Verifying Secondary Chop Authority in PRC Master Supply Agreements
Verify secondary contract chops against Public Security Bureau 13-digit codes and secure a primary-chopped Power of Attorney to prevent non-authorization defenses.
PRC Company Law Article 74
Meaning
Statutory provision in Chinese corporate law grants a dissenting shareholder of a limited liability company the right to demand that the company purchase its equity at a reasonable price. Under the framework of PRC Company Law Article 74, this buyback right applies when the company fails to distribute profits for five consecutive years despite being profitable. This article also covers corporate mergers and major asset transfers that the shareholder opposed.
Statutory Trigger
Invoking this statutory protection requires that the shareholder voted against the contested resolution during the shareholders’ meeting. Once the meeting concludes, the dissenting party must negotiate with the company to reach an equity purchase agreement. Under PRC Company Law Article 74, if no agreement is reached within ninety days of the resolution’s passage, the shareholder can file a lawsuit in the local people’s court.
This lawsuit must be initiated within sixty days after the expiration of the ninety-day negotiation window.
Valuation Standard
Determining the reasonable price of the equity often leads to intense judicial disputes between the dissenting shareholder and the company management. Courts typically appoint an independent asset appraisal firm from their official registry to value the company’s net assets. This appraisal uses asset-based or income-approach methodologies depending on the nature of the business.
The resulting valuation provides the legal basis for the court-ordered buyout price, which the company must pay to redeem the shares.
Procedural Execution
Completing the buyout triggers an administrative requirement to reduce the company’s registered capital or transfer the equity to another party. The company must file the change with the Administration for Market Regulation within statutory timelines. This prevents the company from holding its own shares indefinitely.