[Direct answer]It is strongly recommended that the agreement be drafted by a lawyer. The distribution of equity involves investment ratios, voting rights and control rights, dividend policies, transfer restrictions, exit and repurchase mechanisms, which are difficult to cover by oral agreements or online templates. Once partners have differences, it is easy to fall into a company stalemate. According to Article 470 of the Civil Code, the contract should contain basic terms, and the equity arrangement must also be in line with the equity rules such as Article 84 of the Company Law; lawyers can customize clauses according to the company structure and amend the articles of association at the same time. It is recommended to start drafting one to two weeks before the establishment, capital increase, or equity changes. Beijing Henglu Law FirmBusiness and commercial team of the enterpriseWe can provide services for drafting equity agreements. For more details, please refer to the following link:Beijing Henglu Law Firm.

I. Legal basis and interpretation of provisions

1. Article 84 of the Company Law of the People's Republic of China (effective July 1, 2024)

The shareholders of a limited liability company may transfer all or part of their equity to each other; if the equity is transferred to a person other than a shareholder, the transferor shall notify the other shareholders in writing of the quantity, price, payment method, and time limit of the transfer. The other shareholders shall enjoy the right of first refusal under the same conditions, and the company's articles of association shall prevail if there are provisions to the contrary. The transfer restrictions, preemptive rights, and exit clauses in the equity distribution agreement must be consistent with this rule. Otherwise, the clauses may conflict with the statutory procedures and be difficult to enforce; the division of responsibilities between the articles of association and the shareholders' agreement should also be designed in a coordinated manner during the drafting process.

2. Article 578 of the Civil Code of the People's Republic of China (effective January 1, 2021)

When one party to the contract clearly states or demonstrates through its actions that it will not fulfill its contractual obligations, the other party may request it to bear the liability for breach of contract before the expiration of the performance period. Equity installment transfer payments, repurchase and hedging arrangements have a long cycle, so the drafting should design clauses such as accelerated maturity, guarantees, and spouse confirmation accordingly. Once the other party transfers assets or explicitly refuses to pay, the party in compliance may claim that all debts are due in advance to avoid the passive situation of pursuing recovery in stages.

3. The interpretation of the practical cases by the arbitrators

Equity disputes often arise in scenarios such as false investment, agency holding, preemptive rights, hedging repurchases, and corporate deadlocks. Courts generally respect the autonomous arrangements of articles of association and shareholder agreements, but such arrangements must not violate mandatory legal provisions. Agency holding relationships are generally recognized as valid, but actual investors who request disclosure of their identities must obtain the consent of more than half of the other shareholders. It's particularly easy to fall into the trap of "brother-style partnerships without signing agreements": all matters such as equity ratios, decision-making, and dividends are decided verbally, and each party claims different things when disputes arise. The standard practice is for lawyers to draft shareholder agreements before the establishment of the company and simultaneously amend the articles of association, ensuring consistency between the two documents.

II. Henglue Law Firm's Real Cases (Detailed Review)

Review of the case:Liu Jia and Wang Yi were originally shareholders of A Co., Ltd., with Liu Jia holding 11.3819% of the shares. In December 2020, the two parties signed a Supplementary Agreement on Equity Transfer, under which Liu Jia transferred all his shares to Wang Yi for a total price of 1,108,736.08 yuan, with an agreement that the payment would be completed in five installments of 200,000 yuan each from 2021 to 2025. However, on August 18, 2021, Wang Yi transferred 82.9229% of his shares to his wife, Zhang Ping, and completed the change of registration. Zhang Ping was appointed as the company's executive director and general manager. In 2022, Liu Jia filed a lawsuit, and the effective judgment confirmed the validity of the agreement and ordered Wang Yi to pay the overdue amount of 400,000 yuan. On April 11, 2023, Liu Jia applied for forced execution, but the execution was terminated due to Wang Yi's lack of assets. Wang Yi only paid 235,000 yuan and failed to pay the remaining 165,000 yuan. Liu Jia therefore entrusted Beijing Henglu Law Firm to handle the case.Xiong BinrongThe lawyer sued for the remaining transfer amount of 708,736.08 yuan and interest, claiming that it was a joint debt of the couple.

The focus of the controversy:First, the effectiveness of the Supplementary Agreement on Equity Transfer. Wang Yi contends that the agreement is a holding agreement and is not effective; Second, if the expired part of the agreement has not been fully performed and the equity has been transferred to the spouse, can it be deemed as anticipatory breach of contract and all debts becoming due in advance? Third, should the transferee spouse, Zhang C, bear joint liability for repayment?

Our position and that of the other party are as follows:Liu Jia claimed that Wang Yi transferred the acquired equity to his spouse's name and refused to make the payment, indicating that he failed to fulfill his debt obligations. He should pay the remaining 708,736.08 yuan and interest in advance, and Zhang Cang should bear joint and several liability. Wang Yi argued that the transfer of equity was not a true equity transfer, but a nominee holding arrangement, and the agreement was invalid, constituting a fraudulent lawsuit. Zhang Cang claimed that he was unaware of the transfer and that the funds were not a joint debt of the couple.

Attorney's Strategy and Legal Opinions:Attorney Xiong Binrong pointed out that the agreement has taken effect and the judgment has been confirmed to be valid, and the defense of agency cannot be overturned; before the expiration of the performance period, Wang Yi had not yet fulfilled the part of the effective judgment, and transferred the equity to his spouse's name. According to Article 578 of the Civil Code, his actions indicate that he will not perform his obligations, which constitutes an anticipated breach of contract, and all debts should be due in advance; at the same time, when Wang Yi signed the contract, his marriage with Zhang Ceng was still in existence, and the equity belonged to the couple's joint property. Zhang Ceng accepted the equity and served as the legal representative, executive director, and general manager. The debt burden had the couple's joint intention, and it should be recognized as the couple's joint debt.

