[Direct answer]In the Beijing area, investors' preemptive rights generally stem from special provisions in investment agreements, shareholder agreements, or company bylaws. They may also assert corresponding claims based on investors' disposition of the company's assets. The core process of exercising this right involves three steps: first, being promptly notified when others transfer equity or increase capital; second, exercising the preemptive right within the agreed timeframe; and third, acquiring the equity on the same terms as the third party. According to Article 865, Paragraph 2 of the Civil Code of the People's Republic of China (effective January 1, 2021), when a shareholder transfers equity to a person outside the company, they must notify the other shareholders in writing of the transfer quantity, price, payment method, and deadline. The other shareholders have the right of preemptive purchase under the same conditions.Business and contract disputes in enterprisesIn the class service, the design of the terms of the investment agreement is the foundation of rights protection.

1. Problem background and typical scenarios

Common forms of disputes include: the founder transferring equity to an external party without notifying the investor, the investor requesting to accept the transfer but being rejected on the grounds of non-compliance with procedures; the investor claiming priority rights but being told that the deadline has passed; a third party excluding the investor's priority rights on the grounds that the investor holds a low proportion of shares; and disputes over whether other shareholders enjoy priority subscription rights during a capital increase.Special services and other casesThe column provides a more detailed explanation of this issue.

II. Key points of dispute

Focus One: The source and nature of the right of first refusal. Focus Two: Whether it falls under the shareholder's preemptive rights stipulated in the Company Law. Focus Three: Whether the notification procedure is complete. Focus Four: The criteria for determining equal conditions. Focus Five: The agreement and application of the exercise period. Focus Six: Whether the transferor has the right to enter into contracts with third parties during the exercise period. Focus Seven: The priority order among multiple investors.Special services and other casesThe column provides a more detailed explanation of this issue.

III. Professional analysis by Henglue Lawyers

Henglue Lawyers believe that the protection of the preemptive right should be implemented in three stages. 1. **Contract Stage**: Clearly define transfer restrictions in the investment agreement or shareholders' agreement, stipulate the consent procedure for external transfers, notification obligations, the exercise period and pricing rules for the preemptive right, and specify the responsibilities for breaching the terms. This is the most basic and effective protection. 2. **Closing Stage**: Establish a monitoring mechanism for equity changes. Regularly check against industrial and commercial registration records, changes to the shareholder register, and industrial and commercial notifications. Promptly assert rights if abnormal changes occur. 3. **Exercise Stage**: Once notified, the investor should exercise the preemptive right in writing within the agreed timeframe, sign the transfer documents according to the conditions specified in the notification, and retain evidence of the notification's delivery. Additionally, two details should be noted: 1. **Careful judgment of "equal conditions":** If the third party proposes special conditions, the investor may find it difficult to acquire the shares on equal terms. 2. **Pre-agreed priority order or shareholding ratio in case of multiple investors asserting preemptive rights:** This should be specified in the investment agreement to avoid high costs of disputes arising later.Business and contract disputes in enterprisesThe column provides a more detailed explanation of the clause design. In practice, there is also a special situation that requires separate agreement, namely the preemptive subscription right in the case of capital increase, which differs from the preemptive purchase right in the case of equity transfer in terms of both the object and the procedure.

IV. Practical suggestions and legal basis

Action recommendations: First, specify transfer restrictions and preemptive purchase rights in the investment agreement; Second, agree on the notification method and delivery address and update them regularly; Third, establish a monitoring mechanism for equity changes; Fourth, express the intention to exercise rights in writing within the time limit after receiving the notification; Fifth, check the same conditions and keep the comparison basis; Sixth, handle the claims of multiple investors according to the agreed order of priority; Seventh, separately agree on preemptive subscription rights in the case of capital increase. Legal basis: Article 843 of the Civil Code of the People's Republic of China (effective January 1, 2021), Articles 865 and 866; and the relevant provisions on shareholders' transfer of equity in the Company Law of the People's Republic of China (amended on December 29, 2018). For details on the design of agreement clauses, please refer to the following document.Business and contract disputes in enterprisesFor those involved in the registration process, you can refer to the following information for reference.Special services and other casesThe specific application shall be subject to the currently effective laws, regulations, and judicial rulings.

