[Direct answer]The articles of association can restrict the transfer of equity, but there are limits: the articles of association's special provisions on equity transfer (preemptive rights, consent rights, lock-up periods, and follow-on sale rights) are valid and take precedence over the default rules of the Company Law; however, the articles of association may not "disguisedly prohibit" the transfer—for example, setting consent conditions that are fundamentally impossible to fulfill, forcing the company to repurchase at a grossly unreasonable low price, or completely delegating the approval right to transfer to a single shareholder's veto. Such provisions may be deemed invalid because they violate the principles of free disposition of equity and fairness. The bottom line is: the articles of association can set thresholds, but cannot erect impenetrable walls. In corporate disputes in Beijing, the review of special provisions in the articles of association has become increasingly meticulous. When drafting them, it is necessary to both plug loopholes and leave room for maneuver.

I. Problem Background and Typical Scenarios

The company's articles of association stipulate that "shareholders transferring equity must obtain the unanimous consent of all shareholders" and "resigning employees must be repurchased by the company at the net asset value" — those who want to leave cannot leave, and those who want to join cannot join. Whether such provisions can protect the interests of all parties often only becomes clear in litigation.

II. Key points of contention

Firstly, the articles of association specifically stipulate the order of application of statutory default rules. Secondly, the boundaries of restrictions and prohibitions. Thirdly, the effectiveness of the mandatory repurchase clause. Fourthly, the validity of the transfer contract in violation of the restrictions of the articles of association.

III. Professional analysis by Henglue Lawyers

The first layer, application order: The default rules on equity transfer in the Company Law (such as requiring the consent of more than half of the other shareholders and giving priority to purchase under equal conditions) are supplementary rules. If the articles of association contain special provisions, these provisions shall prevail—the articles of association are the "constitution" of the company, and special clauses take precedence. However, the special provisions of the articles of association themselves must be subject to the constraints of fairness and the freedom of disposition, and cannot use special provisions to prohibit certain actions in disguise. The second layer, red lines of restrictions and prohibitions: Valid restrictions—agreeing on preemptive rights, requiring the approval of the board of directors or shareholders' meeting at a certain percentage for transfer, setting lock-up periods (such as prohibiting employees from transferring shares within three years), and follow-on rights and drag-along rights; invalid prohibitions—setting objectively unattainable consent prerequisites (such as "requiring the consent of every heir," which is an impossible condition to fulfill), forcing the company or specific shareholders to purchase shares at prices far below market value, and agreeing that "any transfer must be individually approved by a certain shareholder," which enables them to exercise a veto right and override the right of disposition; review method: Check whether the provisions leave shareholders a "channel to exit under reasonable conditions." If all channels are blocked, it crosses the line. The third layer, the effectiveness of mandatory repurchase clauses: If the articles of association stipulate that the company or remaining shareholders must repurchase shares under certain circumstances (such as resignation, divorce, or inheritance) at an agreed price, judicial practice distinguishes between: - Fair prices and clear procedures—the repurchase is effective (viewed as a conditional arrangement for shareholders to invest); - Prices that are grossly unfair (such as repurchasing shares valued at tens of times the original investment at one yuan)—the repurchase may be adjusted or declared partially invalid; - When the repurchase subject is the company, it is also subject to the constraints of maintaining the company's capital and liquidation procedures. If the articles of association stipulate "the company repurchases," but there is no liquidation path, the implementation will hit a roadblock. The fourth layer, the effectiveness of transfers violating articles of association restrictions: The external transfer contract itself is not automatically invalid due to violating articles of association restrictions (the articles of association are internal binding and do not automatically oppose bona fide transferees). However, the company can pursue breach of contract liability against the defaulting shareholder and refuse to register changes to the shareholder's rights; if the transferee acted in good faith, the company cannot use articles of association restrictions to oppose them. Therefore, articles of association restrictions must be accompanied by enforceable breach of contract clauses and registration coordination. Simply writing "no transfer" cannot stop good-faith transactions and is easily ruled as overstepping boundaries. Final reminder: The drafting of articles of association restrictions should balance between "protecting the company's corporate personality" and "guaranteeing shareholders' exit rights." Overly domineering provisions may not hold up in litigation.

IV. Practical suggestions and legal basis

The first step is to review the existing provisions of the articles of association, remove any "disguised prohibitions" and retain reasonable thresholds. The second step is to ensure that the mandatory repurchase provisions are accompanied by fair pricing and capital reduction pathways to avoid obstacles in performance. The third step is to simultaneously set default remedies and registration coordination for the restriction clauses to enhance enforceability. The fourth step is for the transferor to verify the special provisions of the articles of association before signing the contract, and for the transferee to prioritize reviewing the restrictions in the articles of association during due diligence. The main legal basis includes the provisions of the Company Law of the People's Republic of China on the transfer of equity in limited companies, autonomy of articles of association, and capital maintenance; the rules on article of association restrictions and preemptive rights in the Interpretation of the Supreme People's Court on Several Issues Concerning the Application of the Company Law of the People's Republic of China (IV); and the specific application shall be subject to the currently effective provisions.

5. Henglu Law Firm's Reminder

The articles of association impose three restrictions: the articles of association can set thresholds but not erect impenetrable barriers; leaving reasonable exit channels is the only way to maintain the status quo; mandatory repurchases must be accompanied by fair pricing and capital reduction pathways, otherwise the execution will stall; violations of the restrictions are not necessarily invalid, and bona fide transferees are not subject to internal restrictions. For disputes involving equity transfers, the parties involved can seek resolution through legal channels.Business and contract disputes in enterprisesWe provide a comprehensive solution for services, which includes the integration of bylaws and corporate governance.Intellectual property protection and corporate lawFor the plate, you can refer to the equity structure for referenceSpecial servicesFor any questions regarding difficult situations, you can consult the column for assistanceSpecial services and other casesColumn.

VI. Frequently Asked Questions

Q1: Is it valid to stipulate in the articles of association that "the transfer must be approved by all shareholders"?

The right of consent to an agreement is valid in itself, but if it effectively results in any shareholder having a veto right and blocks all exit channels, it may be deemed as an implicit prohibition and thus exceed the scope of authority. It is necessary to review whether there are still reasonable exit opportunities left.

Q2: Is it effective for the articles of association to force the company to repurchase the equity of departing shareholders?

A buyback with fair prices and clear procedures is usually effective and is considered a conditional arrangement for equity investment; however, if the price is grossly unfair or the company has no path for capital reduction, the implementation may be hindered or adjusted.

Q3: If a shareholder violates the company's bylaws by transferring his/her equity to others, is the transfer contract valid?

The articles of association are internal restrictions that do not necessarily apply to bona fide transferees. External contracts may not necessarily be invalidated. Within the company, the defaulting shareholders may be held accountable for their breach of contract and may be refused to cooperate with the registration of changes.

Q4: In the event of a conflict between the company's articles of association and the default rules of the Company Law, whose rules should prevail?

If there are special provisions in the articles of association, the default rules are supplementary; however, the provisions of the articles of association themselves must not violate the freedom of disposition of equity and the principle of fairness.

Q5: What should I pay attention to when drafting the restrictive provisions in the articles of association?

Keep reasonable exit channels, fair pricing, matching default remedies, and registration coordination to avoid turning the agreement into a disguised prohibition. The more domineering the terms are, the harder it will be to defend them in litigation.

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 facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the relevant evidence materials to avoid missing the statutory time limit.Business and commercial legal services·Beijing Henglu 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.