yuan. Later, because Zha Dongqi did not pay the remaining equity transfer payment, Li Shuqing requested the court of first instance to order Zha Dongqi to pay the equity transfer payment and interest. And Zha Dongqi countersued to the court of first instance, that after the transfer of equity, the state issued a series of laws and regulations on private lending cases; State-owned banks have made major adjustments to the credit policies of small and micro enterprises, making small loan companies that survive in the gap between private lending and state-owned credit businesses unable to continue to operate, and a large number of small loan companies have been written off or exist in name only. The changes in these circumstances are not force majeure, but they are unforeseeable and do not belong to the category of business risks, so we request the termination of the Equity Transfer Agreement signed by Zha Dongqi and Li Shuqing on June 18, 2015.

The court held that Chardonchi's counterclaim for termination of the contract had no factual and legal basis, and the occurrence of the alleged matters did not meet the applicable conditions of the change of situation. The application of the principle of change of circumstances should meet the following conditions: First, there should be a fact of change of circumstances, that is, the objective circumstances on which the contract depends have indeed changed; Second, the change of circumstances must be unforeseeable to the parties; Third, the change of circumstances must not be attributable to the parties, that is, caused by an accident other than force majeure. Fourth, the fact of the change of circumstances occurs after the formation of the contract and before the completion of performance. Fifth, if the contract continues to be maintained after the situation has changed, it will be unfair to the parties. First of all, the Equity Transfer Agreement signed by both parties has met the entry into force conditions and has legal force and binding force on both parties. The documented evidence also shows that Zha Dongqi actually exercised the rights of shareholders in the name of shareholders in Tongling Jinlu Small Loan Co., LTD., and Zha Dongqi clearly stated in the agreement that he had fully understood the situation of Tongling Jinlu Small Loan Co., Ltd. before the agreement was signed, and he had no right to claim cancellation, alteration or termination of the agreement for any reason after the agreement came into effect; Secondly, the agreement stipulates in detail the price, payment schedule and liability for breach of contract of the equity transfer, and the rights and obligations of the two parties are specific and clear, and the agreement stipulates that Chadonqi has no right to require Party A to register the equity change before paying 2 million yuan. The Company Law of the People's Republic of China stipulates that a company shall register the names of its shareholders and their capital contributions with the company registration authority; Where there is a change in the registered item, the change shall be registered. Without registration or alteration of registration, it may not oppose any third party. The capital contribution certificate, the change of the register of shareholders and the registration of industrial and commercial changes are the publicity of the change of shareholders in the transfer of equity by shareholders. Failure of the parties to register the change shall not affect the validity of the equity transfer contract between the parties; Thirdly, Zha Dongqi also failed to produce effective evidence on the company's operating conditions, unable to prove that the continued performance of the agreement was unfair to Zha Dongqi, nor did it prove that there was a direct relationship with Li Shuqing; Finally, even if the current corporate debt can not be recovered, assets are negative and unable to operate, it is a normal business risk, not unforeseeable, can not constitute a reason for the change of situation. Therefore, Chadonqi claimed that the counterclaim of rescinding the equity transfer Agreement on the grounds of change of situation requested the court not to support it.

Enterprise investment and merger is one of the common capital operation modes. During the period of investment and merger, the most basic legal protection for both parties is the commercial contract represented by the equity transfer agreement signed by both parties. In the process of signing a commercial contract, it is necessary to clarify the main clauses, subject clauses, price clauses, declaration and guarantee clauses, transitional clauses and subsequent clauses of both parties. A complete investment and merger contract is very important for both parties to clarify their rights and obligations and improve the efficiency and compliance of business activities. This case is a typical case in which the investor and merger party did not treat the equity transfer agreement with sufficient caution, and the claim of revoking the transfer agreement could not be supported. In this case, in the Equity Transfer Agreement signed by Li Shuqing and Zha Dongqi, it is clearly stated that "Party B promises that Party B has fully understood the situation of Tongling Jinlu Small Loan Co., Ltd. before signing this Agreement, so it has no right to claim cancellation, alteration or termination of this Agreement for any reason after this Agreement takes effect". Therefore, the court holds that by signing this detailed declaration and guarantee clause, the court will not be able to cancel, modify or terminate this Agreement. Both sides have clearly understood the situation of the agreement, and Chadonchi's request to revoke the transfer agreement on the grounds of change of situation cannot be supported.