[Direct answer]In the Beijing area, the essence of the betting agreement is valuation adjustment—if the performance or listing goals are not achieved, the founder or the company compensates or repurchases the investor's equity according to the agreement. The consequences can be categorized as follows: - Betting against individual shareholders—effective. Cash compensation, equity repurchases, and joint guarantees by actual controllers will be enforced against individuals. - Betting against the company—the company must fulfill legal procedures such as capital reduction when assuming compensation or repurchase obligations, and the lack of such procedures will limit enforcement. - Repurchase clauses tied to the market value of listed company shares—they may be deemed invalid for disrupting securities market order. Two public cases represent the extremes of this issue: - Li * vs. the controlling shareholder of an energy company (net profit below 6 million yuan leads to cash compensation, and non-listing triggers an 8% annual interest repurchase)—the controlling shareholder's personal liability was confirmed. - Case No. 745 of 2021 Shanghai Civil Court of Final Instance—the repurchase price was directly tied to short-term market value in the secondary market, which was deemed to disrupt securities market order and harm public interests, rendering the clause invalid.

1. Problem background and typical scenarios

The "valuation adjustment mechanism" on the financing negotiation table sounds professional, but after signing it, we found that the performance bet, the listing bet, and the repurchase clause are interconnected. The cost of losing the bet is the founder's entire personal wealth — every word of the bet clause is worth reviewing carefully.

II. Key points of dispute

First, the layered rules regarding the counterparty and the effectiveness of the agreement. Second, the procedures and time limits for exercising the repurchase right. Third, the risk of invalidation of the provisions linked to market value. Fourth, the key points of clause design before signing the agreement.

III. Professional analysis by Henglue Law Firm

The first layer is the rules of refereeing based on the hierarchy of effectiveness: betting against the actual controllers of shareholders - it falls within the scope of autonomy of will and is legally valid, with personal property liability being confirmed; betting against the target company - repurchases or monetary compensation require compliance with statutory procedures (share repurchases must complete the capital reduction process, and monetary compensation is subject to profit distribution rules). If the procedures are not completed, investors' requests for performance are limited, but the contractual effectiveness is not affected; the effectiveness red line linked to market value - the rule established in Case No. 745 of 2021 Shanghai Civil Court of Final Instance: if the repurchase price is directly linked to the short-term stock trading market value in the secondary market, it will disrupt the order of the securities market and harm the public interest, and the clause is invalid - this is a major pitfall for listed company shareholders when betting against each other, and the clause design should avoid formulas directly linked to short-term market value.

The second layer concerns the technical details of exercising the repurchase right: the nature of the repurchase right and the exercise period - the written exercise of the repurchase right within a certain period after the triggering condition occurs if agreed upon, and the claim within a reasonable period if no time limit is agreed upon, as delaying may result in the loss of the repurchase right; the written form of exercise - leaving a trace of the delivery of the repurchase notice (using EMS and email in parallel), and confirming the triggering conditions through audited performance reports; the calculation of the repurchase price - clarifying the interest base and period for an 8% annual interest rate repurchase (verifying the formula for invested principal plus fixed returns item by item), and reserving tax costs (income tax treatment of equity repurchases) in the clause design. The third layer outlines the practical responsibilities: - For the actual controller - cash compensation often amounts to millions, and personal real estate and deposits can be directly executed (as exemplified by the repurchase and compensation responsibilities of the actual controller in the Li * vs. Energy Company case). - For joint and several guarantees - the spouse's guarantee responsibility extends to family assets, and the spouse's defense space for un-signed assets is questionable. - For the company - creditor protection in the reduction of registered capital process (announcement and creditor objection period), and performance defects leading to delayed fulfillment still constitute breach of contract. - For investors - the repurchase agreement is not a "safe box": the repurchase right is a paper right when the investee company has no assets to be executed against, making pre-investigation and post-investment management more important than clauses. The fourth layer highlights pre-signing design points: - Matching bets with tolerance - setting a compensation cap (no more than a certain percentage of the investment amount) and arranging for phased fulfillment; - Objectifying triggering conditions - using audited net profit as the basis for performance indicators, and clarifying the timing and declaration procedures for listing-related repurchases (seeking clauses that grant exemption upon submission of declaration materials); - Reviewing the repurchase price formula - avoiding direct linkage to secondary market valuation (lessons from Case No. 745), and adopting a closed formula of "principal plus fixed interest rate"; - Equivalent exit channels - designing follow-on sale rights and priority liquidation rights for original shareholders to make the repurchase agreement an integral part of the investment structure rather than a gamble; - Final reminder: The market environment and cash flow forecast at the time of signing the repurchase agreement determine whether it will be "compensation according to the formula" or "personal bankruptcy" three years later. The clauses reflect a cash flow stress test rather than a mere formality.