5. Henglue Law Firm's Reminder

Firstly, the preemptive right to purchase is primarily a contractual right, and only secondarily a statutory right. Secondly, the notification procedure is a prerequisite for exercising this right. Thirdly, there may be disputes regarding the determination of "equal conditions", so careful verification is necessary. Fourthly, the time limit for exercising this right is usually quite short, so it's important not to delay. Fifthly, the order of priority among multiple investors should be agreed upon in advance. Sixthly, separate clauses should be drafted for equity transfer and capital increase. Seventhly, it's essential to preserve the evidence of notification and delivery.

VI. Frequently Asked Questions

Q1: Where does the investor's preemptive right to purchase come from?

There are usually two sources: First, there are special provisions in investment agreements, shareholders' agreements, or company charters that explicitly grant investors the right of first refusal. Second, Article 865 of the Civil Code of the People's Republic of China grants shareholders the right that when a shareholder transfers equity to a person other than a shareholder, he/she shall notify the other shareholders in writing, and the other shareholders shall have the right of first refusal under the same conditions. If the investor is not a registered shareholder, he/she usually relies on the aforementioned provisions to assert his/her rights.Business and contract disputes in enterprisesThe column provides a more detailed explanation of this.

Q2: How to exercise the preemptive right to purchase?

Generally, it involves three steps: First, obtain a written notice, which should specify matters such as the transfer quantity, price, payment method, and deadline; Second, exercise the right to transfer within the agreed deadline in writing; Third, sign the transfer document and handle the registration formalities under the same conditions as those applicable to the third party. In practice, it is recommended to send the exercise notice via a traceable logistics method and retain the receipt certificate, while comparing the conditions stated in the notice with the actual conditions applicable to the third party and keeping the comparison records.Special services and other casesThe column provides further explanations about the process.

Q3: What is the difference between the preemptive right of purchase and the preemptive right of subscription?

The objects and triggering conditions are different: the preemptive right of purchase targets the transfer of existing equity shares by shareholders to persons other than shareholders, and the triggering condition is the external transfer of existing equity; the preemptive subscription right targets the right of other shareholders to pay the new capital in proportion to their investment when the company increases its registered capital, and the triggering condition is the capital increase. There are differences in the exercise conditions, price formation, and legal consequences between the two, and they need to be separately stipulated in the investment agreement. The Enterprise Commercial and Contract Disputes column provides more analysis on this matter.

Q4: If the founder transfers the equity without notifying me, can I still make a claim?

If the investment agreement stipulates transfer restrictions and notification obligations, failure to notify constitutes a breach of contract, and investors can claim breach of contract liability accordingly. Whether to support the preemptive right of purchase depends on whether the defects in the notification process materially affect the possibility of exercising the right. In practice, it is recommended to first verify the changes through industrial and commercial registration and shareholder registers, then collect evidence proving the failure to notify, and subsequently assess whether to claim the preemptive right of purchase or breach of contract compensation. At the same time, attention should be paid to the statute of limitations and the contractual time limits. The "Specialized Services" and "Other Cases" columns provide a more detailed explanation of this issue.

Q5: How much does it cost to hire a lawyer to draft a priority clause?

The fees depend on the complexity of the terms and the equity structure involved. If the investment agreement is already in place and only the priority rights provisions need to be added, the cost will be relatively manageable; if it is necessary to design an investment agreement from scratch and coordinate the demands of multiple investors and founders, the investment will be greater. It is recommended to introduce professional services at the stage of clause design, because the value of priority rights provisions entirely depends on the accuracy of the expression, including details such as the notification method, time limit, price rules, and ranking arrangements.

This article is written based on the common judicial interpretations in the Beijing area. If the case occurs in other regions, it is recommended to consult local lawyers to verify the regional differences.

If you are currently facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the necessary evidence, in order to avoid missing the statutory time limits.Corporate commercial legal services·Beijing Henglu Law Firm

Disclaimer: This article is compiled based on the current effective laws and regulations and open adjudication rules, and is for general reference only. It does not constitute a formal legal opinion on specific cases. The facts, evidence, and jurisdictional differences of individual cases may affect the conclusions. If you encounter disputes, please consult a practicing lawyer in time.