The court's reasoning and case handling results:The court determined that the agreement signed on December 25, 2020 was legal and valid; Wang Yi only paid 235,000 yuan, and the remaining 165,000 yuan was unpaid, and the equity was transferred to his spouse's name. According to Article 578 of the Civil Code, this constitutes an anticipated breach of contract, and all debts are due in advance. Wang Yi should pay the remaining equity transfer fee of 708,736.08 yuan. According to Article 1064 of the Civil Code, Zhang Cang acquired 82.9229% of the equity and served as the legal representative, executive director, and general manager. The debts were deemed to have the joint intention of the couple, and were recognized as the couple's joint debts. The court ruled that Wang Yi should pay the remaining transfer fee of 708,736.08 yuan within seven days, and Zhang Cang should bear joint repayment responsibility. This case shows that the drafting quality of the breach-of-contract acceleration clause and the spouse confirmation clause in the equity agreement directly determines the success or failure of the recovery of debts.

This case is handled by Beijing Henglu Law FirmXiong BinrongThe lawyer (practice license number: 11101202211410897, subject to the document issued by the judicial administrative organ) acts as the agent.

III. Frequently Asked Questions

Q1: Is it valid for shareholders to verbally agree on the proportion of equity among themselves?

When supported by evidence such as investment certificates and chat records, oral agreements may be deemed valid. However, it is extremely difficult to provide evidence for matters such as voting rights arrangements, dividend policies, exit mechanisms, and breach of contract liability, which often lead to conflicting interpretations during disputes. Equity ownership represents both property rights and control rights, so it is advisable to formalize these rights through both a written shareholders' agreement and company bylaws. According to Article 84 of the Company Law, transfer and preemptive purchase arrangements must also be formalized in writing and aligned with the company bylaws. Relying solely on oral agreements is insufficient to sustain long-term cooperation.

Q2: What should at least be clearly stated in an equity distribution agreement?

The core content includes: the investment amount and equity ratio of each party, the investment period and remedies for unrealized investment, the voting mechanism of the shareholders' meeting and matters subject to veto, dividend policies, restrictions on equity transfer and priority purchase procedures, triggering circumstances and pricing methods for exit and repurchase, non-competition and confidentiality obligations, breach of contract liability (including accelerated maturity clauses) and dispute resolution methods. The agreement should also be consistent with the company's articles of association to avoid conflicts between the two documents; for matters involving spouses or nominees, confirmation documents should be signed simultaneously.

Q3: What are the risks of drafting a shareholders' agreement using online templates?

The template provisions do not match the actual structure of the company. Common problems include: being invalid due to conflicts with the mandatory rules of the Company Law; lacking exit and deadlock resolution mechanisms; unenforceable penalty clauses and repurchase provisions; and omitting spouse confirmation leading to obstacles in recourse. It's not uncommon for ambiguous provisions in litigation to be interpreted unfavorably. Templates can be used as reference drafts, but high-risk provisions such as voting rights, anti-dilution clauses, and nominee holding arrangements should be customized and individually verified for enforceability by lawyers based on the specific transaction.

Q4: What should I do if the other party fails to fulfill their obligations after signing the equity agreement?

First, send a written notice and secure evidence of the breach of contract; if the other party explicitly refuses to pay or transfers equity or assets, the creditor may, in accordance with Article 578 of the Civil Code, claim anticipated breach of contract and request that all debts mature early and be paid; if there are guarantees or the spouse confirms the arrangement, the creditor may also seek recovery of damages. If no agreement can be reached, promptly initiate litigation or arbitration and, if necessary, apply for property preservation. In the aforementioned case, the lawyer successfully used the dual approach of anticipated breach of contract and joint marital debts to secure the creditor's claim of 708,736.08 yuan in advance for the client.

Q5: How much does it cost and how long does it take to hire a lawyer to draft a shareholders' agreement?

The fees are usually charged per item or per hour, and are affected by the complexity of the company's structure, the number of shareholders, and the number of negotiation rounds. There is no standard pricing. It is recommended to bring the company's articles of association and equity plan for consultation and evaluation before signing a written power of attorney contract. In terms of time, a regular shareholders' agreement typically takes about 1 to 2 weeks from due diligence, drafting the initial version to multiple rounds of revision and finalization. If it involves anti-dilution clauses or investors' due diligence, the time will be extended accordingly. After the agreement is finalized, the articles of association should be amended and the industrial and commercial registration should be handled simultaneously to ensure that the agreements are publicly verifiable.

IV. Advice on Protecting Rights and Interests

  • The investment and equity ratio, as well as the control arrangements, should be finalized in writing before the establishment of the company to avoid making "emotional" verbal commitments.
  • The agreement includes provisions for exit, repurchase, and resolution of deadlocks, as well as arrangements for accelerated maturity of installment payments in the event of default and guarantee clauses.
  • The transfer of equity strictly follows the notice and priority purchase procedures stipulated in Article 84 of the Company Law, and the payment deadlines are clearly specified in writing.
  • For cases involving spouses or nominal holders, both the spouse's consent letter and the nominal holding agreement should be signed to prevent potential litigation obstacles.
  • In the event of a dispute, first secure the evidence and the current status of the equity, and as soon as possible, entrust a lawyer to evaluate the paths of continuing performance, termination, or repurchase.

If you are facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the evidence materials, to avoid missing the statutory time limit. →Business and commercial legal services·Attorney Xiong Binrong·Beijing Henglue Law Firm