IV. Practical suggestions and legal basis

The first step is to identify the counterparty of the bet and set a cap on the personal bet of shareholders based on their tolerance. The second step is to avoid using a market value-linked formula in the repurchase clause and adopt a closed-end calculation method based on the principal plus a fixed interest rate. The third step is to ensure that the triggering conditions and the exercise of the repurchase right are fully documented throughout the process, with strict time management. The fourth step is to design in advance the procedures for reducing capital and distributing profits in the case of a bet with the company. Main legal basis: The provisions of the Company Law of the People's Republic of China on share repurchases, capital reductions, and profit distributions; the effectiveness rules for bet clauses in the "Memorandum on Civil and Commercial Judicial Work of the National Court" (Nine Civil Memorandum); and the invalidation rule for market value-linked clauses established in Case No. 745 of 2021 Shanghai Civil Court of Final Instance. Specific applications shall be subject to the currently effective regulations.

5. Henglue Law Firm's Reminder

Three key points about counterparty agreements: 1. The counterparty defines the responsibility for potential losses. For individuals, this translates to personal bankruptcy risk. 2. Repurchase prices pegged to market value may be ineffective overall; closed-formulas are more secure. 3. Triggering traceability and deadline management determines the success or failure of the repurchase right. Clauses must be paired with procedural contingency plans. For assistance with designing counterparty agreements, please contact us.Business and contract disputes in enterprisesWe can provide a comprehensive solution for services, which includes equity investment and financing if necessary.Intellectual property protection and corporate lawFor plates, those involving guarantee responsibilities can be referred to for referenceSpecial servicesFor any questions regarding difficult cases, please feel free to consult us via the columnSpecial services and other casesColumn.

VI. Frequently Asked Questions

Q1: If I bet against the company, will I not be able to achieve my personal goals?

When a company engages in a bet against itself, the company's assets are held liable, but its performance is subject to restrictions (such as capital reduction and profit distribution procedures). If the actual controller provides a separate guarantee, the individual's personal assets will still be pursued for repayment.

Q2: Can the repurchase right still be exercised after being delayed for three years?

It depends on the agreement and a reasonable timeframe. If the exercise period specified in the agreement has passed, the right to exercise will be lost. If no exercise period is specified, the exercise of the right shall be subject to a reasonable timeframe and a preclusive period. Once the triggering event occurs, the right should be exercised in writing as soon as possible.

Q3: Is the compensation for the betting contract subject to taxation?

The tax treatment of cash compensation and the repurchase premium shall be determined based on the nature of the income. The income from equity transfer may trigger income tax, so it is necessary to reserve tax burden space when designing the terms of the agreement.

Q4: If my spouse doesn't sign the agreement, do I still have to share the responsibility for the gambling debts?

The spouse who did not sign the agreement has room for defense, but the compensation money used for the family's common life may still be regarded as a joint debt, so whether to sign the agreement or not makes a significant difference.

Q5: Does a slightly poor performance count as a losing bet?

According to the terms of the agreement, the indicators are fixed; it would be more practical to negotiate to set up a buffer zone (for example, a reduction or exemption in proportion to the achievement rate of more than 90%).

The above content is based on the compilation of judicial practices in the Beijing area. The facts of individual cases and the jurisdiction of the court may affect the conclusions. Welcome to consult Henglue Law Firm for specific cases.

VII. Relevant public cases (for reference only, not handled by our firm)

The following cases are all sourced from the official websites of courts at all levels, judicial authorities, and authoritative media, and are not related to the cases handled by our firm. They are provided solely for reference in understanding relevant adjudication rules and do not constitute opinions on specific cases.

[Case No.](2021) Shanghai Civil Court No. 745
[Trial Court]Shanghai Municipal Higher People's Court (Second Instance)
[Judicial Summary]The investor and the listed company's shareholders agreed on an equity repurchase clause linked to the market value of the shares. The court held that the repurchase price was directly linked to the market value of the shares traded in the secondary market in the short term, which undermined the order of the securities market, damaged the public interest, and violated public order and good customs. The clause was deemed invalid, and all the investor's claims were rejected. The case was selected as a typical commercial case released by the Supreme Court.
[Source]The official website of the Liaoning Provincial Court System reposted (Dalian Railway Transport Court) (2024-02)

[Case Number]The case number has not been made public.
[Trial Court]A certain court (according to public reports)
[Judicial Summary]Investor Li * and the actual controller of the energy company, Zhang *, among others, entered into a betting agreement, stipulating that if the average net profit was less than 6 million yuan, the actual controller would compensate in cash; if the company was not listed, it would repurchase the shares at an annual interest rate of 8%. The court, in accordance with the "Nine Civil Cases Notes", ruled that the betting agreement with the shareholders and the actual controller was valid, and ordered the five individuals to pay cash compensation of 2.3 million yuan and LPR interest, and to repurchase the shares at a price of 8.79 million yuan. However, since the compensation obligation lies with the actual controller rather than the target company, the court dismissed the claim against the company.
[Source]Toutiao (the official account of the court), 2025 (2025)

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. →Corporate commercial legal services·Beijing Henglue Law Firm

Disclaimer: This article is compiled based on the current effective laws and regulations and public 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.